How unemployment insurance offers assistance in tough times
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The Speech from the Throne 2020, delivered by John Rankin, the Governor, on November 6, contained the following paragraph on a proposed unemployment insurance.
“The precarious position of businesses and the potential for additional economic contraction have demonstrated a clear need to provide unemployment insurance and strengthen the ability of employers to meet their statutory obligations in the event of redundancy of employees. As part of the tripartite dialogue series initiated by the Ministry of Labour, these issues will be the subject of that collaborative process to promote a secure environment in which employers and employees can equally meet their obligations.”
Well, readers, this left me completely confused. Government is already providing unemployment benefits to so many that have lost jobs due to impact of Covid on local businesses.
Is this a new legislation proposal, a renewal of an old one, or something else where “employers and employees equally meet their obligations means that both contribute?”
Let’s start at the beginning.
Unemployment Insurance – it was the new, new thing. In 2002, the Bermuda Government budget contained a brand new, almost revolutionary line item, the ‘seeding’ germs of an unemployment insurance fund. Indications were that there would be a white paper forthcoming sometime in the next year, with government looking for business sector input.
The Bermuda Government Public Treasury (Administration and Payments) Act 1969 in 2002 March 18, under Section 10B, established an Unemployment Insurance Fund (UIF), “which sums of money have been set aside in the Consolidated Fund for that purpose…..said monies paid into the Insurance Fund shall be invested in accordance with the Public Funds Act 1954 with interest earned applied to the Fund”.
In August 2011, in Section 10BA of the Act, the Minister (at that time) directed the Accountant General to pay out of the UIF sums to assist unemployed persons, with proper accounting, correctly made and authorised.
In 2011, a further amendment under 10BC, the UIF could be dissolved if “there is no object for which the Fund could lawfully be used with the allocated monies returned to the Consolidated Fund”.
This year, Government passed the Public Treasury (Administration and Payments) (Temporary Unemployment Benefit) Regulations 2020 Section 4(1) to assist individuals who are or were employees of a business, or self-employed that “has been directly impacted as a result of Covid-19.” Said individuals must satisfy criteria under 4(2-4). Those persons already receiving benefits under the Financial Assistance Act 2001 are not qualified to apply for unemployment benefits.
A review of generic unemployment insurance.
It is a tax levied on employers’ (and in some countries both employee and employer) payroll, which is paid into a fund, then, invested in conservative investment instruments which allows growth while managing claims made against the fund pool of contributions.
The unemployment benefit process consists of a series of marginal payments to redundant employees, with a definitive monetary support shelf life, say 30 weeks, at which time it is assumed the individual(s) had procured another job.
Generally, an unemployment benefit is a stopgap, a weekly subsistence, barely enough to put food on the table, just to keep you going until you find another job.
It will not pay the rent or a big mortgage and in some jurisdictions the income received is subject to taxation, a figurative aftermath coup-de-grace.
This short-term support is generally not extended. Those unsuccessful at obtaining new jobs are left to survive as best possible, or seek welfare assistance.
How is unemployment insurance funded? For a number of years in another jurisdiction, Moneywise had a first-hand employer’s perspective on the cost of supporting the unemployment fund. The tax is levied on almost all business structures, corporations, partnerships, limited liability companies, sole proprietorships, non-profit organisations and so on. In the usual irony, a sole proprietor must pay for his employees, but is not – himself or herself – eligible to claim unemployment.
Such funding comes directly out of the profits (and the losses) of business operations. Even a struggling start up company, or one falling on hard times must pay unemployment tax, payroll tax, social insurance, and workers' compensation. Failure generates stiff penalties, levies, possible garnishment of bank accounts, and attachment of other company assets.
Nor, is this tax uniformly assessed.
New businesses may pay considerably less than a more established business.
The percentage base for all businesses is determined by actuarial computations after research into the total employee pool in an area, but the real ‘bite’ occurs in the experience modifier of each business itself.
The rates are not computed like workers' compensation insurance where occupations are rated by risk hazard, e.g. loggers pay more than 100 per cent of each dollar earned as fatalities and loss of limb are far higher risk, while clerical staff assessment is low because the incidence of extreme injury is almost non-existent.
Generically, unemployment tax is levied on an increasing sliding scale based upon the employee turnover in the business. The owner is taxed on each employee working in the business up to a defined wage threshold. Businesses with consistently high employee turnover, such as the construction industry, may end up paying multiple times more than a small service group whose assessment may be less than 1 per cent of total wages per month. This places considerable pressure on owners to leverage employee retainage, but can be problematic for managing recalcitrant workers.
The qualifying for unemployment process. There may be no reason, or say, a recession impact, the result is the same.
Having experienced redundancy (laid off) three times in four years during one recession, then hitting bottom with no job in sight, may allow one eligibility to collect a generous $100 a week benefit. The situational reality, however, is devastating, particularly when standing in line to collect benefits with other depressed redundantees.
Still, when your job security is pulled out from under you like a cold wet blanket, you are most grateful for that small unemployment cheque each week.
In the concluding part two, Moneywise will look at the questions: Does unemployment change the way management treats employees? Do individuals on both sides manipulate the system?
Martha Harris Myron, CPA JSM, a native Bermudian, is author of The Bermuda Islander Fundamental Financial Planning Primers: Books 1-8 with all specifically focused on Bermuda financial and economic matters, international financial consultant to the Olderhood Group Ltd Bermuda, and financial columnist (since 2000) to The Royal Gazette, Bermuda. All proceeds from these articles are donated by The Royal Gazette to the Salvation Army, Bermuda.