Article by Erik Smith. Published on Friday, September 25, 2010 EST.

Comes on Heels of Big Increase This Year – More Than Doubled Since 2009

Joel Sacks (right) and Greg Weeks of the state Employment Security Department testify at Thursday’s joint hearing of the House and Senate commerce and labor committees.

UPDATED 11:30 a.m. Sept. 24 to clarify difference between social and experience taxes.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Sept. 24.—Unemployment taxes are set for another big increase next year, officials of the state Employment Security Department said Thursday, the result of the huge wave of layoffs that came with the current recession.

            Overall, unemployment taxes will rise an average 38 percent, they say. And a key component of the tax — the “social tax” that rises and falls with the claims that are paid by the state, and is paid at the same rate by all employers — will rise 42 percent over 2010.              
            All told, that component of the tax will have jumped 260 percent over the last two years. From there it all depends on how many workers employers laid off during the economic slowdown. Premiums also reflect employers’ experience.

            Employment Security Department officials delivered the grim news Thursday at a joint meeting of the state House and Senate commerce and labor committees. It wasn’t unexpected. Lawmakers and business lobbyists have been aware for months that another whopping rate increase was just over the horizon.

            But once business owners statewide find out, there’s going to be a hue and cry as loud as the one that came this year, when unemployment and worker comp rates skyrocketed at the same time, said Patrick Connor of the National Federation of Independent Business. Worker’s comp rates also are expected to increase next year, but the state Department of Labor and Industries has postponed its announcement until after the election.

            “One way or another, employers are going to be kicked in the teeth,” Connor said. “They’re going to have higher unemployment insurance rates, and it will be even worse when L&I gets around to announcing what its rates will be.”

            Take Effect in January

            Unemployment premiums have two components — the social tax, which is the same rate for everyone, and the experience tax, which depends on the experience of a particular employer. But both usually increase during a recession, because as employers lay off large numbers of workers, the state’s payouts increase.

            This year some employers complained that the combination of worker comp and unemployment insurance increases doubled, tripled and even quadrupled their payments to the state. Some employers even told lawmakers their taxes had increased more than 1,000 percent. During a recession that lingers like a bad cold, they said the tax increases hamper their ability to rehire workers, and they are a factor that prevents a quick economic rebound.

            Joel Sacks, assistant commissioner for the Employment Security Department, said the tax increases have been driven by the large numbers of workers who lost their jobs over the last two years. The state continues to pay out more than it takes in, but new claims have finally begun to taper off – a sign that the picture has begun to improve. Some 443,000 Washington residents received an unemployment check this year, and more than half of them remained on the rolls last month.

            The sharp increases in unemployment have caused the social-tax rate to increase dramatically, from 0.48 percent of payroll in 2009 to 1.22 percent this year. Next year the rate will rise to 1.74 percent.

When both the social tax and the average experience tax rate increase are combined, the figure has risen from 1.64 percent in 2009 to 2.39 percent this year, and will hit 3.29 percent next year.
            The unemployment tax increases will take effect in January with the first quarterly payments due in April.

            Function of Math

            The unemployment insurance program does not spark the kind of political controversy that the state worker’s comp program does. That’s because the rates are really a function of math, and there isn’t much politics involved. The state sets parameters for the amount of money it needs for its trust fund and employment trends do the rest.

            The experience portion of the tax represents a four-year average of an employer’s claims history.

            The base rate, meanwhile, fluctuates based on statewide claims over the previous year.

            Changes Will Prove Difficult

Lawmakers this year considered a smoothing-out mechanism that might reduce some of the short-term volatility in the base rate, by averaging over several years. State Rep. Steve Conway, D-Tacoma, said it’s an issue that may be worth revisiting next year. If lawmakers act by the beginning of February, they will be in time to alter this year’s rates.

“I think we all see that increases are going to occur, but it’s the spike that’s the issue,” Conway said.

            But such a bill may prove difficult to pass, for the same reason it failed this year. There was an attempt in the Democrat-controlled House to tie it to an increase in benefits for part-time workers, a measure favored by labor. Because it would have permanently increased unemployment insurance rates, the business lobby and sympathetic lawmakers said it was a deal they couldn’t accept.

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