Important Update—Should Employers Withhold WA Cares Fund Premiums Starting January 1?

This is an updated version of a previous blog we published on statements issued by Washington Governor Jay Inslee and the legislature regarding the WA Cares Fund.

On December 17, 2021, Washington Governor Jay Inslee and the legislature issued statements encouraging employers not to withhold WA Cares Fund premiums. Then, on December 23, 2021, Governor Inslee backtracked and issued the following statement, indicating that the state of Washington will withhold WA Cares Fund premiums from state employee wages:

The Legislature has committed to changing the law in January 2022, including delaying the premium collection timelines.

As I stated clearly earlier this week, I do have the ability to order the state Employment Security Department to refrain from collecting from those premiums from employers at this time, and I have done that.

As an employer, the state of Washington is following the law and will have to begin collecting money from state employee paychecks as of January 1st. We know that many other private employers are doing the same, and others are hoping that the Legislature will change the law. However, if the Legislature fails to do so, employers will still be legally obligated to pay the full amount owed to state ESD to begin the long-term care program.

The Legislature will have an opportunity to fix their bill starting on January 10 when they convene for the session. It is my hope that they will do that quickly in order to provide clarity to employees and employers. I have considerable confidence that the Legislature will fix this problem.

This statement further confused private employers regarding their obligations under WA Cares Fund, including whether employers should follow the prior recommendation to not withhold premiums or start collecting premiums on January 1, 2022. Given the high likelihood that the legislature will materially revise the collection and timing of the premium payments, and ESD's agreement to not impose penalties on employers, it is likely many employers will decide not to collect premiums starting January 1, 2022, until the legislature reconvenes and takes further action.

If, however, the legislature does not follow through on lawmakers' published statements to amend WA Cares Fund, employers could be left owing premiums on behalf of employees who have left employment or who otherwise have insufficient wages from which to pay premiums by the April 1, 2022, deadline.

Despite this risk of owing premiums for a small group of employees, employers may nevertheless decide not to collect premiums starting January 1, 2022, for the following reasons:

• Employers that do withhold premiums will likely be required to refund those premiums to the affected employees, which will likely involve a manual process;
• Premature withholding may raise employee relations issues;
• Premature withholding could result in improper payroll deductions for employers that have not yet processed all employee exemption requests;
• The state's current withholding guidelines under WA Cares Fund may violate federal law, which requires employee premiums to be deposited in a trust account as soon as reasonably possible after being deducted from an employee's wage (rather than commingled with the employer's general assets); and
• The April 1, 2022, deadline gives the legislature time to act, and the legislative leaders have indicated a desire to delay the withholding of the WA Cares Fund premium.

The announcements from the governor and the legislature have created confusion and uncertainty. If the governor and the legislature thought that withholding was the best course of action, they should not have issued statements implying that the legislature will resolve the issue retroactively.

The contradictory statements need to be clarified by the legislature. In the meantime, many employers may decide to rely on the legislative statements and choose not to withhold the WA Cares Fund premiums, as there are no state-imposed penalties for an employer's failure to withhold.