Here’s some news from Newton’s Third Law department. You remember it: For every action there is an equal and opposite reaction. I recently received Worldwide Local Connect’s 2021 unemployment insurance tax rate notice from the Massachusetts Department of Unemployment Assistance. To say it was eye-opening is an understatement.
Here is an excerpt from that notice:
Solvency Rate: The solvency rate used in the calculation of each company’s UI experience rate for 2021 is 9.23%, an increase from last year’s rate of 0.58%. This uniform solvency assessment to employers covers the cost of benefit charges that are not the responsibility of individual employers. Additionally, as required by the non-charging provisions of the CARES Act, all regular COVID-19 related claims for private contributory employers were charged to the solvency fund. The solvency rate is computed annually in accordance with the statutory requirements . . ..
Ouch! That’s a very large increase, with equally large impacts. Particularly for firms with no 2020 layoffs. One of my startup clients recently received a bill for $7,300 for underpayment of unemployment insurance taxes during Q1 2021. Payable immediately.
So, what happened?
My father would have said that we just received the bill for 2020’s “free lunch.” Last year, national and state politicians expedited unemployment payments to workers who lost their jobs due to Covid-19. Here in the Commonwealth of Massachusetts, fast-tracked unemployment claims were paid before undertaking the normal checks and balances of the process. Claims were paid and only afterwards were employers contacted regarding the validity of those claims. The result? Happy times in hacker land. So far, Massachusetts has identified more than 140,000 fraudulent unemployment claims. And, my fair state is just one of many with such UI problems. Employers nationwide are facing similar rate increases.
The need for unemployment insurance is unquestionable. It has helped countless individuals deal with lost jobs and lost income, never more noticeably than during these past 13 months. Yet, as my clients and I were surprised to learn, that cost is no longer nominal. We shouldn’t have been so shocked. After all, Sir Isaac predicted it.
Three hundred years ago.
Mr. Dragone has spent the past twenty years as an acting/consulting CFO for a number of start-ups in a wide range of industries. Peter’s prior experience is that of a serial entrepreneur, managing various start-up and turnaround projects. He was a co-founder of Keurig.