Gym owner sees unemployment taxes skyrocket by 1,000%. It could have been 3,500%.

By MARK HARMSWORTH  | 
Mar 23, 2021
BLOG

Yesterday, on the Dori Monson show, a local gym owner (Ascend Gymnastics) described how their unemployment tax rates have skyrocketed from $443 to $4,842 per year, despite not laying off any of employees. The rate increases are a direct result of the mismanagement of the Employment Security Department (ESD) trust fund last year. The fund balance was severely depleted by the increase in unemployment claims due to the governor’s lockdown mandates and additionally lost $650 million due to a Nigerian scammer ring.

Ascend Gymnastics told the Washington Policy Center Tuesday, that ESD had indicated the increase from Ascends original rate, 0.13% was supposed to be 4.64% and not 1.13% (the final rate assessed), which would have resulted in over a 3,500% increase in unemployment tax rates.

Anticipating the unemployment tax rate increases, Senate Bill 5061 was passed by the Washington Legislature and signed into law in early February to give some relief to business, but did not go far enough.

SB 5061 has obviously has not had the desired effect on unemployment rates and does not address long-term structural changes that are needed to the UI trust fund. Rates will be gradually increased on businesses in the next few years to rebuild the trust fund balance lost to mismanagement and fraud.

Despite the passage of SB 5061, ESD is encouraging businesses to pay down the tax rate by volunteering for a tax contribution program. In the case of Ascend, the rate would decrease to 0.23% if an upfront payment of $7,717 was made to ESD.

For many business owners, who have low staff turnover and have traditionally had a low unemployment tax rates, the rate increase is a bitter pill to swallow.

The Washington State Insurance Commissioner’s Office regulates insurance companies’ rate increases but declined to help Ascend appeal the rate increase as ESD is a state agency. This illustrates the double standard applied to business vs state agencies and highlights the need for a private solution for unemployment insurance to break the current state monopoly. Had the unemployment fund been a private insurance company, the rate increases would have been reviewed by the Insurance Commissioner’s Office and potentially capped.

As Washington Policy Center has recommended previously, there are several additional reforms that are needed.

  • The Employment Security Department (ESD) should adopt new streamlined, properly authenticated systems to enable claims to be made efficiently, automatically, and securely.
  • Pre-registration of employees and identity verification should be completed when employees are hired rather than when they are laid off.
  • Lawmakers should legalize individual unemployment accounts to improve fund stability.
  • Personal accounts should be used to provide workers with an added financial asset, encourage saving for retirement, and would relieve the state of most of the administrative cost, complication, and fraud of the current system.

If Ascend Gymnastics example is typical for the rate increases, its obvious that Senate Bill 5061 does not go far enough with reforms and the increase in benefit payments will create a long-term funding issue.

A cap on the unemployment tax rate increases are, however, desperately needed. For some employers the cap will make the difference between staying in business or not.

Washington Policy Center’s full ESD/UI reform recommendations can be read here.