New law prevents spike in unemployment costs for small businesses

Gov. Baker has just signed into law a bill designed to prevent an unexpected spike in unemployment costs for Massachusetts businesses. All employers will now get a revised UI bill with the new amount. Employers who have already remitted their first quarter payment will received a credit.

The legislation (H.3702) was previously approved in both the House and Senate. I was pleased to help lead this effort in the House in my role as Chair of the Labor and Workforce Development Committee. Thank you to Speaker Mariano and Chairman Michlewitz for prioritizing this issue. I am also grateful to our Senate colleagues, Governor Baker, and Secretary Acosta and her team for working together for a collaborative solution.

The underlying issue was caused by an unexpectedly high increase in what is known as the Solvency Fund Assessment, a reserve account for pooled unemployment costs. It particularly impacted small businesses and employers who did not typically have a high number of unemployment claims. Rather than facing significant rate hikes for 2021, most employers will now see their new unemployment rates in line with, or just slightly above, the previous year. This will vary based on an employer’s individual unemployment claim history.

Under this legislation, approximately $7.4 billion in COVID claims will be shifted out of the pooled Solvency Account, effectively reducing the solvency assessment from 9.23% to an expected 1.12%. This liability will then be spread out and bonded out over a twenty-year period and beginning Aug 1, DUA will return to the normal practice of charging new UI claims directly to each individual employer’s account. This solvency fix does not rely on the use of Federal funds, nor does it preclude that option at some future date. 

This legislation will provide an immediate solution for the unexpected increase in costs for employers. The Legislature continues to review long-term solvency issues surrounding the UI fund and has established a UI Trust Fund Study Commission to review and report back with recommendations before the end of this year.