Governor Jay Inslee passed the nation’s first long-term care insurance (LTI) for Washington employees last spring. The LTI program mandates a payroll tax for Washington-based employees to pay for long-term care expenses. The statutory language provides that an employer “must collect” LTI premiums from employees through payroll deductions and remit them to the Employment Security Department (ESD).
The tax amounts to 0.58% of payroll, or 58 cents per $100 of income, meaning someone making $100,000 per year would pay $580 per year in taxes. The tax starts collecting on January 1, 2022, and is paid entirely by the employee. Unlike FICA and Paid Family Medical Leave (PFML) premiums, there is no employer obligation to pay a portion. An employee can claim exemption from this tax if they have private LTI insurance and opt-out by November 1, 2021.
Collective Bargaining Agreements From October 2017
The statute provides that employers and employees subject to a collective bargaining agreement (CBA) in existence on October 19, 2017, will not be subject to the tax until the existing contract is reopened or renegotiated by the parties or expires. Thus, if on January 1, 2022, an employer is a party to an unexpired CBA that was effective as of October 2017, that employer would not implement the LTI payroll deductions for the employees covered by that CBA until it expires.
Other Collective Bargaining Agreements
But what about union employees who are not covered by a CBA in existence on October 19, 2017? Must an employer bargain with the union before it may start collecting the mandatory employee tax?
The short answer is the employer is not required to bargain the legal mandate to start collecting the tax but should prepare to bargain the effects of the tax deduction upon request by the union.
Effects Bargaining Obligation
To satisfy an employer’s effects bargaining obligation, the employer must give the union adequate notice and the opportunity to bargain in a “meaningful manner and at a meaningful time” about the effects of changes to an employee’s working conditions, wages, and benefits. For both public and private unionized employers, best practices for implementing the new tax include:
- Communicate early to employees about the upcoming tax and their ability to opt-out if they have private insurance. Planning ahead can allow employees that want to consider private insurance to do so. Private insurance may provide a better benefit and may be more affordable to the employee.
- Prepare to collect and remit the payroll tax beginning January 1, 2022.
- Monitor the development of rules and statutory amendments addressing LTI implementation. ESD rules should be coming soon and may require employers to post notices explaining the tax deductions or how employees opt-out.
- Review your existing CBA to confirm existing language does not address a mandatory tax and effects bargaining.
- Send a notice to your union representative stating the intention to follow the law and start deductions of the mandatory tax on January 1, 2022.
- Be prepared for union requests to bargain the impacts of the new law: document all interactions and bargaining sessions or discussions.
- Engage in good faith effects bargaining; a union may seek higher wages or benefits to offset the impact of the tax. An employer is not required to agree to union proposals.
Employers should contact their payroll or tax advisor with any questions about this new law. For assistance with effects bargaining, eligible members may contact an Archbright Labor Attorney.