Understanding How Unemployment Insurance Works in Washington State

​Understanding How Unemployment Insurance Works in Washington State

In this two-part series, we cover what Washington State Unemployment Insurance works and how it is collected. In the second part of the series, we discuss how UI rates are calculated.
 
Unemployment Insurance (UI) in Washington State is a program that provides temporary financial assistance to workers who lose their jobs through no fault of their own. The program is funded by taxes paid by employers, and the system is designed to ensure the stability of both workers and businesses.
 
How UI is Collected
UI in Washington is funded by employer-paid taxes. Employers contribute based on their payroll and their "experience rating," which reflects their history of laying off workers.
 
1.  Experience Rating:

• Employers with higher layoffs pay higher UI tax rates. This incentivizes businesses to maintain their workforce stability.
• The rating is calculated based on the benefits paid to former employees relative to the taxable payroll over a certain period (typically three years).

 2.  Taxable Wage Base:

• Only wages up to a certain limit ( taxable wage base) are subject to UI taxes. For 2024, the taxable wage base in Washington State is $76,500.

 3.  Tax Rates:

• UI tax rates vary by employer and include two primary components.
  • Experience-Rated Tax: Determined by the employer's layoff history.
  • Social Cost Tax: Covers the costs of benefits not attributed to specific employers (e.g., bankrupt businesses, non-chargeable benefits).

 
The Two Parts of the Fund
The Washington State UI system involves two key funds.
 
1.  Unemployment Insurance Trust Fund:

• Pays out regular UI benefits for eligible unemployed workers.
• Funded entirely by employer taxes under the Federal Unemployment Tax Act (FUTA) and state-specific taxes.
• Employers pay the state UI taxes, and the state administers the fund to provide benefits.

 
2.  Solvency or Supplemental Fund:

• Acts as a buffer to ensure that the program remains solvent during periods of high unemployment.
• Typically, it is funded through additional employer contributions.
• Ensures that benefits can be paid even during economic downturns or times of increased claims.

 
Who Pays Each Portion?
1.  Employers:

• Employers pay all state UI taxes, including experience-rated and social cost components.
• Employers also pay a federal UI tax (FUTA) of 6% on the first $7,000 of each employee's wages, although they often receive a credit that reduces this rate to 0.6% if state obligations are met.

 
2.  Employees:

• In most states, the UI is entirely funded by employers. However, a few states allow employee contributions, and Washington State is not one of them. Workers in Washington do not directly pay into the UI fund.

Summary

Employers are solely responsible for funding Washington State's UI program, which consists of the Unemployment Insurance Trust Fund for benefits, and a Supplemental Fund for solvency. The system's design balances individual employer contributions with shared costs to cover broader economic risks, ensuring the program supports workers while maintaining fairness for businesses.

Stay tuned for part two. "​Breaking Down Washington’s Unemployment Insurance Taxes: Experience-Rated vs. Social Cost"