Most Washington State employers can expect 400-600% increases in unemployment insurance tax rates in 2021, according to new projections released by the Employment Security Department (ESD).
Washington Retail is working with employers to avert these impacts.
Three developments have severely drained the state’s UI Trust Fund from which ESD pays benefits to jobless applicants:
- Restrictions imposed on businesses to protect against the spread of COVID-19 resulted in unprecedented benefit claims based on skyrocketing unemployment. ESD has been processing 10 times as many claims as would be normal if COVID-19 had not devastated the state economy to the extent it has.
- There are new benefit programs for independent contractors and furloughed employees.
- About $600 million in fraudulent payments were made to unqualified applicants who were part of an identity theft scheme to skim benefits from the state. ESD has reported that more than half of the fraudulent payments have been recovered.
Before the pandemic, the trust fund was in good shape. The Washington UI system was one of only three states that did not require a loan from the federal government to remain solvent during the recession in the early 2000s.
ESD now expects the trust fund could become insolvent early next year without financial relief.
Current law allows three ways to replenish the fund:
- Raising UI taxes on employers
- A federal loan that would have to be repaid within two years
- An injection of state or federal funds
The business community including Washington Retail has asked Governor Inslee to use funds from the federal CARES Act to replenish the trust fund. This would ensure that benefits continue to flow to eligible recipients and avert the need to raise taxes on employers. Easing the financial burden on employers also would make it more likely that they could continue hiring as the economy recovers.
Washington Retail and many in the business community have suggested that this matter could be addressed in a special legislative session this year, but so far, Governor Inslee has been reluctant to schedule a special session. The regular annual legislative session normally starts in January.
ESD has signaled that it may apply for a federal loan. Under federal loan terms, the federal government must be repaid within two years. Since employers fund the UI Trust fund, employer taxes will need to be sufficient to repay the loan and replenish the trust fund within that two-year period. Accordingly, ESD has recently provided projections for 2021 tax increases that show employers with low experience ratings could see an increase of 600% in UI taxes next year, and employers with high experience ratings could incur up to 9% increases. Most employers are in lower experience rate classes.
What is not clear, at this time, is how much of a loan ESD anticipates seeking.
Washington Retail will continue to monitor this issue and provide follow-up reports as developments occur.
Sources: Employment Security, Washington Research Council