Small businesses to be protected from increasing cost of unemployment insurance

Executive Order Seventy-Four requires the Virginia Employment Commission (VEC) to mitigate a potential rise in the UI experience rating tax for businesses by holding them harmless for lay-offs that occurred during the pandemic, according to Gov. Ralph Northam.

The temporary change will protect Virginia businesses from having to pay an additional $200 million to replenish the Unemployment Insurance Trust Fund. Northam is also directing the VEC to begin automatically distributing UI benefits to unemployed Virginians who have been held in the agency’s determination process.

These actions come as Virginia’s unemployment system has been severely strained throughout 2020. Thanks to low unemployment over the past several years, the system simply was not equipped to handle the surge in unemployment claims that were received due to the pandemic. Approximately 1.4 million people have filed for unemployment benefits this year, more than 10 times the number of claims that were filed in 2019, which his has left the Unemployment Insurance Trust depleted.

Northam signed the special session budget that included $210 million to backfill the Unemployment Insurance Trust Fund, which is currently borrowing federal dollars to pay out benefits. In addition, to improve customer service, the Governor’s budget proposal includes nearly $15 million to support technology upgrades and additional customer service staff at the VEC.

“Since the start of this pandemic, the Commonwealth has distributed more than $9.7 billion in benefits to hundreds of thousands of Virginians, helping them get through these hard times,” said Northam. “I am proud of what the Virginia Employment Commission has been able to accomplish, but there is still unprecedented need. In the face of federal inaction, these changes will put more of our unemployment insurance funding into the hands of unemployed workers and small business owners who desperately need it.”

UI Employer Tax Rates for 2021 are assigned by the previous calendar year from July 1, 2019, to June 30, 2020. Employers receive a Base Tax Rate, dependent on their particular account history and circumstances. In recalculating the tax rate for 2021, Executive Order Seventy-Four requires that the VEC not penalize businesses for lay-offs that occurred during the pandemic from April through June 2020. This will prevent Virginia’s struggling businesses from having to devote critical resources to higher state payroll taxes. These steps are particularly critical for small businesses and the retail, food, and lodging industries.

“It has been a long road to recovery for our workers and small businesses, and the winter season will bring its own set of unique challenges,” said Chief Workforce Development Advisor Megan Healy. “Bold action is required to ensure that Virginians have the resources they need to keep their heads above water and our economy moving forward. I am proud that the Commonwealth is further strengthening its UI program, which has already served as a lifeline to countless Virginians since the start of the pandemic.”

Northam also directed the VEC to immediately begin distributing benefit payments to UI applicants whose claims have been delayed in the determination process. The VEC will continue to adjudicate claims for eligibility. If deemed ineligible, applicants will be required to return the funds pursuant to state and federal law.

“The Virginia Employment Commission remains focused on providing relief for Virginia businesses and workers during these unprecedented times,” said VEC Commissioner Ellen Marie Hess. “These actions will ease the burdens on families and businesses and help our economy grow.”