Governor Charlie Baker yesterday signed a two-year Unemployment Insurance rate freeze, along with a tax benefit for small companies that borrowed money under the federal Paycheck Protection Program.

The governor returned to the Legislature proposed changes to a COVID leave program for workers.

The unemployment measure is great news for employers, who will avert a 60 percent increase as a result of a two-year schedule freeze on employer UI rates at Schedule E for both 2021 and 2022. The signed law will also allow the state to bond the remaining deficit in the state Unemployment Trust Fund to pay back more than $2.2 billion in federal advances required to meet the overwhelming demand in COVID-19 benefit claims.

Separately, the bill will eliminate the 5 percent state income tax on forgiven Paycheck Protection Plan loans for pass-through businesses – including subchapter s corporations, limited liability corporations and limited liability partnerships – that used the money to keep workers on the payroll during the COVID pandemic. This is critical for those small businesses that would have otherwise faced increased tax liability as a result of PPP loans they took to help keep them afloat.

“This legislation takes a thoughtful and comprehensive approach in delivering critical relief to facilitate economic recovery for the people of Massachusetts,” Governor Baker said in a letter to the Legislature.

Associated Industries of Massachusetts, which led the effort to avoid the unemployment insurance rate shock, commended the governor and the Legislature for addressing the issue.

“The Unemployment Insurance rate freeze provides a tremendous boost to Massachusetts employers as they seek to begin the process of economic recovery. Associated Industries of Massachusetts and its 3,300 member companies worked diligently to support the freeze and we are grateful for the collaborative approach taken by the Legislature and the Baker Administration,” said Brooke Thomson, Executive Vice President of Government Affairs at AIM.

AIM worked with policy makers throughout the development of the legislation to ensure it balanced the needs of employers and workers, ensuring public-health protections and encouraging economic recovery.

In addition to the UI and PPP provisions of the language, the governor returned to the Legislature proposed changes to a COVID leave section of the legislation.

The COVID-19 Emergency Paid Leave provision passed by the Legislature would provide an additional 40 hours of paid leave to full-time employees if they are unable to work as a result of a COVID-19 infection or a quarantine order, and if the worker needs time to care for a family member unable to work because of COVID. Additionally, employees will be able to use paid leave time to take time off to receive the vaccine.

In his amendment letter to the Legislature, the governor is seeking changes that would eliminate differences between the state’s version and a similar federal mandate, and adopt the federal requirement that unemployed workers receive no less than their usual pay rate, up to $850, or two-thirds the rate paid for family leave.

In addition, Governor Baker is proposing to convert funding for the leave program to a tax credit of $40 per employee, whether or not employees take leave, for employers unable to access federal tax credits.

Based on the governor’s proposed amendment, the leave program would last through September 30, 2021.

AIM is reviewing the proposed changes to the leave section of the language and will provide comment to employers when the review is complete.