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Brace for big unemployment-insurance rate increases

Brace for big unemployment-insurance rate increases

Businesses will soon be receiving notices of 2021 unemployment-insurance (UI) tax rates, with the first payment with the increased rates due in April. Most businesses can expect double-digit or even triple-digit increases, stemming largely from the pandemic-induced economic shutdowns.

The two main components of a company’s UI tax rate are 1) experience rating, meaning how many employees have been laid off and for how long and 2) a “social tax” that is spread among all businesses to account for situations not covered by experience ratings, such as when a company goes out of business with an unpaid UI tax liability. Construction firms may not have experienced as many layoffs as some other industries in 2020, but all industries will be hit hard with an increased social tax.

It is important to note that even though 2021 UI rates will increase dramatically without some sort of legislative action, rates are expected to increase dramatically again in 2022.  That is because the experience rate is based on a four-year lookback, which for the 2021 rates ended the end of June 2020. So any increase related to pandemic-related layoffs that occurred after July 1, 2020 won’t show up until the 2022 rates are announced next year. The social tax is also expected to remain high over the next few years.

AGC and the rest of the business community has been vigorously making the case to the Governor’s office that some of the state’s federal CARES Act dollars should be used to buy down the rate increases, a step many states have taken. However, the Governor has not used CARES Act dollars for UI purposes, claiming other areas take priority.

Nevertheless, the Governor and legislators are working on other ideas, such as extending the four-year lookback period to five or six years, which does not necessarily reduce a company’s cost overall but spreads the increases over time. Also on the table is the taking of a federal loan, which could ease short-term increases but yet must be repaid over time. Other ideas to ease the burden on employers are being discussed… but so are ideas to expand benefits, which could exacerbate the situation for employers.

The Governor and key legislators are expected to announce plans soon.

For questions or comments, contact AGC Chief Lobbyist Jerry VanderWood, 360.352.5000.

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