Employment Tax Hikes in Effect for Small Businesses

Date: December 02, 2020

New Year brought higher minimum wage, overtime, unemployment tax increases

Small employers, still reeling from nearly nine months (and counting) of government-mandated closures, capacity limitations, and enhanced workplace hygiene and PPE requirements, should brace for several more cost increases taking effect January 1, 2021.

Minimum Wage

While somewhat lower than anticipated, Washington’s state minimum wage will increase by nearly 1.5% to $13.69 per hour in 2021. Local minimum wages will also increase in the cities of Seattle ($16.69) and Seatac ($16.57).

Overtime-Exempt Salary Threshold

As a result of next year’s minimum wage increase, salaried workers must also be paid more in order to be exempt from overtime. For small businesses with 50 or fewer workers, the minimum salary threshold will be $42,712.80 for 2021. Employers with more than 50 workers must pay an annual salary of at least $49,831.60. There is a separate scale for certain computer professionals paid by the hour.

Paid Family & Medical Leave (PFML)

While it appears the current tax rate of 0.4% of an employee’s gross wages will not change for 2021, the taxable wage base will increase from $132,900 to $142,800. Basically, that means the tax will apply to a worker’s gross earnings up to a cap of $142,800. Keep in mind that businesses with fewer than 50 workers are NOT required to pay the employer’s share of the tax (36.67%) unless they opt-in to be eligible for PFML employer assistance grants. All employers, however, must collect and remit the worker’s portion of the tax (63.33%). See the state’s PFML premium calculator for details. (Please note that as of December 2, 2020, the calculator has not yet been updated to reflect the 2021 taxable wage base.)

Unemployment Insurance

Unless Congress or the state Legislature acts to backfill our unemployment trust fund, employers face four years of unemployment insurance (UI) tax hikes beginning next year. The state Employment Security Department estimates (see slide 11) the average experience-rated tax will increase from 0.78% in 2020 to 0.97% for 2021. The average social tax will leap from 0.25% to 1.22% in 2021 — the maximum allowed by law. To put this in context, in legislative testimony this week, the Washington Food Industry Association calculated that employers in rate class 1 (those with no layoffs or terminations during the past four years) currently pay about $44 per worker in UI taxes. Next year, the social-tax increase will drive those employers’ 2021 UI taxes to nearly $230 per worker. Worse yet, if those employers were forced to furlough or terminate workers, their new experience rating will push them into higher rate classes, compounding the increase. For instance, a firm jumping from rate class 1 to rate class 12 could be hit with UI taxes of roughly $1,020 per worker. NFIB and other business organizations are seeking state and federal legislative action to avoid or at least mitigate this situation. Additional background information is available here.

Workers’ Compensation

One bit of good news is that the Department of Labor & Industries has announced there will be no average rate increase in 2021 for its state-run workers’ compensation system. However, businesses may see some changes in their individual rates due to past on-the-job injuries affecting their experience rating. In addition, warehouse operations may see a decrease in rates since fulfillment centers were placed in a separate classification. Fulfillment centers have been deemed a greater safety hazard, so are likely to pay somewhat higher premiums than traditional warehouses.

For more information, contact NFIB Washington State Director Patrick Connor.


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