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Limitations of unemployment benefits

Cash boost: unemployment benefits can offer a financial lifeline to those in need in the short term (File photograph)

Readers, The Dawn of New Beginnings, Book 1 of the Bermuda Islander Financial Planning Primer Series, featuring Step 6, Your Basic Budget Tracking Income and Expenses, will be posted on Monday, November 30. Be sure to use the link https://www.royalgazette.com/bermuda-islander/ as searching Google links for Bermuda Islander leads to Bermuda shipping news. Many thanks to our new sponsor, the CPA Association of Bermuda.

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!

As stated last week, this article is written from the perspective of both sides of the spectrum, as a an employer legally obligated to pay unemployment tax, and during the height of a prior jurisdictional recession, as a laid-off employee “on the dole” glad to get the Unemployment Compensation benefit, though totally humiliated about the job loss.

Meet an illustrative Department of Employment Security. I always thought it bizarre they call themselves employment security, when everyone who trudges in there is unemployed and insecure!

This Employment Security Employer Handbook “stated 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 are vital to the workers, their communities and the state/country. They help to maintain purchasing power, reduce the hardship of unemployment, and stabilise the work force.”

Fine words, but would that were truly so.

In the US, UC works fairly well as a short-term buffer, but during a lengthy downturn, extended benefits can be exhausted in less than a year.

What does it mean to be “unemployed through no fault of their own”?

In order to even apply for a UC benefit, the employee person must have worked 16 continuous weeks, with a minimum of 16 hours a week for the same employer. The individual must have been terminated by firing, or through loss of a job position, eg obsolescence, bankruptcy.

If the individual chooses to walk off the job on his/her own, he/she cannot collect benefits, plus if individuals attempt claims, their former employer has the right to legally protest their claims. If the employer work-related evidence is irrefutable, the individual petitioning loses.

An interesting employee tactic in the construction industry where employee turnover is high, is to work the very minimum each week (16 hours) and towards the end of the eligibility period, provoke the employer into making him or her redundant.

Mission accomplished, up to six months of free paid time off. Typically, this is seasonal, so in northern climates one can log wood, go hunting for weeks, or in more amenable climes, fish, take side hustles, and get by. Then, when the four to six months of benefits are depleted, the person can repeat the process - quite successfully for a while. However, firms do appeal claims, and win.

Playing the weekly dole game. State and government agencies are experienced and aware of these fraudulent employee games.

• The redundantee must report each week to the UC counsellors with real and convincing evidence of diligent job searches

• No success means he/she must apply for jobs on their job match system

• UC agency finance dictates getting individuals back to work as quickly as possible

Truly, everyone needs a job. Employment is identity and self-respect.

Employers, too, can be aggressive to keep UC claims low.

Employees are harassed until the situation is so intolerable, they quit.

Employers will terminate employees. Then rehire them, but not and here is the key, as employees with benefits: UC, health insurance, social security, etc.

These former employees are now called “independent contractors” responsible for all of their own taxes, benefits, and insurance.

Individuals, who had never thought of themselves as a contractor business (of one), or understood what was required, found themselves in trouble with government tax agencies. In 2019, a real life case, Uber settled two class-action lawsuits by drivers where the company had classified drivers in California and Massachusetts as independent contractors rather than employees.

The UC Trust Fund is vigilantly monitored.

Employers who fail to meet their legally mandated responsibilities meet aggressive agency leverage.

Bankruptcy does not avoid UC claims as public trust fund protection takes precedence over ordinary creditors – when liquidating the remaining business assets.

Some firms, in avoidance, quietly fold up, and relaunch elsewhere. internet clarity and the long arm of these government agencies are highly adept at tracking abusive company practices and enforcing collection.

How does employee turnover affect the UC Tax on the business? It goes up, of course.

A business with high employee turnover may pay three or four times for the same position, while at year end, the UC account turnover is rated and taxed upwards accordingly.

Example: if UC tax is levied on the first $10,000 of each employee’s gross wages, payroll of $100,000 with a normal assessment of say 1.7 per cent will pay $1,700 annually.

Businesses can accrue reserves due to very few claims, earning significant rate reduction.

A high turnover business, eg construction, will incur in comparison increasing rates each year, to a whopping 6.5 per cent, that’s $6,500 per year.

Further, businesses never get a refund, even when sold, or wound up.

Redundantees themselves, as one who observed that he/she had been in a numb-like state for months struggling financially to put food on the table and was finally getting the family back on their feet, had just been informed that his/her unemployment compensation was also taxable income.

In case, the family, so cash and job poor, left the key in the family home and moved away.

In an amazing sequence of completely illogical government logic, the unemployment tax-compensation is taxed every time it is touched.

Martha Harris Myron, CPA JSM, a native Bermudian, is author of The Bermuda Islander Financial Planning Primer Series, International Financial Consultant to the Olderhood Group Ltd Bermuda, and financial columnist (since 2000) to The Royal Gazette, Bermuda. Her website is www.pondstraddler.com. Contact her at martha@pondstraddler.com. All proceeds from these articles are donated by The Royal Gazette to the Salvation Army, Bermuda.

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Published November 28, 2020 at 8:00 am (Updated November 27, 2020 at 12:47 pm)

Limitations of unemployment benefits

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