ESD announces some good news for Washington employers regarding UI Trust Fund and solvency tax.

The state Employment Security Department yesterday announced some good news for Washington employers. From the release:

The Washington State Employment Security Department (ESD) today announced there will not be a solvency tax for employers in 2021, a savings for businesses of nearly $200 million, based on a higher than expected unemployment trust fund balance at the end of September. At this time, due to improved economic forecasting, it is also projected that the state will not need to take out federal loans to continue paying unemployment benefits in 2021, as was previously anticipated.

“This is great news for employers and businesses in Washington,” said ESD Commissioner, Suzi LeVine. “Having one of the nation’s strongest unemployment trust funds is helping us weather this crisis better than many states. Coupled with a stronger than expected state revenue forecast last week, this means an improved outlook overall and a break for employers when they most need it.”

As the release explains,

By state law, ESD is required to impose the 0.2% solvency tax on businesses if the unemployment trust fund is projected to fall below seven months of benefits. Today’s trust fund balance is such that ESD has determined the fund can pay seven months of benefits.

We join in acknowledging the positive report on the trust fund. Still, however, as we reported earlier, employers may yet experience stiff increases in UI taxes without legislative action. We again refer to Seattle Times reporter John Roberts’s story published last July.

Unemployment taxes have two components. There is an individualized “experience-based” tax, which is based on the average annual benefits paid to a specific employer’s workers over the preceding four years. Typically, the more layoffs a company has, the greater its experience tax rate. Employers also pay a “social cost” tax, which covers costs that aren’t attributable to a single employer.

The combined tax rate, which is levied on a portion of a company’s payroll, varies considerably: In 2020, total rates ranged from 0.10% to 5.7%, but were expected to average 0.91%. Prior to the pandemic, ESD expected the average to remain around 1% through 2025. The new forecast shows the average rate peaking at 2.74% in 2022 before gradually falling.

The solvency tax, which will now not be increased, is a third factor, and less significant in the overall UI burden.

Good news, yes, and we look forward to additional relief as 2021 approaches.