Business groups seek certainty on unemployment insurance hikes

Photo | SHNS Gov. Charlie Baker

Write a Comment

By State House News Service

When he unveiled legislation this month to limit sharp increases in the taxes Massachusetts businesses pay to fund the unemployment system, Gov. Charlie Baker encouraged lawmakers to act soon but conceded that they could wait up to three months to make the change.

Business groups do not share the same feeling of flexibility.

Leaders of several industry organizations and chambers of commerce urged the Legislature to make Baker's proposal (H 5206) a priority in the closing days of the lawmaking session, arguing that employers who are staring down a nearly 60 percent increase in the unemployment insurance contributions they pay quarterly need immediate assurances that the hikes will not be as severe.

"The Legislature cannot wait until unemployment insurance taxes are due at the end of the first quarter to take action," Christopher Carlozzi, Massachusetts director of the National Federation of Independent Business, told lawmakers. "Employers are deciding now how their staffing will look for next year, so the Legislature must act soon on this critical issue."

Without action from Beacon Hill, businesses across the state will face an average increase in unemployment contributions of nearly 60 percent -- from $544 per employee to $866 -- starting in 2021 that could remain in place at least through 2024.

Baker's bill would soften the blow, keeping the increase to a more modest 17 percent by freezing rates at their current schedule in 2021 and 2022.

The governor said at a Dec. 18 press conference that "we could do this in January or February or March," even as he pushed for more prompt action. But he gave a more time-sensitive pitch to the Legislature's Labor and Workforce Committee.

"Time is of the essence," Baker wrote in testimony, which the committee collected remotely Monday. "In years past, our team has worked diligently to deliver rate notices to Massachusetts employers prior to the end of the calendar year. Normally, this allows employers ample time to plan and account for the financial obligation of their quarterly unemployment taxes. During this time of unprecedented economic challenges, it is even more critical that the Commonwealth provide employers the predictability and clarity they need as they enter the new year."

Joblessness aid has been a vital lifeline for millions of laid-off workers during the COVID-19 crisis, but the volume of need depleted the state's unemployment insurance trust fund.

The fund now faces a deficit that the Baker administration estimates will reach nearly $2.4 billion by the end of 2020 and grow to more than $4.7 billion by the end of next year.

Under state law, the taxes on employers used to run the unemployment system are subject to hikes when the trust fund is insolvent, but legislators can -- and have several times in the past -- intervene to freeze the rate schedule.

Business leaders argue that the automatic increases would disrupt an already-tenuous economic recovery in the first few months of 2021, making it more difficult to hire new workers after widespread layoffs or keep existing ones on payroll. They also note that the new year will bring several other new cost drivers, such as a $0.75 increase in the minimum wage and the start of most paid family and medical leave benefits.

"Freezing the unemployment insurance schedule will avoid an average increase of more than $300 per employee at a time when small businesses are dealing with a recession, an increase in the minimum wage, and the start of paid family and medical leave benefits," Greater Boston Chamber of Commerce CEO James Rooney told the committee.

In an autumn survey of businesses, the Associated Industries of Massachusetts found 91 percent of respondents listing increased unemployment insurance costs as a "top concern," while more than a quarter said they believed the projected increase "would translate into further layoffs for their businesses during the worst economic recession of this decade," AIM Executive Vice President for Government Affairs Brooke Thomson wrote in testimony.

While nearly a dozen employer and industry groups told the committee they back Baker's proposal, the response from labor has been more muted.

The AFL-CIO's Massachusetts chapter did not take a clear position supporting or opposing the legislation, instead urging lawmakers to keep attention on what it described as broader structural issues with the state's unemployment system and on preventing misclassification of workers.

Steven Tolman, president of the Massachusetts AFL-CIO, wrote in his testimony that the current structure has a low taxable wage base, which places too much burden on businesses with lower-wage workers. He suggested lawmakers raise the taxable wage base and adjust it annually to keep up with wage growth.

"The disproportionate share of the UI funding borne by smaller businesses has also served as justification for multiple past legislative freezes of the UI rate schedule, contributing to an inability to forward fund the Trust to adequately deal with inevitable periods of high unemployment," Tolman wrote.

Both Tolman and Greater Boston Legal Services Consulting Attorney Monica Halas asked the committee to include language from a separate bill aimed at preventing worker misclassification as independent contractors in any UI trust fund action.

In addition to limiting the rate increases, Baker's bill would also authorize using bonds to pay back money Massachusetts borrowed from the federal government to keep the unemployment trust fund running. The more than $2.2 billion the state has received so far from Washington will accrue interest at a 2.4 percent rate starting next year, and Baker argued that private interest rates are lower, which he believes could save money in the long run.

Another section could carry a new cost for employers: Baker proposed creating a surcharge on businesses to help repay interest on any outstanding federal advances, which cannot be paid directly from the trust fund. The bill allows state government to impose the surcharge, but the amount would be determined at a future date.

Despite the pleas for action, legislative leaders have given no indication if or when they plan to take up Baker's bill.

The current two-year lawmaking session ends in one week, during which legislators need to complete their work on any remaining budget overrides, select a new House speaker, and tackle any of the major bills that could emerge from months of conference committee negotiations.

Sen. Patricia Jehlen, who chairs the Labor and Workforce Committee, told the News Service in September that lawmakers would likely pursue a rate freeze. Through an aide, she declined to comment Tuesday.