Employers Shielded from COVID-19 Experience Rating Changes

State lawmakers unanimously approved legislation shielding Connecticut employers from the costly impact of pandemic-related layoffs on their unemployment experience rating accounts.

The state Senate passed HB 5377 April 28, two days after it cleared the House without opposition. The bill now waits for Gov. Ned Lamont’s signature.

CBIA’s Eric Gjede said the bill’s quick passage means welcome relief for employers, who faced significant unemployment tax rate hikes.

“Connecticut lost 292,400 jobs last March and April to COVID-19 shutdowns and restrictions,” Gjede said. “Employers had no control over those historic losses when the state acted to address the public health crisis.

“We are grateful for the quick actions by the Labor and Public Employees Committee and the House and Senate to enact meaningful relief at such a critical time.”

Employer Funded

Connecticut’s Unemployment Trust Fund, which has paid out billions of dollars in state and federal benefits in the past 14 months, is funded exclusively by employers.

Under state law, when workers become unemployed and file for benefits, their former employers’ experience rates increase to reflect fund usage.

Employers that have low turnover rates are usually rewarded with a lower experience rate.

The bill’s quick passage means welcome relief for employers, who faced significant unemployment tax rate hikes.

However, the hundreds of thousands of layoffs from last spring were driven by the state’s pandemic response, not business actions.

The state Department of Labor has received over 1.4 million unemployment claims since last March. As of April, weekly claims were averaging 200,000, about five times the pre-pandemic volume.

Connecticut has recovered 60% of all COVID-19 job losses. The state’s unemployment rate is 8.3%, the highest in New England and well above the national rate of 6%.

Executive Order Expires

Lamont signed an executive order last April partially shielding employers from increased unemployment taxes based on coronavirus-linked benefit claims.

The governor’s emergency executive powers expire May 20, making legislative action critical to protect employers from experience rate increases.

HB 5377 is one of three short and long-term actions needed to to fix the state’s unemployment system.

Under HB 5377, unemployment benefits paid to former employees from July 1, 2019 through June 30, 2021 will not affect an employer’s experience rate for tax years beginning on or after Jan. 1, 2002.

In addition, the bill’s language disregards statewide benefits and taxable wages for calendar years 2020 and 2021 when calculating the unemployment tax rate that applies to new employers from Jan. 1, 2022.

HB 5377 is one of three short and long term actions CBIA has pushed as critical steps needed to to fix the state’s unemployment system and dismantle barriers to job recovery and rebuilding Connecticut’s economy.

Unemployment Fixes

Those steps:

1. Freeze unemployment experience rates so businesses are not hit by the impact of COVID-19 related layoffs in the short term.
2. Use federal relief funds to reduce the federal loan debt balance. Otherwise, money that could be used to rehire employees will be diverted to debt payments. 
3. Implement long-overdue reforms to the state’s unemployment system to prevent future borrowing (HB 6633). 

HB 5377 addresses an immediate need. In the near term, CBIA and other organizations are calling for the state to use federal COVID-19 funds to relieve some or all of the unemployment federal loan debt faced by employers.

The Lamont administration’s proposal for spending $2.6 billion in federal funds includes $50 million for the unemployment trust fund.

Connecticut will likely borrow more than $1 billion from the federal government to pay unemployment claims. The state borrowed a similar amount after the 2008-2010 recession, with employers burdened by six years of higher taxes and special assessments.

At one point, Connecticut businesses were paying four times the unemployment taxes of their peers in neighboring states.

The Lamont administration’s proposal for spending $2.6 billion in federal funds includes $50 million for the unemployment trust fund.

Gjede said that while that allocation was appreciated, “a bigger commitment” was needed to protect the state’s job and economic recovery prospects.

Long-Term Reforms

In the long term, the state’s unemployment system needs long overdue reforms to both the taxes paid by employers and the benefits paid out to claimants.

The business community, organized labor, and a bipartisan group of lawmakers announced a comprehensive, historic reform package agreement April 21.

Addressed in HB 6633, those reforms are designed to restore solvency to the unemployment trust fund, insolvent for 48 of the past 50 years, burdening businesses with federal loan debt.

What employers need to know about #unemployment reforms:
➡️ Raises taxable wage base to $25K
➡️ Cuts max solvency tax to 1%
➡️ New min, max experience rates (0.1%, 10%)
➡️ Raises min earnings threshold to $1,600
➡️ Freezes max weekly benefit for four yearshttps://t.co/wJZOfI5Vod

— CBIA (@CBIANews) April 21, 2021

Lamont has noted that if the reforms were in place after the 2008-2010 recession, Connecticut would have started the pandemic with a solvent trust fund, alleviating the need for massive federal borrowing.

The legislature’s Finance, Revenue, and Bonding Committee unanimously approved HB 6633 April 22.

The bill is currently being reviewed by the General Assembly’s nonpartisan Office of Legislative Research and Office of Fiscal Analysis.

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For more information, contact CBIA’s Eric Gjede (860.480.1784) | @egjede.