Rate Hikes, New Payroll Tax Headed Your Way, Jan. 1

Date: October 01, 2021

UI, workers' compensation, paid leave, minimum wage, overtime, payroll taxes all affected

The New Year will bring with it a host of premium increases for state-run social insurance programs, as well as a substantial hike in the state minimum wage and a corresponding increase in the pay threshold for salaried employees to be exempt from overtime.

Workers’ Compensation Rates

The state Department of Labor & Industries (L&I) is proposing an average 3.1% workers’ compensation rate increase for 2022.

That translates into an average added cost of $38 per worker for industrial insurance coverage. This increase will be split evenly between workers and employers.

Keep in mind this proposed increase is an average. Your specific premium change will be impacted by rate class and experience rating. Detailed information from the department is available here.

The department’s proposal is substantially lower than the indicated rate increase needed to break even for 2022. L&I plans to accomplish this by using $377 million from reserves. Even with this transfer, reserves are anticipated to be between $3.5 billion and $4 billion, well above the midpoint target established by the Workers’ Compensation Advisory Committee.

Minimum Wage and Overtime-Exempt Salary Threshold Increase

L&I has also announced the state minimum wage will increase to $14.49 per hour for 2022, a nearly 6 percent hike over 2021.

Moreover, due to the department’s 2020 “overtime rule” update, administrative, executive, outside sales, and professional employees must be paid a minimum salary of $1,014.30 per week ($52,743.60 a year), or 1.75 times the minimum wage, beginning January 1, 2022, in order to be exempt from overtime pay requirements. This applies to employers of all sizes.

Certain computer professionals who are paid by the hour must receive an hourly wage of at least $50.72 (3.5 times the state minimum wage) to be exempt from overtime pay requirements beginning January 1.

As a result of legislation passed earlier this year in response to a state Supreme Court decision, agricultural workers must receive overtime pay if they exceed 55 hours in a week. Dairy workers already qualify for overtime when working more than 40 hours per week.

Unemployment Insurance, Paid Family & Medical Leave, “WA Cares” Long-Term Care Payroll Tax

Unemployment insurance premiums will rise from 2022 through 2026 due to legislation passed to address skyrocketing claims and benefit payments made in response to the COVID-19 pandemic. The department has not yet released its 2022 rate calculator.

Paid Family & Medical Leave (PFML) premiums will increase 50% for 2022 due to high program utilization during the pandemic. The new rate of 0.6% takes effect on January 1, 2022. Employers with 50 or more employees (or smaller firms that have opted into the program) will pay approximately 27% of the total premium and employees will pay about 73%.

The Employment Security Department (ESD), which administers the unemployment insurance system and PFML program, intends to have updated resources available at paidleave.wa.gov before the end of the year.

The department has also begun notifying businesses that beginning January 1, 2022, employers must collect “WA Cares” premiums from employees the same as they do for PFML. WA Cares Fund is the name given to the state’s long-term care insurance program enacted in 2019.

Employers must collect a new payroll tax of $0.58 per $100 (0.58%) of worker earnings for the WA Cares program. ESD is updating the PFML reporting system so employers can file and pay premiums for both programs at the same time.

Certain self-employed individuals are automatically exempt from this new payroll tax; however, corporate officers are not exempt. More information is available here. You should consult with your tax professional to determine whether the new tax applies to your specific business type.

Small-business owners should contact their state legislators with concerns about this new payroll tax. The Legislature may revisit this issue in 2022 due to problems experienced by individuals seeking an exemption by purchasing private long-term care insurance.

You can find contact information for the legislators who represent your home and business here, or call the Legislative Hotline at (800) 562-6000.


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