The New Unemployment Insurance Law: What Your Corporation Needs To Know

Are you an owner or officer of a Washington State corporation? Does your company have employees other than officers?  If you answered 'yes' to both of these questions, you need to know about a big change in Washington law that could affect your bottom line. 

The New Law

On January 1, 2009,  a new Washington law went into effect that automatically covers corporate officers for unemployment insurance unless the corporation specifically exempts them. If the corporation does not seek the exemption, it must report its officers as employees and must pay unemployment insurance taxes on the officers' wages each quarter.  This is a total reversal of the prior law requiring corporate officers to opt in in order to receive unemployment insurance coverage. 

Why The Change?

Unemployment insurance provides a safety net for workers who lose their jobs due to layoffs, downsizing, and the like. Employers fund the insurance program through payroll taxes paid on behalf of their employees.  Until recently, corporate officers were not considered to be employees of corporations, and therefore were automatically exempt from unemployment insurance coverage unless they specifically opted in. However, fraudlent claims for unemployment benefits by exempt corporate officers have been on the rise for years, which has led to the near-depletion of the unemployment insurance trust fund.  As a result, the ESD sought to protect the fund by changing the provision from opt-in to opt-out.  This change will help keep the trust fund solvent - particularly important in this time of employment uncertainty.

Who The Law Does – And Doesn’t – Apply To

The new law applies only to corporations with employees.  If your company is an LLC, a limited partnership, or a sole proprietorship, this law does not affect you.  If your company is a non-profit, you probably don’t need to worry about this law; most non-profit officers are volunteers, not employees.  If you’re unsure whether or not your non-profit is exempt from this law, get advice from an attorney. 

If your company has no employees other than corporate officers, it is most likely not considered an employer.  Therefore corporate officers will continue to be uncovered, so you need not file for an exemption. Again, check with your attorney if you are unsure.

What To Do Next

If your company is willing to pay taxes to ensure that officers are covered by unemployment insurance, you don’t need to do anything. The new law will automatically require the you to pay taxes on officer wages each quarter.  If, however, you want to exempt officers from coverage, you must submit an exemption form. The form is located at www.tax.go2ui.com. Click on "Exempting corporate officers," choose whether the corporation is private or public, and follow the steps.  It is important to note that once an officer is exempted, he or she cannot be reinstated until at least 2014.

Time Is Of The Essence

Exemption requests must be postmarked by Jan. 15, 2009, for the exemption to take effect in 2009.  If the request for exemption is received or postmarked after Jan. 15, the exemption will not take effect until 2010.