Unemployment compensation tax cut could save business owners $552 million

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by Phil Yacuboski

 

Pennsylvania business owners will now get a break on their unemployment compensation tax rates, thanks to Pennsylvania paying off $2.8 billion in bonds.

The governor's office said the tax cut would save Pennsylvania businesses an estimated $552 million in 2020.

"We are continuing our efforts to drive down the cost of doing business in Pennsylvania," said Governor Tom Wolf. "Lowering the unemployment compensation tax rate will help business owners invest in their own company and workforce to create more jobs, while also maintaining fair benefits for workers who lose their job through no fault of their own."

He said the rates are the lowest Pennsylvania businesses have paid since 1979.

"All employers in Pennsylvania, whether they know it or not, had been paying an extra assessment on their unemployment compensation taxes in order to pay off this bond," said Alex Halper, director, Government Affairs, Pennsylvania Chamber of Business and Industry. "That's on top of Pennsylvania employers paying some of the highest unemployment compensation taxes in the country. Employers will now save money."

In 2012, Pennsylvania lawmakers and then-Governor Tom Corbett's administration agreed to a bond issue to pay unemployment compensation that was owned by businesses to the federal government. The losses in the Unemployment Compensation Trust Fund were blamed on the number of jobs lost during a tumultuous time in the economy and higher unemployment.

"Following the great recession, Pennsylvania was forced to borrow money from the federal government in order to pay benefits that people were owed," said Halper. "That loan came with a really high interest rate that could fluctuate. It was a really tough situation for many businesses."

From 2013 up until January of 2020, Pennsylvania businesses were paying an additional assessment of 1.1%. The new rate for employers as of this year is 1.3%. A maximum rate is set at 9.9%.

Halper said the unemployment compensation tax is based on an employer's experience.

"An employer's former employees who have qualified for unemployment compensation have a greater rating," said Halper. "That's one of the variables that goes into determining their unemployment compensation tax rate."

Certain businesses pay more, according to state law.

"Some businesses have a seasonal business where they lay off workers during parts of the year," he said, "with the intention of rehiring during the next work season."

He said construction companies typically pay more in unemployment compensation taxes.

The state's Unemployment Compensation Trust Fund is ‘calculated annually,' according to the state to prepare for changes in the economy, according to governor's office. The fund is solvent, according to the state, when its level ‘reaches two and a half times the average annual benefit payout over the last few years.'

"It's a positive development," said Halper.

While it's unclear if this same scenario could happen again, Halper said the next time Pennsylvania needs to be ready.

"The state should be anticipating the next economic downturn," he said. "It's not ‘if' but ‘when.' That means shoring up the unemployment compensation trust fund and that means putting Pennsylvania in a better position to pay benefits and avoid requiring a loan from the federal government."

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