Paid Family and Medical Leave’s 50% rate increase may be another ripple effect of COVID

Oct 28, 2021
Written by Rose Gundersen, VP of Operations & Retail Services

Layoffs triggered by COVID-related curtailments are partially to blame for yet another increase in the payroll tax. The Employment Security Department is proposing to increase payroll taxes by 50% to fund the Paid Family and Medical Leave program in 2022.

The current 0.4% payroll deduction was set when the Legislature enacted this program in 2018. The overall rate shared by both employers and employees and is expected to increase to 0.6% next year. The rate is determined by the ratio of the trust fund balance divided by the total wages paid in the previous year.

Unfortunately, the resulting ratio could have been impacted because of the dramatic changes in paid leave claims and wages precipitated by COVID-19 illnesses, curtailments, and layoffs.

Employees fund 100% of the paid family leave premium and 45% of the medical leave premium. Employers fund 55% of the medical leave premium. Because of the disparity in usage for family leave versus medical leave, employees will incur a nearly 74% rate increase, and employers will see about a 10% rate increase

According to ESD’s data, benefits paid for family leave claims have been about twice the benefits paid for medical leave claims for the past 15 months. That disparity results in a much steeper rate of increase in employees. These increases are in addition to the recently announced hikes in workers’ compensation rates, the implementation of the 0.58% payroll tax to fund the long-term care trust, and possible increases in unemployment insurance taxes to replenish the unemployment insurance trust fund.

As WR predicted, the ripple effects of COVID-related layoffs and curtailments will continue for 2022 and beyond.