Gov. Phil Murphy signed a measure Jan. 4 aimed at staving off potential tax increases for businesses this year that are meant to refill the exhausted unemployment fund, as the COVID-19 pandemic drives up state unemployment to record-high levels.
Senate Bill 3011 garnered widespread support from Democrats and Republicans in both the state Assembly and Senate, and drew the praise of the business lobbying and trade groups.
“Due to a loss of revenue, COVID-19 has forced many small businesses to lay off or furlough dedicated employees in an effort to stay in business,” the bill’s sponsor, Senate Labor Committee Chair Fred Madden, D-4th District, said in the Monday evening statement.
“These layoffs were not wanted by any employer and, as a result, they should not be punished with paying the cost for Unemployment Insurance claims.”
Nearly 2 million New Jerseyans filed for unemployment benefits since the start of March, when Murphy ordered a litany of business closures meant to halt the spread of the virus across the state. New Jersey’s unemployment rate peaked at 16.3% in April, its highest in decades.
Since March 21, the New Jersey Labor Department paid over $6 billion in jobless benefits from its own trust fund, out of the more than $20 billion in state and federal jobless aid distributed in those nine months.
But New Jersey Labor Commissioner Robert Asaro-Angelo warned in September that the unemployment fund will soon face a crunch as it burns through money, and that a tax increase could likely be triggered for businesses this summer to replenish the state funds.
He noted that the state trust fund was plentiful and healthy going into the pandemic, with nearly $2.8 billion at the end of February.
“I don’t want to get ahead of ourselves, but I think if there’s no federal relief, that anybody who’s looking at the numbers would know that we’re going to be in the far opposite column of where we are right now,” he told lawmakers last month, pointing to the highest-cost rate: E+10%.
On Monday, he praised the measure as helping to “help reduce further hardship on employers, while protecting the vital lifeline of unemployment for the future.”
Christopher Emigholz, vice president of government affairs at the New Jersey Business & Industry Association, warned during an October hearing that “going to E+10% would mean a tax increase amounting to many hundreds of millions of dollars for employers throughout the state.”
Unemployment taxes for businesses are calculated every year in March and go into effect on July 1 for the next 12 months.
Under the current state system, employers and employees jointly pay into the trust fund. While employees pay the same on their first $35,300 of income, employer contributions depend on the fund’s overall health, and how many of their employees pay benefits.
The new law calls for phasing in a tax increase over a three-year period in order to replenish the fund instead of during a single year – a route taken during the Great Recession over a decade ago.
“Spreading out this increase over three years makes this increase more palatable and helps give our businesses a fighting chance,” Michele Siekerka, the NJBIA’s chief executive officer, said Monday.
Layoffs employers made during the state of emergency, in effect since Mach 9, would not be used to calculate how much those businesses owe in unemployment taxes. Nonprofits, which make payments to the unemployment fund in place of the state rates, would only be on the hook for 50% of the unemployment benefits made during the state of emergency.
A feature of the $2.2 trillion Coronavirus Aid Relief and Economic Security Act compensates nonprofits for half of the costs of unemployment claims made by their employees. Under S3011, the federal CARES Act relief for nonprofits would be paired with this 50% tax break provided by the state.
“[T]his bill prevents a rate increase for employers who had to carry out layoffs through no fault of their own,” Mike Egenton, executive vice president of government relations at the New Jersey Chamber of Commerce, said on Monday.
And, he added, it would ensure our “employers do not experience “sticker shock” as we all work towards replenishing the UI fund.”
