Northam orders companies held temporarily harmless for pandemic layoffs

Move protects businesses from paying $200M in payroll taxes to refill VEC trust

Published December 22, 2020 by Kate Andrews

Gov. Ralph Northam issued an executive order Tuesday that will hold Virginia businesses harmless for any layoffs made during three months of the pandemic. The end-of-year order protects businesses from having to pay an additional $200 million in payroll taxes to replenish the Virginia Employment Commission’s Unemployment Insurance Trust.

Due to the COVID-19 economic fallout, 1.4 million Virginians have filed for unemployment this year, more than 10 times the number of claims filed in 2019.

The trust, which is used to pay state unemployment benefits to eligible Virginians, was left empty in October. The fund had started the year at 86% solvency, with $1.45 billion in its coffers. In July, the commission anticipated a record deficit of $750 million by the end of the year.

As of December, the VEC paid out more than $9.7 billion to unemployed Virginians, most of which came from the federal government via $600 weekly supplemental unemployment checks and payments for gig workers, said Megan Healy, the state’s chief workforce development adviser.

After the General Assembly’s most recent special session, which ended in October, the adjusted state budget included $210 million to backfill the trust fund. The state is currently borrowing from the Department of Labor to pay out state unemployment benefits, which top out at $378 per week per person.

“Since the start of this pandemic, the commonwealth has distributed more than $9.7 billion in benefits to hundreds of thousands of Virginians, helping them get through these hard times,” Northam said in a statement. “I am proud of what the Virginia Employment Commission has been able to accomplish, but there is still unprecedented need. In the face of federal inaction, these changes will put more of our unemployment insurance funding into the hands of unemployed workers and small business owners who desperately need it.”

In early August, the VEC reached its peak of initial claims for unemployment, although the state has seen another spike in new claims in December. More than 16,650 people filed claims in the week ending Dec. 5, and 14,509 people filed claims the following week. Meanwhile, 68,019 Virginians remained unemployed last week, VEC reported.

Without the order holding companies temporarily harmless for layoffs, businesses would be forced to pay higher state payroll taxes to refill the trust, which is funded by a combination of taxes, pool charges and a fund builder. The tax base rate is based on an employer’s history with layoffs and furloughs, while pool charges are used to offset employee losses that aren’t the employer’s fault. The fund builder is covered by all employers when the trust fund balance solvency drops below 50%. At that point, employers are taxed an additional 0.2% and pay federal unemployment tax of $420 per employee.

Pool charges and fund builder taxes, which all businesses pay, will increase slightly in 2021, Healy said. The state sets unemployment insurance employer tax rates annually, with 2021’s levies assigned for the state’s 2020 fiscal year, which ran from July 1, 2019, to June 30, 2020. Each business receives its base tax rate, but the new executive order requires that the VEC not penalize businesses for layoffs that occurred from April through June 2020.

Healy said Tuesday that the state’s Commission on Unemployment Compensation will meet Wednesday to discuss how to refill the trust without overtaxing businesses. Meanwhile, the governor also directed the VEC to immediately begin distributing payments to unemployment applicants whose claims have been delayed.

“The Virginia Employment Commission remains focused on providing relief for Virginia businesses and workers during these unprecedented times,” VEC Commissioner Ellen Marie Hess said in a statement. “These actions will ease the burdens on families and businesses and help our economy grow.”

In a statement, National Federation of Independent Business Virginia Director Nicole Riley called the executive order “a big relief for Virginia’s small businesses. Gov. Northam’s decision to waive the charges for employers who laid off or furloughed workers will relieve some of the financial pressure on Virginia’s small businesses and make it easier for them to get back on their feet and put people back to work.”

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