In terms of basic structure, the public unemployment insurance (UI) programs we have in place today are not that different from the programs initially established under the Social Security Act of 1935. The labor market and the need for benefits have changed significantly over those 86 years, so it’s past time for more program adjustments than we’ve seen thus far. Most states provide up to a maximum of 26 weeks of weekly benefits, and many states provide extended benefits when the unemployment rate hits a certain threshold, often ranging from up to 13 weeks to 20 weeks. Enter COVID-19, and an increased need for reform to address recession protocols and planning and some unintended consequences of extended coverage have come to light.
The Unemployment Rate: A Rollercoaster Worthy of Whiplash
In February 2020, the unemployment rate was at a 50-year low at 3.5%, and 5.7 million Americans were unemployed. By April 2020, the unemployment rate skyrocketed to 14.8%, the highest overall unemployment rate on record in the U.S. since the Great Depression, and more than 23 million Americans were unemployed. As of April 2021, the unemployment rate is 6.1%, and 9.8 million Americans are unemployed. That’s a 0.1% increase since March 2021. According to the BLS, Hawaii and New York suffered the highest unemployment rates for March 2021 at 9.0% and 8.5%, respectively. In New England, unemployment rates for March 2021 range from 8.3% in Connecticut to 2.9% in Vermont, with Rhode Island (7.1%), Massachusetts (6.8%), Maine (4.8%), and New Hampshire (3.0%) falling in-between.
The 0.1% rise in the unemployment rate from March to April was not on par with market expectations. So why are some trends still eluding forecasters? At present, there are several variable dynamics, such as COVID-19 vaccinations, levels of fear or comfort in terms of returning to face-to-face interactions, and the continued need for home-based childcare. The Census Household Pulse survey shows, as of late March, 6.3 million people were not working because of a continued need to care for a child that was not in a school or daycare center. Others speculate that generous unemployment benefits are keeping people at home. But new unemployment claims are slowing down. For the week ending May 8, 2021, states reported 473,000 initial unemployment claims, which is the lowest level reported since March 14, 2020.
Extended Benefits: The Aftermath of Recent Legislation
COVID-19-related legislation included a number of beneficial UI provisions. However, some provisions have created unintended consequences for employers. Several legislative measures extended the duration of available UI benefits. Most recently, the American Rescue Plan Act provided an additional 29 weeks of unemployment benefits to people who exhausted their regular state benefits. The same legislation also increased the total weekly value of the benefit by adding $300 in supplemental coverage into September 2021. The average maximum state weekly benefit paid to a recipient is approximately $351 for all weeks of total unemployment. But, in Massachusetts for example, pandemic assistance has raised that maximum to be as high as $855. While around 4.4% of unemployed people in April of 2020 collected unemployment benefits for more than the usual 26-week period, over 43% collected for more than 26 weeks in April of 2021.
The current average UI payroll tax rate is 1.78%. In 2020, that meant the average employer tax amount per covered employee was $277. State unemployment insurance benefits are funded through payroll taxes, and these funds are now exhausted. What does this mean for employers? Over the next few years, your UI payroll tax rate could more than double if your state doesn’t intervene.
Unexpected UI Costs: Who Should Foot the Bill?
When layoffs and furloughs occur in response to a government-mandated closure, it hardly seems fair to saddle employers with the entire bill for UI costs. Several states are debating using federal funding to cover unemployment insurance costs. As of May 13th, 20 states have asked for federal loans to assist with UI trust fund management. Massachusetts currently has outstanding loans of nearly $2.3 billion. But what happens when the loans come due?
According to the Associated Press, Kentucky Gov. Andy Beshear signed a bill allocating $575 million in federal relief to repay the federal loan the state received to cover its unemployment insurance program. Massachusetts passed HB 90, a law that authorizes the state to issue special obligation bonds to repay federal advances and freezes the unemployment insurance rate for the calendar years 2021 and 2022. But that legislation won’t solve every issue related to higher UI costs for Massachusetts employers.
For 2021, the Massachusetts solvency fund assessment jumped from 0.58% to 9.23%, meaning employers are still experiencing an increase in their assigned SUI tax rates for 2021 in general. Massachusetts extended the deadline for the first-quarter 2021 SUI contribution to June 1, 2021. The hope is that the Baker Administration will pass legislation to allot some of the Commonwealth’s CARES Act funds into the UI trust fund to bolster the balance and reduce the impact on employers.
How to Prepare: What Should Employers Do Now to Minimize UI Costs?
Revisit and stay on top of your state’s tax rate for layoffs, UI rate, related legislation, and expected increases. Take inventory. Make sure you’re classifying employees and independent contractors appropriately. Audit your unemployment claims for errors, taking special care to filter out fraudulent claims. And consult a trusted professional.
At Commonwealth Payroll & HR, we understand that employers have a lot to take in right now. We can answer your questions, help you implement best practices, and keep you on the leading edge of legislative developments.
Register for Upcoming Commonwealth Payroll & HR Webinars!
Making Benefit Admin a Breeze with CommpayHR & EverythingBenefits – Tuesday, May 25th from 1:00 – 2:00 PM EST
Recruiting & Hiring Great Employees – Thursday, June 17th from 1:00 – 2:00 PM, EST
At Commonwealth, we also offer a PPP Forgiveness Coach Program to assist with certain aspects of the PPP Loan Forgiveness Application and process and an Employee Retention Credit Seeker Program to help employers understand ERC eligibility, determine if they qualify, and maximize their available credits.
Contact us today to learn more.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article contains links to other third-party websites provided only for the convenience of the reader.