The Massachusetts House of Representatives approved a stand-alone Unemployment Insurance rate freeze yesterday that would avert an automatic $500 million tax increase on employers that took effect on January 1.

The measure freezing rates at the current Schedule E will now go to the Senate, which last Thursday passed a similar measure as part of a sweeping restructuring of the system that pays benefits to jobless workers. The timing of the Senate debate remains uncertain.

“The House deserves tremendous credit for moving quickly to avoid a catastrophic tax increase on employers,” said John Regan, Executive Vice President of Government Affairs at Associated Industries of Massachusetts.

“Employers are certainly interested in making long-term reforms to an antiquated unemployment system, but the immediate need is for Beacon Hill to enact a rate freeze before the Department of Unemployment Assistance sends out first-quarter tax bills in April.”

Representative Brian Dempsey, D-Haverhill, chair of the House Ways and Means Committee, acknowledged during debate that House leaders expect to  craft a UI reform bill, but that time is becoming short to avert the 33 percent rate increase. Speaker Robert DeLeo, D-Winthrop, has said he would like to link UI reform to a measure to increase the state’s $8 per hour minimum wage.

“The reason we are adopting the freeze today is really one of management because the bills have to go out and if we do not take action today it becomes a very challenging situation,” Dempsey told the House.

The Unemployment Insurance Trust Fund used to pay jobless benefits in Massachusetts currently enjoys a healthy balance of approximately $800 million.

The House approved the rate freeze as part of a larger $154 million spending bill.

Senate leaders said last week that their Unemployment Insurance reform bill is designed to stabilize UI tax rates for most employers and make those rates more dependent on the hiring and firing record of individual companies.

Under the Senate bill:

• The wage base upon which UI payments are calculated would rise from the current $14,000 per year to $21,000 per year in 2015, a change that by itself would escalate costs for employers.
• An expanded rate table would take effect in 2015, and rates would be set at a new Schedule C for 2015, Schedule A for 2016 and back to Schedule C for 2017. The expanded rate table should offset the effects of the increased wage base for companies with stable employment histories while raising rates for some companies that add and terminate workers frequently. Under the new rates, the most stable employers would pay $153 per employee per year, while the worst-rated companies would pay $2,337 per employee annually.
• Company UI taxes rates will be based upon the average of three years payroll instead of one, minimizing rate shock for expanding companies or those that encounter cyclical economic problems and find themselves having to lay people off.

AIM was disappointed that the Senate did not reduce the maximum duration of benefit weeks from 30 to 26 or increase the time people must work before collecting benefits, but the association expects to place those issues front and center when the House takes up its reform bill.