Local businesses reeling over massive unemployment tax hike

EDMONDS—Business owner Shubert Ho fears that another stroke of bad luck for the Puget Sound region’s restaurant industry would be the knockout blow.

The first devastating setback came last spring, when the economic shutdown forced his restaurant group to lay off 95% of the more than 200 employees who staff the company’s six Edmonds establishments, including Salt & Iron and Bar Dojo.

The next stumbling block came in November, when Gov. Jay Inslee again declared a ban on indoor dining. Feedme Hospitality again laid off dozens of employees, many of whom had been re-hired after the first round of statewide social distancing restrictions began to ease.

And the third crippling hit came late last year, when Ho learned that the restaurant group would need to absorb massive hikes in 2021 unemployment insurance rates, ranging from five times to 50 times the amount the company paid last year for each of its eateries.

“This was pretty much the last straw. If something else tragic happened, you could probably kiss the rest of the restaurant industry goodbye,” said Ho, who is part owner of Feedme Hospitality. “It’s not like we have insurance for the insurance for the insurance to cover unexpected expenses.”

This month, businesses across the state received first-quarter unemployment tax billings showing colossal increases, driven upward by the unprecedented number of people who have claimed benefits amid the pandemic.

Washington law requires that those rates automatically increase to refill the state trust fund that pays jobless benefits. So unless the law changes, employers will be expected to pay an estimated $991 million more in 2021 than in 2020, with the first three months’ worth of taxes due April 30, according to the state’s Employment Security Department.

The impending added cost has Snohomish County business owners again searching their ledgers for ways to save money while still affording payroll and other basic expenses. At a time when small companies are already bleeding revenues amid the economic downturn, many are fearful that they once more will have to make desperate sacrifices.

“Without any kind of intervention, either on the governor’s or the Legislature’s behalf, the Employment Security Department is going to skin businesses alive,” said Brian Copple, owner of Sultan Chiropractic & Massage.

His unemployment tax charges jumped from $30 a quarter to $350 a quarter, he said.

“There’s a lot of people that are going to be affected by this,” Copple said. “Some are not going to find out until they look at their first quarter 2021 taxes and realize what’s happened.”

The Legislature has passed a bill that would reduce the premium increase and spread it out over five years.

“We’re trying to address both the magnitude of the increase and how quickly that increase would hit. So we’re trying to smooth it out over time a bit so that businesses would not be hit with a huge increase all at once,” said state Sen. Derek Stanford, a Bothell Democrat who’s one of the sponsors of Senate Bill 5061.

The bill, approved by the Senate on Wednesday and the House on Friday, now heads to the governor’s desk.

Under current law, the average unemployment tax amount that businesses pay per employee is expected to increase from $352 last year to $583 in 2021 and $875 in 2022.

Supporters of Senate Bill 5061 anticipate that it would drastically reduce this years’ premium increase, resulting in employers instead paying an average of $362 per employee. That average would then climb to $586 in 2022.

“We need the help right now. I think this is the time when a lot of businesses are really on edge and struggling,” Stanford said. “And then, we can also come back in future years and adjust that again.”

The bill would also make other changes to the state’s unemployment compensation system, including expanding who’s eligible and increasing the minimum benefit amount.

The Washington Retail Association said in a recent statement that it supports the bill, though it noted that the proposal “still needs additional work.”

The association is urging lawmakers to find other sources of state or federal funding to refill the state’s unemployment insurance trust fund instead of relying on businesses to shoulder the cost. Otherwise, businesses will struggle to hire back employees and create new jobs.

Matt Martin, a Mukilteo-based agent for a national insurance carrier, said lawmakers should explore other areas of the budget that can be trimmed to make up for the drain on the trust fund.

“The only solution that the state of Washington ever comes up with is let’s just get more taxes from people. They don’t sit down as a group, sharpen their pencils, and say, ‘We’re going to have to cut other places,’” said Martin, who also chairs the board of the Mukilteo Chamber of Commerce. “The solution is start slashing the budget. Because you know what? Businesses have to do it every single day.”

Business owners who did not cut staff amid the pandemic are still getting smacked with the tax increase nonetheless.

Copple has never laid off an employee in the 35 years his chiropractic clinic has been in business — unless you count one woman who elected to take time off to stay safe when the COVID-19 pandemic struck last spring.

“Even though my business is considered essential, my massage therapist decided she wasn’t going to risk it,” he said. She filed for unemployment benefits and stayed home for a couple months. “I felt like that was entirely appropriate. This is what unemployment benefits are for,” Copple said.

He didn’t think much of it until earlier this month when he received a hefty unemployment tax bill for the first three months of 2021.

Stunned, Copple wrote a letter to the Employment Security Department asking for a rate reduction.

His request was denied. “They said my rate had been assigned correctly. They are refusing to acknowledge that there was any special circumstances involved at all,” Copple said. “It was not something that should have counted against me because this was not a business decision on my part.”

During typical years, a business owner can generally expect that their unemployment premiums will increase if their company lays more people off. A business’ “experience rate,” one component of the state-mandated formula used to calculate unemployment taxes, is based on the number of former employees who claimed jobless benefits over the past four years.

But the current formula doesn’t factor in the state-ordered COVID-19 lockdowns and restrictions that forced some employers to scale back business, close their doors and lay off workers, said state Sen. Keith Wagoner, a Republican from Sedro-Woolley.

Under Senate Bill 5061, the $1.2 billion in unemployment benefits paid out statewide last year from March 22 to May 30 — which would typically trigger an automatic unemployment tax increase — would not affect an employer’s experience rating.

Wagoner, who voted in favor of the bill, has gotten dozens of letters from local business owners panicking over the rate hikes.

“We’re making employers pay for an action they had absolutely no control over,” Wagoner said. “For many businesses, it means they’re done. They’re out of business. Clearly the Legislature has to fix that.”

Rachel Riley: 425-339-3465; rriley@heraldnet.com. Twitter: @rachel_m_riley.