New Hampshire employers will likely see their unemployment taxes go up in 2009, and the commissioner of NH Employment Security says seasonal businesses are partly to blame.
While NH has one of the healthiest unemployment trust funds in the nation (used to pay unemployment claims benefits), it could be much healthier if the state was not paying out millions of dollars in unemployment to seasonal workers who get laid off each winter and rehired. The question of who are the intended beneficiaries of the fund is being hotly debated in the state.
My thought was at least the public should know what is going on, says Richard Brothers, commissioner of the NH Department of Employment Security, who held informational meetings for businesses around the state on this issue. The fact is the average businessman doesn't realize, every year, a few employers drain millions of dollars from the fund.
Employers now pay between 0.1 percent and 6.5 percent on the first $8,000 of wages per employee. At the lowest rates, employers pay $8 a year per employee. Employers who pay more in unemployment taxes than their laid-off employees receive in unemployment benefits are considered positive-rated employers. Those employers whose unemployment tax rate is less than 2.7 percent currently receive a 1 percent reduction on their unemployment tax rate.
The unemployment trust fund had $213 million as of August, below the $225 million threshold set by state law to retain that discount rate. A new law passed in the spring gives Brothers the ability to retain a smaller discount if the fund balance remains above $200 million and he thinks it would benefit the business environment. Brothers must decide the 2009 discount based on the fund balance on Sept. 30. All of that means the discount rate will likely drop to 0.5 percent in 2009. Since 62 percent of NH employers have never had layoffs, the discount reduction would affect a wide swath of businesses in NH.
That prospect prompted members of the Unemployment Insurance Advisory Council to ask Brothers for options. Brothers laid out five options, all of which involved raising rates for negative-rated employers. But, he says, it might be better to define seasonal workers and make them ineligible for unemployment benefits during times when their industry does not work, such as winter for construction workers and summer for school bus drivers.
Brothers stresses he is concerned about business that are chronically negatively-rated-those who regularly pay 10 times less into the system than their employees receive in benefits-and not companies that are forced into an occasional layoff due to the lagging economy. It's being viewed by some that we're supplementing their payroll, Brothers says, noting that in 2007, laid-off workers from negatively-rated companies received $19 million more in benefits than their companies paid into the system-the largest differential since 2003.
Equity Issues
Most of those employers are in the construction industry, which says it is being unfairly targeted. Gary Abbott of Associated General Contractors of NH says construction companies would have difficulty hiring if employees knew they couldn't receive benefits during the off season, and that would have repercussions statewide. [The] unemployment trust fund is like an insurance program, not a self-funded program, Abbott says, stressing that companies are following the rules and paying in. The law does not require seasonal employees to look for work to receive unemployment benefits.
Abbott notes there are other industries, as well as companies that go out of business and have mass layoffs, that are also taking out much more than they put in. Brothers agrees fairness is a central issue, but disagrees with Abbott on how it should be achieved.
Most states are like NH in that seasonal workers can collect months of unemployment. However, If NH were not paying out millions a year to a handful of negatively-rated employers, the trust fund would grow exponentially and employers in good standing would receive the maximum possible discounts within four years, Brothers says. And even within job categories, unfairness exists. Brothers notes that bus drivers working for school districts cannot collect unemployment during the summer, but those working for a private company can.
NH in Strong Position
States are required by law to have a trust fund capable of handling the worst recession they have seen in the last 20 years. For NH, that was in 1990 and 1991 and required paying $180 million in benefits, well below the current balance.
According to the National Employment Law Project, nearly half of the states in the country have trust funds that are near insolvency or worse. The nonprofit group placed NH in the second-best category with eight other states, though Brothers says NH should be in the top 13 with Maine and Vermont. Connecticut, Massachusetts and Rhode Island all have funds deemed less than solvent based on that report.
The last time NH employers in good standing did not receive a discount was during two quarters in 2004 following a recession. In 2003, negative-rated employers charged $36 million more in benefits than they paid in taxes. Deputy Commissioner Darrell Gates says, This time will not be that kind of drain. Brothers says more employers this year are doing temporary layoffs in an attempt to keep more people employed.
We want to be certain we always pay for actual layoffs that occur as a result of the downturn in the economy, Brothers says.
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