The notice that came in the mail in December was a shock for Lisa Michaud. At a time when she was struggling to keep her Seattle retail store afloat, the state Employment Security Department said her unemployment tax rate was about to go up by nearly 4,000% — mainly because of layoffs she had to make at the start of the pandemic.
Like many states, Washington calculates unemployment taxes for businesses partly based on how many of their former workers go on to claim unemployment benefits.
That means many business owners, like Michaud, received jaw-dropping rate hike notices late last year, after the pandemic and resulting shutdown orders forced them to lay off a large share of their workforce.
The Legislature recently passed a measure to try to address the issue, so that Michaud and others won’t have to pay sky-high tax bills in April.
But unless the Legislature takes additional action, small retailers like Michaud are still likely to see their unemployment tax rates rise significantly in the near future. Restaurants, some of the businesses hardest hit by the pandemic, face big increases as well.
“In my opinion, it doesn’t go far enough,” Michaud said of the emergency bill the Legislature passed late last month, Senate Bill 5061.
The measure, which Gov. Jay Inslee signed into law Monday, forgives layoffs that occurred between March 22 and May 30 of last year, so they won’t drive up businesses’ unemployment tax rates.
But Michaud, who owns Two Big Blondes, a plus-size consignment shop in Seattle’s Central District, said her financial problems continued long after May 2020.
Revenues at her store have been down 50% over the past seven months, she said. That has meant she was able to hire back only about half of the staff members she employed before the pandemic.
While the state removing 10 weeks of layoffs from the employers’ tax bills helps, “that doesn’t even cover the whole three months we were mandated to be closed,” Michaud said.
Meanwhile, some unemployed workers are still struggling to access the benefits business owners like Michaud are paying to provide.
In some cases, workers have gone months without receiving a single unemployment payment — and have had trouble reaching the Employment Security Department to find out why.
“I’m still waiting,” said Auburn resident Lindsay Heimgartner, who was temporarily laid off from her job as a sonographer last spring and is now working only about half the hours she was before the pandemic. She said she hasn’t received any employment benefits so far, despite submitting her first application in April.
In other words, state lawmakers’ work on unemployment is far from over, even after they passed a bill aimed at fixing some of the system’s most pressing problems.
More help for businesses may be coming
The flood of people who lost their jobs during the pandemic has severely depleted the state’s unemployment insurance trust fund, which is what pays people’s benefits when they have been laid off.
To replenish the trust fund when it is low, the state’s unemployment system is set up to automatically increase taxes on businesses. Companies that lay off lots of workers end up paying more, since their former employees go on to claim a larger amount of unemployment benefits.
But state lawmakers have largely agreed that this system wasn’t built for a once-in-a-century pandemic. They see tax bills like the one Michaud received in the mail as evidence of that.
The emergency fix Inslee signed into law Monday does a lot to curb that problem. Business tax bills this year will be reduced considerably from the notices that went out in December. On average, businesses will pay only about $10 more per employee in 2021 than they did in 2020, according to one legislative analysis.
Yet that modest increase won’t be the case for everyone. Unless the Legislature does more, certain businesses that were especially hard-hit during the pandemic are in line for much bigger tax hikes.
Those businesses will likely include small retailers like Michaud, as well as restaurants, which have been particularly affected by public health measures aimed at curbing the spread of COVID-19, said state Sen. Karen Keiser, D-Des Moines, who chairs the Senate committee that deals with unemployment issues.
What’s more, all businesses on average are projected to see bigger unemployment tax spikes further down the road, unless the Legislature passes additional tax relief. Those increases will be amplified for businesses like restaurants and small retail shops, whose operations have been more disrupted by the pandemic than, say, Amazon’s.
Roz Edison, the co-owner of the Marination restaurant group in Seattle, said she has always understood one’s employment tax rate to be innately tied to one’s business practices: Treat your employees right and run your business well, her mentors taught her, and you’ll avoid high turnover and big unemployment tax hikes.
But the pandemic upended all that.
“It’s sort of like if there was a mass casualty event somewhere: Mount Rainier erupts, and a ton of people die, and then everyone gets hit with a higher tax rate,” Edison said. “Well, it wasn’t my business that made the volcano erupt.”
To her, the idea of restaurants facing higher taxes after all they’ve been through this year “is insult to injury.”
Right now, “every penny counts, and every dollar counts,” said Edison, whose restaurants include Super Six in Columbia City and Marination Ma Kai in West Seattle. While Inslee recently allowed indoor dining to resume at 25% capacity in King County, Edison still is doing only takeout, delivery and outdoor seating, for health and safety reasons. She said she won’t open for indoor dining until her workers can get vaccinated.
Lawmakers have differing ideas for what the next steps should be.
Keiser, the Senate committee chair, would like to try to target tax breaks specifically toward businesses like restaurants, local entertainment venues and small retailers. She thinks lawmakers can do that by adding state money into the Employment Security Department’s Voluntary Contribution program, which is typically used by businesses to buy down their own unemployment tax rates.
It’s a plan state Sen. Christine Rolfes, the Senate’s lead budget writer, said she is seriously considering.
Rolfes, D-Bainbridge Island, said she, too, is most interested in providing targeted relief to smaller businesses, rather than further reducing the tax rates of larger companies that may not have struggled as much during the pandemic.
Many tech companies, for instance, haven’t had to lay off people in the same way restaurants and retailers have, since their employees can more easily work from home, she said.
“You could dump a ton of money into the unemployment insurance fund, and that benefits everyone equally — in fact, it benefits Amazon and Microsoft the most, because they don’t even have higher rates,” Rolfes said. “Or you can target it to the businesses that need it most.”
So far, Republicans, who are in the minority in Washington’s Legislature, have favored slightly different approaches.
They’ve pushed to prevent all COVID-related layoffs from affecting businesses' unemployment tax rates, as opposed to forgiving only the layoffs that happened early in the pandemic.
That’s an approach both Edison and Michaud said could help them.
GOP lawmakers have also proposed transferring money from the state’s rainy-day fund into the state unemployment trust fund to help replenish it more quickly.
Such a move would help businesses’ tax rates stay lower across the board, said state Rep. Drew Stokesbary, R-Auburn, who is House Republicans’ leader on budget issues.
Alternatively, Stokesbary said, the state could set aside $500 million for reducing tax rates, which businesses could apply for if they have experienced significant layoffs.
To him, the most important thing is ensuring businesses aren’t the only ones paying to fix the unemployment mess caused by the pandemic and government shutdown orders — things that were outside of the businesses’ control.
“This tax should be socialized among all taxpayers in general, not just employers,” Stokesbary said.
Helping jobless workers in limbo
While reducing business taxes was a major focus of the bill Inslee signed into law this week, a few other changes were also made to help people who are collecting unemployment benefits. Starting in July, the minimum weekly unemployment payment will increase from $201 to $270. That change is designed to help workers who, before they lost their jobs, were among the state’s lowest paid employees.
Yet state lawmakers generally aren’t looking at increasing benefit amounts for everyone this year — at least, not beyond what may come from the federal government, said Keiser, the Des Moines Democrat working on unemployment issues.
Washington lawmakers are instead focusing on ways to help more people qualify for unemployment, as well as get their claims resolved in a timely manner, Keiser said.
One of those efforts would let people claim unemployment benefits if they quit their job because they can’t find child care or because their work schedule changed to conflict with their caregiving responsibilities. While the federal government recently provided some unemployment benefits for people who quit their jobs due to child care issues, that’s not something covered under Washington state’s unemployment program, which is what workers will turn to when the federal benefits run out.
Another proposal would require the state Employment Security Department to start a training program to create more experienced adjudicators capable of dealing with complicated claims. Currently, there is a backlog of claims that have gone to adjudication because they need additional scrutiny — but there aren’t enough trained adjudicators to process them quickly, Keiser said.
It’s not clear exactly what percentage of unemployment applicants are still waiting for their claims to be resolved, nor the average amount of time they’ve been waiting. The Employment Security Department used to have a public data dashboard showing that information, but recently took it down.
Department spokesperson Nick Demerice said the state’s data got muddled after Congress approved a new federal stimulus package in late December. Demerice said agency staff members are working hard to sort through those issues so they can once again post the correct data on the department’s website.
In normal times, the agency tries to resolve unemployment claims that run into complicated issues within three weeks, on average. But in December, the average wait for resolving complex claims was three times that long.
Heimgartner, the sonographer from Auburn, is someone who has been waiting a long time. The 38-year-old was temporarily laid off when the pandemic hit, then resumed working fewer hours than before, partly because she has two kids at home who needed supervision and help with online school.
She said she first applied for unemployment in April, and at times was confused about the process.
Then, like many people, Heimgartner couldn’t get through to the Employment Security Department to get her questions answered. Eventually, a friend taught her a trick. When you get the usual message saying that the phone lines are too busy and you should call back later, hang up and call back right away, over and over again. After some trial and error, she said she finally got through.
That’s when she learned her application had been flagged for identity verification and she needed to submit some documents. That’s a very common hiccup claimants now encounter, after the state ramped up its anti-fraud measures in response to a Nigerian crime ring that stole about $650 million from the unemployment system last year.
Heimgartner submitted the required documents and is hoping to get a response soon. She said she has racked up significant debt and has had to dip into a retirement savings account, as well as her children's college savings fund, to make ends meet.
Jayme Helgeson has been similarly struggling after he moved from Washington to Arizona last fall and promptly lost his new job. Since most of his working hours in the past year were in Seattle, he said he needed to apply for unemployment in Washington. He has been waiting for word on his claim since November, he said.
“My wife is working two jobs, she is pregnant and I am trying to find work,” said Helgeson, 42, in a phone interview last week. “We’re just diving into debt, which I didn’t want to do again.”
Keiser said she and other lawmakers are committed to solving some of the system’s lingering problems, for both businesses and jobless workers.
She said the bill signed into law this week was only the first step.
Edison, the restaurateur, hopes that is the case. She sees the impact of the pandemic stretching out for many months after it technically ends, whenever that may be.
“When that happens, it is not like you flip the switch and all of a sudden you are back,” Edison said. “It will take a year for us to suss out what that looks like, when people slowly come out of their shells.”
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