On October 6, Nevada’s Department of Employment, Training, and Rehabilitation (“DETR”) published an official notice of a statutorily mandated workshop resulting from its proposal to increase Unemployment Insurance (“UI”) taxes for all Nevada businesses. DETR’s proposal seeks to amend the UI Contribution Tax Rate Schedule set forth in Nevada Revised Statute § 612.550 and more fully described in Nevada Administrative Code § 612.270 by changing the reserve ratios for all 18 tax classes, which would increase payroll taxes on all 54,368 Nevada employers. The proposal would cause an average tax rate increase of .35%. If implemented, DETR’s proposal would go into effect as early as January 1, 2022.
Nevada’s unemployment system functions similarly to insurance where employers pay taxes into Nevada’s unemployment insurance trust fund according to a statutory formula (the “Reserve Ratio”) based on each business’s employees’ taxable wages, the business’s history of layoffs, and the amount of benefits charged to an employer under the UI system. When a Nevada employer terminates employees, layoffs generally increase the business’s future UI taxes due to the “Experience Rating” given to Nevada employers, which normally uses a three-year average of UI contributions, less UI benefits charged to that employer, divided by the average taxable payroll. In short, increased layoffs generally lead to more benefits being charged to that employer through Nevada’s UI system, which will decrease the Reserve Ratio. A lower Reserve Ratio, in turn, will increase an employer’s future UI taxes.
However, and perhaps most importantly, DETR’s proposal fails to mention whether its proposed changes will account for the historical layoffs that occurred during the COVID-19 pandemic for most employers. As currently drafted, DETR’s proposal does not include any modification to how the Reserve Ratio is calculated to account for the difficult decisions made by Nevada employers to lay off workers in the face of an unprecedented pandemic. If left in its currently drafted state, DETR’s UI tax increase will likely cause many businesses to pay substantially more taxes than the estimated .35% increase DETR suggests.
DETR’s proposal comes at a time when it recently praised Nevada’s legislators and Governor Steve Sisolak from sparing Nevada businesses of the “brunt of repaying the depleted Unemployment Trust Fund” due to their appropriation of $335 million of federal American Rescue Plan Act of 2021 (“American Rescue Plan”) funds to Nevada’s UI trust fund. Yet, DETR’s proposal would have a clear impact on Nevada businesses that would be the primary source of replenishing a depleted fund. DETR’s proposal further fails to mention whether DETR is seeking additional funds allocated to Nevada under the American Rescue Plan, or any of the other federal COVID-19 stimulus packages, in lieu of raising taxes on Nevada businesses. Such an action could potentially help protect Nevada businesses, ensure long-term solvency for Nevada’s UI trust fund, and provide a safety net to Nevada workers without raising taxes on Nevada businesses at a time when many are continuing to struggle as a result of the COVID-19 pandemic and government regulations.