Experience Ratings and COVID-19: Take Action to Keep Your Unemployment Premiums Down
Employers and employees alike are grateful for the safety net that unemployment benefits can provide when furloughs and layoffs are necessary. But what will these claims do to your company’s unemployment premiums?
Employers fund unemployment benefits through premiums assessed on a portion of payroll. The tax rate for each employer’s premium is partly determined by its experience rating, which goes up as employees receive unemployment benefits. Typically, the experience rating will not affect the unemployment tax rate with just one or two claims from former employees. But when multiple employees begin receiving benefits, and receive benefits for longer periods of time, employers will typically see their tax rate increase.
Last week, the Employment Security Department (ESD) released draft rules explaining how companies can offset the effect of COVID-19 job losses on unemployment premiums. These proposed rules implement House Bill 2965, which the legislature passed in March.
Employers will be able to request relief from COVID-related unemployment benefit charges to their experience rating. Relief is for unemployment benefits paid to “approved employees,” which are employees that:
- Become temporarily unemployed because of COVID-19 because their place of employment closed by order of the governor, or the employee was ordered to isolate.
- Returned to work for at least four weeks, and each of those weeks was before September 26, 2020.
Upon return to work, the furloughed employee’s rate of pay must be at least 90% of pre-COVID pay. If an employee is re-hired, but does not complete four weeks of work, a company can still apply for relief if the employee was fired for misconduct or voluntarily quit.
ESD will only relieve employers of unemployment benefits charges that were paid after March 1, 2020, and charged before the third quarter of 2020. It’s unlikely that relief will be dollar-for-dollar because the legislature set aside a limited COVID-19 fund that will be prorated if requested relief exceeds funds.
Unfortunately, employers (such as non-profits) that self-insure for unemployment benefits are not eligible for this program. But under the CARES Act, the federal government will reimburse half of the cost of COVID-19-related claims that are charged to self-insuring employers.
The deadline to submit an application for relief is September 30, 2020. This is an extremely narrow window considering that employers must bring back furloughed workers for at least four weeks before September 26, 2020. And critically, employers have no appeal rights if their application is unsuccessful.
ESD has not yet published an application form for this relief. Still, employers can take steps now if they intend to apply:
- Bring furloughed workers back before August 29, 2020 to ensure that they work for four weeks before September 26, 2020.
- If furloughed employees are returning to work at less than 90% of their weekly rate of pay, consider whether it is feasible to increase their pay to at least 90% by August 29.
- Document return-to-work dates and rates of pay.
- If a furloughed employee is fired or quits before completing four weeks of service upon return to work, document the circumstances surrounding the employee’s departure.
- Check ESD’s website periodically to see when the form becomes available, or mark your calendar to contact our firm in early September for help with the application.