Workers will soon pay more for temporary disability, family leave benefits

New Jersey workers can expect to pay more in family leave and temporary disability taxes in 2025 as the state fund that finances those benefits recovers from a major revenue loss.

Department of Labor officials told the Senate Budget Committee Thursday they expect the state’s disability benefits fund, which pays out temporary disability and family leave insurance benefits, will face a $442 million shortfall at the end of the fiscal year that begins July 1.

Though the state has proposed an interagency loan to fill the gap, workers are expected to pay hundreds of dollars more on average to fund those benefits as the state works past trends that saw those tax rates fall to zero or near zero in 2023 and 2024. 

“All this is set by statute. We don’t have flexibility in setting the rates. Whatever statute says we are going to do, we are going to do,” Labor Commissioner Rob Asaro-Angelo told the committee.

Department of Labor budget documents estimate the hikes would bring the average employee costs for temporary disability insurance for the year from zero to about $141, while those making at least $167,900 are expected to pay $341.13. 

In raw terms, family leave insurance rates would rise further. In 2024, the average worker is expected to pay $74 in family leave assessments, a rate of 0.09%. Officials forecast that average contribution would rise to roughly $242 — a tax rate of 0.30% — with an expected maximum contribution of $528 in 2025.

“The increase looks to be a billion dollars, and obviously this is a tax that is very regressive, not on the employer,” said Sen. Michael Testa (R-Cumberland). “It goes to the pockets of the hard-working New Jerseyans, the employees.”

Employees and employers pay temporary disability assessments, while the state’s family leave insurance program is funded solely by employee taxes.

Asaro-Angelo said the increases were caused by an “imperfect storm,” pointing to a 2019 family leave expansion that required the department to set rates for 2020 and 2021 using a new formula before reverting to the existing one in 2022.

Those estimates, already uncertain because officials could not calculate how the expansion would affect demand, were upended when the pandemic arrived.

Shutdown orders ballooned unemployment claims and depressed demand for temporary disability and family leave benefits. Statute barred labor officials from tweaking rates to account for the changes even as the program built a surplus that, by the end of fiscal year 2022, ranked at more than $1.2 billion, Asaro-Angelo said.

That surplus forced rates to or near zero in 2023 and 2024, and the fund’s reserves have dwindled. Next year, it faces a $422 million deficit that department officials have proposed filling with a loan worth up to $490 million from the general fund next spring.

“We look forward to working with this body coming up with fixes, like I said earlier, to standardize and stabilize and make this a more predictable rate for employers and employees alike. Until that point, we can only do what the statute says,” Asaro-Angelo said.

He added New Jersey’s rates would reflect those in other states with family leave and temporary disability programs even after the increase.

Unemployment tax rate expected to decline, but not yet

The commissioner had good news for businesses that have chaffed at high unemployment taxes the state has seen as a result of the pandemic.

In New Jersey, unemployment insurance rates are set based on the health of the state’s unemployment insurance trust fund and the ratio of a given employer’s payroll, unemployment contributions, and the unemployment benefits used by their current or former workers.

The record joblessness seen after the pandemic hit drained the trust fund’s surplus and forced New Jersey to take federal loans — which have since been repaid — to continue meting out unemployment benefits.

But the fund is now recovering as utilization falls and employment remains largely steady, and Asaro-Angelo said the state unemployment tax paid by businesses could fall in the fiscal year that begins July 1, 2025.

“Right now, we’re still in column D for employers. We’re hoping to get to column C next fiscal year, I hope maybe,” the commissioner said, referring to fiscal year 2026. “But with employment growth, we feel very confident with the health of the fund at this point in time.”

Column D unemployment tax levies range between 0.6% and 4%, depending on a business’s use of unemployment benefits, while column C’s levies have a 0.5% floor and a 3.6% ceiling.