Proposals emerging to lower huge unemployment-insurance tax increases
Did you recently receive the notice telling you what your new unemployment-insurance taxes are going to be? Was it an eye-popping increase? And did you see the “but wait!” clarifier in the corner of the card, that said “Possible changes due to state legislation: Washington Legislature could change state unemployment tax rates and calculations during the upcoming session, which begins Jan. 11.”?
As reported in this article in the previous issue of AGC WORKS, very large increase in unemployment-insurance (UI) tax rates, beginning April 30 2021, are expected due to the pandemic and resulting economic shutdowns. AGC has been working with the Governor’s office, the Employment Security Department (ESD) and key legislators are measures to mitigate the large increases.
While legislation has not been officially introduced, the Employment Security Department has floated ideas to significantly decrease the increase (but there will still be an increase) with some benefit expansions. Elements of the plan, which was recently presented to the department’s Unemployment Insurance Advisory Committee (AGC Chief Lobbyist Jerry VanderWood is a member of that committee) include:
- Beginning in 2022, expand the look-back period, upon which much of a company’s UI taxes are based, from four to five years. Doing so would spread recent unemployment spikes over a longer period of time, thereby reducing large increases in years 2022-25.
- Reduce the average social tax from 1.22% to 0.5% in 2021 and 0.75% in 2022. The social taxes are those costs that are shared by all employers, such as when a company goes out of business with unpayable UI taxes.
- Make all claims from March 22, 2020 to May 2, 2020 non-chargeable to individual employers.
- A solvency tax, which could have kicked-in if the UI trust fund got too low, will not be imposed.
- ESD will, like many states, would take a federal loan over 2021 and 2022 to ensure the UI trust fund meets thresholds. A possible consequence of taking the federal loan could be additional taxes on employers if the loan is not paid back in time, but ESD projections indicate that the loan would be paid back without incurring such penalties.
Those steps would reduce the average UI tax per employee from $583 to $402 in 2021 and from $875 to $593 in 2022, according to ESD. Note that every company’s rates will be different based on several factors.
In addition, the proposal includes changes to the Voluntary Contributions Program (VCP), under which employers can pay a certain amount up-front to buy-down future UI tax-rate increases. Not many firms use the VCP now, but proposed changes could make it a more viable option. For example, the proposal would eliminate the 10% surcharge that is imposed when a firm currently uses the VCP. Currently, a firm would have to be moving 12 rate classes (meaning experience very significant increase) to be eligible for VCP, but the proposal would reduce this to 8 rate classes, making it available to a wider pool of businesses.
Finally, the ESD proposal would raise the weekly minimum benefit amount that unemployed workers could receive from 15% to 20% of the average weekly wage, raising it from about $201 per week to $270.
It is anticipated that any effort to head off the large UI tax increases would have to be passed by the Legislature early in the legislative session in order for the department be prepared to change its system before the April payments are due. AGC has not taken a position on this proposal as there are details still to be worked out.
Another UI development is a recently concluded audit that faults ESD for computer vulnerabilities that contributed to the theft of $600 million in this spring’s massive unemployment fraud. AGC and other business groups have called for the use of federal CARES Act funds to cover at least some of these costs so they do not all fall to employers, but the Governor has chosen to not take that action. As alarming as the fraud is, the unrecovered amount is not having a major impact on overall rates.
For questions or comments contact AGC Chief Lobbyist Jerry VanderWood, 360.352.5000.