Washington’s employers are looking down the barrel of a precipitous increase in unemployment insurance taxes for reasons almost entirely beyond their control.
Keeping Washington working and preventing further damage to the economy must be at the top of lawmakers’ agendas. The governor and other state policymakers must quickly commit to extending employers relief, even if the details are yet to come.
The state expects to pay out approximately $5.3 billion in unemployment benefits this year, compared with just $1.01 billion in 2019, according to recently released figures from the state Employment Security Department. As a result, the combined average unemployment tax rate is projected to jump from 0.94% this year to 1.70% in 2021 and an eye-popping 2.57% in 2022, with elevated tax rates continuing into 2025.
That means that next year employers’ unemployment insurance taxes will rise by at least $224 per employee earning at least $56,500 a year and could skyrocket in a worst-case scenario by as much as $3,337 more per employee than they owed this year.
State law requires employers to pay at least two types of unemployment insurance taxes. The first is an experience-based tax based on unemployment benefits paid to its former employees. Employers could find their rate class downgraded next year because of layoffs that were caused by shutdown-related closures, but not directly because of a COVID infection on site.
The second “social cost tax” pays for costs that can’t be recovered from specific employers — for example, benefits for unemployed workers whose former workplace has gone out of business. Beginning next year, it will be levied at the maximum 1.22%, with rates adjusted for each rate class.
The numbers get worse before they get better. In 2022, it is projected that a third tax will kick in — a solvency surcharge that is triggered when the unemployment insurance trust fund doesn’t have a balance sufficient to cover seven months of claims.
Without significant relief, this heavy tax burden will likely trigger more layoffs and dampen economic recovery. It could be the final nail in the coffin for small businesses already hammered by this horrible pandemic-induced downturn.
It may make sense to expect employers to bear the costs of unemployment benefits in normal years. But in this case it is egregiously unfair. Overwhelmingly, this year’s layoffs were a result of Gov. Jay Inslee’s necessary orders, from total shutdown through phased reopening. Employers’ compliance helped slow the spread of coronavirus at the cost of their own livelihoods. Their thanks cannot be a tax bill that threatens to break the bank.
Last March, state lawmakers earmarked $25 million in rainy-day funds to help cover employers’ pandemic-related costs for UI benefits. By the Sept. 30 application deadline, ESD had received requests totaling more than 10 times that amount from just a fraction of the state’s qualified employers, staff told members of the Unemployment Insurance Advisory Committee Wednesday. Many more employers are believed to qualify but did not apply.
The committee is weighing potential policy recommendations to offer a lifeline to struggling businesses. None of the proposals will be cheap. But the alternative — jobs lost, businesses closed and a hobbled economic recovery — is far too costly to contemplate.
Washington’s employers need assurances now that help is on the way.