Employers with Washington employees should start preparing for the Washington Long-Term Services and Support Program (“Program”), which requires employers to implement payroll deductions beginning on January 1, 2022. The Program is the first-in-the-nation state-run long-term care insurance that provides up to $36,500 to eligible residents who need assistance with activities of daily living. Benefits will be available to individuals beginning on January 1, 2025.

Compliance Snapshot

  • Employers are not required to contribute to the Program, though they are required to collect premiums from Washington employees and remit them to the Washington State Employment Security Department.
  • Beginning January 1, 2022, employers are required collect premiums through a payroll deduction equal to 0.58% of employees’ wages (with no cap).
  • Employees can receive an exemption from paying premiums if they have long-term care insurance and apply for an exemption from October 1, 2021 through December 31, 2022. Employers are not required to take payroll deductions from exempted employees after they are notified of the exemption.

Background

In 2019, Washington state enacted the Long-Term Services and Supports Trust Act, which is designed to provide eligible residents with up to $100 per day, with a maximum lifetime limit of $36,500 (adjusted for inflation), to pay for long-term care services including professional care at home or nursing facilities, care by family members, home-delivered meals, dementia support, and adaptive equipment (e.g., wheelchair ramps). Benefits will be available beginning on January 1, 2025.

The Washington Employment Security Department (ESD) is currently developing rules to implement certain provisions of the Program. ESD has released Phase 1 and 2 of the proposed rules, which are scheduled to go into effect in June 2021 and September 2021, respectively. The ESD outlines a timeline of the implementation of the Program here.

In addition, the Washington legislature is currently considering amendments to the Program (HB 1323), which, among other things, would make it more difficult for employees to obtain an exemption from paying the required premiums. At the time of this publication, HB 1323 has passed the House and is awaiting passage by the Senate.

Frequently Asked Questions

Below we review frequently asked questions on employer responsibilities and how employees can opt-out of the Program based on the proposed rules. Please be aware that this information may change based on legislative or regulatory changes.

Who is eligible for benefits under the Program?

Washington residents over the age of 18 will be eligible for benefits if:

  • They were not disabled before the age of 18 (if passed, HB 1323 would eliminate this requirement);
  • The Washington Department of Social and Health Services determines they need assistance with at least three activities of daily living such as medication management, personal hygiene, eating, dressing, and cognitive impairment; and
  • They contributed Program premiums:
    • For a total of 10 years without an interruption of 5 or more consecutive years AND worked at least 500 hours during each of the 10 years; or
    • For 3 years within the last 6 years from the date they apply for benefits AND worked at least 500 hours during each of the 3 years.

Individuals who move out of state or who do not meet the minimum contribution requirement will not be eligible for benefits, even if they contribute to the Program. In addition, employees who apply for and receive an exemption from the Program are not eligible for benefits (exemptions are discussed below).

How is the Program funded?

The Program is funded through a “premium assessment” (i.e., tax) on employee wages beginning on January 1, 2022. Initially, the tax will be 0.58% of employees’ wages. Beginning January 1, 2024, and every 2 years thereafter, the tax will be set at a rate (no greater than 0.58%) necessary to maintain the solvency of the Program.

Are employers required to contribute to the Program?

No, employers are not required to contribute to the Program, though they are required to collect premiums from employees and remit them to Washington State ESD, as outlined below.

What are employers required to do?

Beginning January 1, 2022, employers (including out-of-state employers) must:

  • Collect premiums each pay period through a payroll deduction equal to 0.58% of employees’ wages (employers are not required to take payroll deductions for exempted employees);
  • Remit employee payroll deductions to the ESD quarterly (which are due by the last day of the month following the end of the calendar quarter being reported); and
  • Retain written notifications of employee exemptions.

Notice Requirements: Currently, there is no explicit requirement for employers to notify employees of the Program. However, employers may want to proactively notify employees of the new tax on wages and be prepared to answer employee questions. It is important to note that a notice may be required under forthcoming guidance.

Which employees are subject to the tax?

All employees employed in Washington are subject to the tax. Employees are considered “employed in Washington” if their:

  • Services are performed in Washington; or
  • Services are not localized in any state, but some services are performed in Washington and the employee bases their operations or directs services from Washington (or, if there is no state where the employee bases their operations or directs services, the employee resides in Washington).

Employees subject to a collective bargaining agreement in existence on October 19, 2017 and self-employed individuals are not subject to the tax (unless self-employed individuals choose to opt into the Program).

What wages are subject to the tax?

The tax applies to all wages and renumeration, including salary and hourly wages, stock-based compensation, commissions, bonuses, holiday pay, most paid time off, and severance pay. There is no cap on the amount of wages in which the tax applies. For more on what wages are subject to the tax, see section 192-910-005 under the proposed rules.

Can employees apply for an exemption to the tax?

Yes, individuals can apply for an exemption if they are over the age of 18 and attest that they have long-term care insurance. Individuals must apply for an exemption through the ESD, which will only accept applications from October 1, 2021 through December 31, 2022. No applications will be accepted after December 31, 2022.

If an exemption is approved, individuals will not be required to pay taxes to fund the Program and will be ineligible for benefits under the Program. In addition, employers will not be required to take payroll deductions for these individuals (as explained below).

What long-term care insurance is required for an exemption?

Employees must have long-term care insurance that provides for the payment of necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services related to cognitive impairment or the loss of functional capacity in a setting other than an acute care unit of a hospital. The policy must provide coverage for at least 12 consecutive months. For a comprehensive definition of the required long-term care insurance, see RCW 48.83.020.

Under the current rules, employees must have long-term care insurance at the time they apply for the exemption (meaning they must have insurance by the end of the application period on December 31, 2022). However, the Washington legislature is considering an amendment to the Program, which would require employees to have long-term care insurance by the “effective date of the bill” (i.e., 90 days after the end of the legislative session in which the amendment is passed). If the amendment is passed during Washington’s current legislative session (which ends on April 25, 2021, unless extended by a special session), employees would have until July 24, 2021 to obtain long-term care insurance needed for the exemption.

How do employers know if an employee is exempt?

Exempted employees are required to provide written notification to all current and future employers to notify them of their exemption. Exemptions will take effect on the first day of the quarter after the exemption is approved and employees cannot receive refunds premiums paid prior to the exemption.

What are employers’ obligations with respect to exempted employees?

Employers are not required take payroll deductions for exempted employees after they are notified of the exemption. Employers are required to retain written notifications of exemptions.

If an exempted employee does not notify their employer of the exemption and the employer continues to take payroll deductions, the employee will not be entitled to any refund of payroll deductions taken before the employer is notified.

If an employer takes payroll deductions after being notified, employers are solely responsible for refunding those amounts to the exempted employee and will not be entitled to a refund from ESD.

What happens if an employer is found to be non-compliant?

If ESD finds that an employer is non-compliant with collecting premiums from an employee:

  • Past due taxes may be deducted from the employee’s paycheck (alternatively, employers may pay the past due premiums); and
  • The employer must file an amended report and pay the past due premiums.

Is the Program valid under federal law?

A question still remains whether the Program is preempted by The Employee Retirement Income Security Act (ERISA), a federal law that sets rules and standards for plans established or maintained by employers for the purpose of providing medical, surgical, or hospital benefits in the event of sickness, accident, disability, death, or unemployment. Under the doctrine of preemption, when a state law interferes or conflicts with a federal law, the federal law displaces the state law.

Some have argued that the Program conflicts with ERISA because it applies to the same type of plans that the ERISA governs (e.g., employer-maintained long-term care insurance that provides reimbursements for medical benefits in the event of sickness or disability). The Program is “employer-maintained” because employers are required to take payroll deductions and track exemptions. Further, the Program does not fall under an ERISA-exempted voluntary “payroll practice” because it requires participation by most employees.

Since the Program is arguably preempted by ERISA, parties may bring suit in federal court seeking to invalidate the Program. Employers should be aware that a legal question remains and should look out for lawsuits that may invalidate or delay the implementation of the Program.

Employer Action

  1. Identify which employees primarily work in Washington and are subject to the premium assessment;
  2. Connect with payroll to implement a 0.58% a payroll deduction for Washington employees beginning on January 1, 2022;
  3. Set up a process for collecting and maintaining employee exemptions and for communicating exemptions to payroll;
  4. Determine how to communicate the Program to employees and be prepared to answer employee questions; and
  5. Prepare to remit Program assessments to ESD quarterly. The first remittance will be due on April 30, 2022.

Additional Resources

Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2021 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved

Emerald Law – Emerald is a Client Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music and writing non-fiction.