Effective January 1, 2024, significant changes to Connecticut’s unemployment compensation scheme will take effect. Public Act 21-200, which was signed into law by Governor Ned Lamont more than two years ago and which the Governor described as “the most significant set of reforms ever enacted in the history of Connecticut’s unemployment system,” was intended to address the persistent insolvency that has plagued Connecticut’s unemployment compensation fund for decades. To accomplish the goal of achieving solvency, the law both increases the amount of unemployment tax employers will be required to pay into the fund and decreases the amounts that will be paid out to employees.
Here are some of the most impactful changes:
- The taxable wage base increases from $15,000 in 2023 to $25,000 in 2024, and then is indexed to inflation in 2025 and beyond
- The maximum solvency tax rate decreases from 1.4% to 1%
- The employer’s minimum experience tax rate decreases from 0.5% to 0.1% and the maximum experience tax rate increases from 5.4% to 10% (with slight reductions in 2024 and 2025)
- The minimum weekly benefit will increase from $15 in 2023 to $40 in 2024, and then is indexed to inflation in 2025 and beyond
- The minimum base period earnings required to qualify for unemployment benefits will increase from $600 in 2023 to $1,600 in 2024, and then are indexed to inflation in 2025 and beyond
- The maximum weekly benefit rate, which is currently $721 and is indexed to the average wage of all workers in Connecticut, will be frozen through October 1, 2028
- Claimants will be ineligible for unemployment benefits until severance payments are exhausted
According to the Office of Fiscal Analysis, these changes will result in the following net gains:
- $130.9 million annually as a result of the increase in the taxable wage base, adjustment to the solvency rate, and adjustment to the experience rate
- $33 million annually (by 2027) as a result of freezing the maximum weekly benefit rate at $721 for 4 years
- $1.25 million annually as a result of adjusting the minimum base period earnings from $600 to $1,600 and then indexing them to inflation
- $50 million annually as a result of disqualifying employees from benefits until severance payments are exhausted
While all employers will feel some impact from these changes, some will feel it more than others. All employers will now need to pay unemployment tax on the first $25,000 of each of their employee’s wages, resulting in an overall increase in unemployment tax liability for almost all employers. Some employers with low experience rates may see a modest reduction in unemployment tax obligations (for example, an employer with zero employees receiving benefits in the relevant calculation period will now see a reduction in tax rate from 0.5% to 0.1%). On the other hand of the spectrum, employers with high experience rates could more than double their tax liability (for example, an employer with a 20% benefit ratio previously benefited by the 5.4% maximum tax rate but will now pay at the new 10% maximum tax rate).
The disqualification of benefit eligibility while receiving severance payments is another change that will have a significant albeit less quantifiable impact on employers and employees. Prior to January 1, 2024, an employee’s receipt of severance payments did not disqualify the employee from receiving unemployment benefits, as long as the employee signed a release of claims in exchange for the severance. The ability of an employee to receive both severance and unemployment benefits has often been an important consideration by both employers and employees during discussions and negotiations about employment termination. That consideration will no longer be on the table.