Trenton – Legislation sponsored by Senate Labor Committee Chair Fred Madden and Senate President Steve Sweeney that would save New Jersey employers hit hard by the coronavirus pandemic from high Unemployment Insurance (UI) cost increases was approved by the Senate Labor Committee today.
“The economic fallout of COVID-19 has decimated many of the small businesses that are the backbone of our communities and forced employers to lay off or furlough dedicated employees just to keep their businesses afloat,” said Senator Madden, (D-Camden/Gloucester).
“We cannot afford to let these struggling business owners be further penalized by a rise in Unemployment Insurance costs when they had no other practical recourse to save their businesses,” said Senator Sweeney (D-Gloucester/Salem/ Cumberland). “This is something we urgently need to address to prevent further economic damage to our business owners and our communities as a whole.”
The Madden-Sweeney bill, S-3011, would provide relief by excluding the cost of UI claims paid by businesses as a result of COVID-19 from their payroll tax calculations.
Two factors determine an employer’s UI tax rate, which is calculated every March for the 12-month period starting July 1: the state Unemployment Insurance Trust Fund’s reserve ratio and the individual employer’s UI reserve ratio or “experience rating.” The UI Trust Fund’s reserve ratio is the balance remaining in the statewide fund as a percentage of total taxable wages in the state, while an employer’s individual experience rating is a ratio of the amount of unemployment claims paid out compared to the employer’s total taxable wages paid. By using these ratios, the system is able to set tax rates based on the health of the fund, while simultaneously ensuring that individual employers contribute their fair share to the compensation fund to cover future UI costs.
Thanks to a constitutional amendment and other reforms pushed by Senate President Sweeney after the financial crisis of 2007-2009 that put an end to raids on the UI Trust Fund, the fund began the 2020 calendar year with a healthy surplus, showing a balance of $2.4 billion as late as March. However, nearly 1.6 million New Jersey workers applied for Unemployment Insurance benefits as a result of the COVID-19 pandemic, receiving nearly $15 billion in combined federal and state UI benefits and wiping out the entire $2.4 billion balance.
As a result, New Jersey applied for federal loans to shore up the fund and employer’s tax rates are set to spike next year. Because of the experience rating calculation, that increase in UI payroll tax rates would fall heaviest on the employers hardest hit by COVID-19, including restaurants, gyms, retailers and other businesses that had to lay off huge swaths of their workforce due to statewide business closures and social distancing measures.
The Madden-Sweeney bill would prevent experience rating increases for employers who had to carry out layoffs through no fault of their own, spreading the burden across all employers to lessen the impact. The bill would also phase in tax increases due to the statewide fund’s depletion over three years. A similar phase-in was provided after the financial crisis of 2007-2009.
The bill also provides assistance to non-profit employers who typically opt out of the experience rating scheme and instead make payments only for the claims they generate. The ongoing pandemic has seen these employers drastically reduce staffing and shift priorities. Eighty-seven percent of nonprofits surveyed by New Jersey Center for Non-Profits reported disruptions as early in the pandemic as March 13th. National surveys have reported that 90 percent of responding organizations reported revenue losses and almost 17 percent of respondents had eliminated or scaled back positions.
The CARES Act, a relief package passed by Congress in March, supplemented by the Protecting Nonprofits Act (PNPA), provides that the federal government will reimburse half of the cost for all UI compensation claims made by non-profit employers. The Madden-Sweeney bill would have the state reduce the amount required to be paid in lieu of contributions by 50 percent of the amount of compensation, providing relief for the remaining half of payments not covered by the federal government.