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Connecticut Legislature Approves Measure Excluding COVID-19 Layoffs From Employers’ Unemployment Tax Experience Rate

  • Unanimously approved bill would exclude a period impacted by the COVID-19 pandemic in determining an employer’s experience rate
  • The measure seeks to prevent the period of elevated unemployment occasioned by the pandemic from increasing employers’ rates in future years
  • The experience rate is one factor used to determine employers’ unemployment insurance taxes to support Connecticut’s Unemployment Trust Fund

Summary by Dirk Langeveld

The Connecticut General Assembly has unanimously approved a measure that seeks to exclude layoffs related to the COVID-19 pandemic when calculating a portion of an employer’s unemployment insurance taxes. The legislation seeks to keep employers from being charged a higher experience rate due to elevated unemployment resulting from the COVID-19 pandemic.

The legislation would disregard any benefit charges and taxable wages between July 1, 2019 and June 30, 2021, when calculating an employer’s experience period. The rule would apply to any taxable year beginning on or after Jan. 1, 2022.

The experience period is calculated each year and generally depends on the amount of unemployment benefits an employer’s former workers received during the three-year period preceding June 30. The employer’s experience rate is then determined by calculating the ratio between the benefits paid and the employer’s taxable wages during the experience period, resulting in a rate between 0.5 percent and 5.4 percent.

The legislation also makes changes affecting employers who haven’t been in existence long enough for their experience rate to be calculated. These employers must pay a 1 percent experience rate or the state’s five-year benefit cost rate, whichever is higher.

The state’s benefit cost rate is typically determined by dividing the total benefits paid to unemployment claimants over the previous five years by the five-year payroll over that period. The new legislation disregards statewide benefits and taxable wages for the 2020 and 2021 calendar years when calculating this rate.

Employers pay unemployment insurance taxes to support Connecticut’s Unemployment Trust Fund, which pays out state unemployment claims. Each employer’s taxes are determined based on the experience rate and the balance rate (which is tied to the financial solvency of the fund), the sum of which can be between 0.5 percent and 6.8 percent. That rate is applied against the taxable wage base, or first $15,000 of each employee’s wages.

The Unemployment Trust Fund was depleted during the pandemic, with Connecticut borrowing from the federal government in order to continue providing state benefits. Governor Ned Lamont has proposed a bipartisan plan to restore the fund, which would include reducing the experience and balance rates while increasing the taxable wage base to the first $25,000 of each employee’s wages. This plan would also take several steps to narrow benefits, such as an increase in the base period earnings required to qualify for benefits from $600 to $1,600.

Lamont has also proposed dedicating $50 million in funds Connecticut is set to receive from the American Rescue Plan to paying $19 million in interest on the Unemployment Trust Fund to prevent this debt from falling on employers. The remaining funds would make an initial payment on the approximately $894 million owed to the federal government for unemployment borrowing.

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