On the same day Oregon Gov. Kate Brown renewed restrictions on businesses across the state, employers learned they could potentially face higher payroll taxes next year.
On Friday, the Oregon Employment Department confirmed the state will bump employers into a higher unemployment tax schedule in 2021. The agency called the shift “modest.” Under what’s called “tax schedule four,” the agency said employers will pay an average rate of 2.26% on the first $43,800 paid to each employee.
The shift is intended to bolster the pool of money used to pay regular unemployment benefits to laid off workers. Hundreds of thousands of Oregonians have sought those benefits during the coronavirus crisis.
Employers pay into the fund, known as the unemployment insurance trust fund. As the fund is drawn down to pay people who’ve lost their jobs, shifting to a higher tax schedule helps replenish it. The state moves employers through eight tax schedules, hoping to build up enough reserves during good times to withstand the bad.
The statutory formula is designed to keep the trust fund solvent during recessions. Agency officials say it works.
The Employment Department has paid about $1.8 billion in regular benefits since March, leaving a trust fund reserve of about $4 billion, according to the department. By contrast, about 20 states have had to borrow money from the federal government to pay regular unemployment benefits during the pandemic.
Anthony Smith, the Oregon state director for the National Federation of Independent Business, acknowledged Oregon’s trust fund is in better shape than others. But he still called the tax shift “a hard pill to swallow” for businesses facing rampant uncertainty in the pandemic.
“Some businesses are operating on razor thin margins right now and they’re still trying to make decisions about what they’re going to do in the short term and in the long term,” he said.
His comments came shortly before the governor announced a temporary “freeze” on certain business activity around the state, prompted by a dramatic surge in COVID cases. The Employment Department began preparing for a surge in unemployment claims in response.
Oregon employers are now in tax schedule two. Under tax schedule four, the minimum unemployment payroll tax rate will almost double, from .7% to 1.2%. The maximum rate of 5.4% remains the same.
That doesn’t mean every business will face higher taxes, however. Each employer gets an individual rate within a given tax schedule. That rate is informed by how often a business’s workers end up using unemployment benefits when compared to other businesses in the state.
That so-called “experience rating” or “benefit ratio” worries Smith, too. He fears service industry businesses such as restaurants that were forced to lay off staff en masse will face a higher tax burden because of the pandemic.
The Employment Department said payroll tax rates would be mailed to individual employers mid-month.