As I mentioned last week, this article is written from the perspective of both sides of the spectrum, as a New Hampshire (NH) employer legally obligated to pay unemployment tax, and in 1991, during the height of the New England recession, as a laid-off employee 'on the dole' glad to get the UC benefit, but feeling totally humiliated by the process.

Meet the New Hampshire Department of Employment Security. I always thought it bizarre they call themselves employment security, when everyone who trudges in there is unemployed and insecure! The NH Employment Security (NHES) Employer Handbook "states the Unemployment Compensation (UC) programme provides benefits to eligible workers who become unemployed through no fault of their own (five little words, so significant in their legal context and emotional meaning). These benefits paid are vital to the workers, their community and the State. They help to maintain purchasing power, reduce the hardship of unemployment, and stabilise the work force."

Fine words, but would that were truly so. UC works fairly well as a short-term buffer, but during the early 1990s recession, even extended benefits were exhausted in less than a year. With 45 percent of the construction companies in bankruptcy, a third of the lumber mills out of business, and the Federal Deposit Insurance Company closing down the five major New Hampshire banks, there were no jobs. One late Autumn day that year, the local paper in NH state capital (a town of 50,000 where I had worked) had two, count them - two, half-inch help wanted ads. In this bleak situation and unemployed myself, my husband (bless his heart) and I borrowed heavily and bought an insolvent financial service practice. The unemployed was transformed into an employer.

The meaning of no fault

What does it mean to be 'unemployed through no fault of their own? In order to even apply for a UC benefit, you must have worked 16 continuous weeks, with a minimum of 16 hours a week for the same employer. You must have been terminated by firing, or through loss of a job position. If you choose to walk off the job on your own, you cannot collect, plus if you try to do so, your former employer has the right to legally protest your claim.

If his/her evidence is irrefutable, you lose. A common ruse in the construction industry is to work the very minimum each week (16 hours) - of course you don't earn much - and toward the end of the eligibility period, provoke the employer into making you redundant. Mission accomplished, up to six months of laying about. Typically, this is seasonal, so that you can ice fish or go hunting for weeks on end.

Employers can also be very aggressive in using unacceptable means to reduce these taxes. Employees are harassed until the situation is so intolerable they quit. Employers terminate all their employees in one day, and then hire them all back the next, but not, and here is the key, as employees with benefits, such as UC, health insurance, social security tax and the withholding of income tax.

These former employees are called 'independent contractors' responsible for all of their own taxes and insurance. Our office saw many of these unfortunates, who had never thought of themselves as contractor businesses (of one), or understood what was required. Many, for the first time, fell into trouble with the Internal Revenue Service.

Playing the weekly dole game

The NHES is well aware of all the employee games and has some stiff rules regarding receipt of each weekly payment; never to be taken for granted and not paid immediately (there is a waiting period). As a redundantee, you must report each week to the NHES counsellors with real and convincing evidence that you have been diligently searching for new employment. If you have not found it, they mandate that if you are suitable you apply for jobs on their job match system. Obviously, they want you back to work as quickly as possible, and quite frankly, most people need another job, if only to restore their self respect. But some, as in any system, figure out the game, go through the motions, and somehow still manage to collect.

The UC Trust is monitored vigilantly; excess coverage for bankrupt businesses comes from the earnings of the fund. Employers who fail to meet their legally mandated responsibilities have the leverage of the State of New Hampshire applied against them. Of course, some simply fold up, leave town and set up shop elsewhere. The Internet and the long arm of the Federal Government (who have an interest in UC also, but that's another story) has become much more adept at tracking abusive company practices and enforcing collection while the company is still solvent.

How does employee turnover affect the UC tax on the business? It goes up, of course. If you own a business where employees come and go, not only do you pay three or four times for the same position, but at the end of each year the amount of the claims made against your UC account is rated. Remember, if the tax is levied on the first $10,000 of each employee's gross wages. Thus a payroll of $100,000 with a normal assessment of 1.7 percent will pay $1,700 annually. As your business accrues its reserves and if it has no claims, in subsequent years that rate may drop to less than one percent.

You do not, however, ever get a refund, even if you sell or go out of business. A construction firm with steady turnover may pay increasing percentages each year, topping out at a whopping 6.5 percent, that's $6,500 per year. In my case as a small employer/business owner, one of our employees had a terrible attitude, terrible work habits, perpetually late, nothing we tried for motivation worked, and reluctantly, we were forced to fire her. She managed to stay out of work the full six months, knowing well that my business UC tax would double.

We heard that two years later, she was terminated again from another job, and for the same reasons, which somehow did not make me feel much better. And for other redundantees, most of who are numb for months, those who were clients of ours - we had the awful task of informing them at the end of the year of their tax liabilities.

Not only had they struggled to put food on the table, had no money, and were just getting back on their feet, "but did they realise that unemployment compensation is taxable", and their tax bill is $1,600 higher than it was last year - when they had full employment? In an amazing sequence of government logic, the unemployment tax/compensation is taxed every time it is touched.

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The first part of this article was published in Moneywise on February 23, 2002. Should you wish a copy, it may be obtainable from The Royal Gazette on Par-La-Ville Road, or on the paper's website, www.theroyalgazette. com.

For those wishing to research, further information may be obtained from the New Hampshire Employment Security website, www.nhes.state.nh.us.

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Martha Harris Myron CPA CFP(tm) is a Certified Financial Planner (tm) (US) practitioner. She holds a NASD Series 7 license, is a former US tax practitioner and is the winner 2001-The Bermudian Magazine - Best of Bermuda Gold Award for Investment Advice.

Confidential e-mail can be directed to marthamyron northrock.bm

The article expresses the opinion of the author alone. Under no circumstances is this opinion to be taken as recommendations to buy or sell investment products or as a promotion for financial planning.

The Editor of The Royal Gazette has final right of approval over headlines, content, and length/brevity of article.