CPA: WA unemployment insurance rate for businesses could spike 1 to 3%

Businesses around the state are struggling to make ends meet right now, and while layoffs and furloughs have helped many of them somewhat keep the lights on, all of those unemployed workers are going to be costing businesses.

Washington is one of only a couple of states that require businesses to refill unemployment coffers in the middle of a pandemic, and we’re learning now that those insurance rates are about to skyrocket. Nathan Gibson is a certified public accountant with John J Haughney and joined Gee and Ursula on KIRO Radio to discuss.

“They’re going to start to look at the next rate increases and those roll out in 2021. A quick breakdown of how things are calculated for employers: The rates are made up of two different components. One is the experience rating, which is based off of how much the company lays people off. And then the other one is the social costs, which is just the total cost that it takes for all companies to help keep that trust fund filled up,” he said.

“During times when funds are getting depleted and layoffs are occurring, both rates are going to end up going up. And so it’s coming and it’s not looking good.”

How big of an increase will businesses be facing?

“After the great recession, the average tax rate was 3.26% and the lowest rate — so for people who were just getting the social cost rating and they were in the lowest experience rating tax bracket — that was 1.33%. So compare that to the current average right now, which is 0.99% for the average, and the low rate is 0.1%,” he said.

What happens if someone in your pandemic pod breaks the rules?

“So a dollar breakdown. Let’s take a company, a small business who makes, let’s say, a million dollars, who pays out 50% of their earnings in wages to employees who make around $50,000. Their total tax for the year would be about $500 currently. And you could see a jump going up to like $7,000 a year. Small businesses don’t work with large margins. A lot of small businesses — restaurants, salons — they could be working with margins that are like 7 or 8% where the owner is just taking home $70K to $80K a year. A $7,000 impact to the bottom line is a major impact to the owners.”

While there was a large stipend, it’s not clear how much relief it will actually provide considering participation, requirements, and the amount.

“They added a $25 million stipend that was supposed to help offset people’s benefit charges. But when I talked to the Employment Security Department, it sounds like there wasn’t very much participation. I don’t know whether or not that’s because everybody’s so busy they didn’t pay attention, and so they just figured out I’m not gonna apply. The other stipulation was that you had to have people back onto payroll in order to apply for this relief,” he said.

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“Honestly, I have no idea how much $25 million in the grand scheme of things– if that’s just a drop in the bucket or that’s going be helpful. And they cut off the date to apply for that at the end of September. So what businesses that would love to have applied for that couldn’t do it because they weren’t allowed by the government to go back to full capacity?”

To hear some of his advice for what small businesses can do, listen to the rest of the interview here.

Listen to the Gee and Ursula Show weekday mornings from 9 a.m. – 12 p.m. on KIRO Radio, 97.3 FM. Subscribe to the podcast here.