Until last month, it was perfectly legal for seasonal workers to collect unemployment benefits for up to nine months – as long as they had what is known in Department of Labor parlance as a “return to work date.”
The department put an end to what is widely viewed as a generous extension of benefits on Oct. 16 when it began to require laid-off employees to look for work after 10 weeks. Since the mandate was put in place, the state has seen a reduction in “return to work” claims. About 150 people have already dropped out of the unemployment system, according to Annie Noonan, commissioner of the Vermont Department of Labor.
The Legislature gave the commissioner the authority to change the rule as part of a deal with the Douglas administration to shore up the bankrupt Unemployment Insurance Trust Fund. The law, passed in 2010, increased taxes for employers and decreased compensation for beneficiaries. Several of the provisions – including a one-week waiting period and an increase in the taxable wage base — will be implemented this year.
Gov. Peter Shumlin said the 10-week rule for seasonal workers is another step toward bringing the fund into the black by 2015 and bolstering the state’s economy at a time when some seasonal employers are having difficulty finding workers — in spite of the 5.6 percent unemployment rate.
“I know a situation where someone became unemployed and they’re enjoying the beaches in a southern state and they’ve been down there for four months,” Shumlin said at a press conference last week. “I said maybe under the old system, but not under my administration. They have 10 weeks, then they have to go look for a job.
“The Unemployment Trust Fund is intended to cover the gap between the misfortune of being laid off and finding a new job, it’s not supposed to be a support system for months and months and months,” Shumlin told reporters.
Though unemployment rates have dropped from 7.4 percent at the nadir of the Great Recession (May 2009) to 5.6 percent this month, the Fund is still stressed. In February 2010, the fund went bankrupt, and the state began borrowing from the federal government to pay for benefits and it continued to operate the program on credit as recently as April of this year. At this juncture, the state owes $77 million and is paying interest payments of 4.1 percent a year. The interest payment from the General Fund was about $2.1 million this year; it could be as high as $3 million in 2012, officials say.
The projection for bringing the fund back into balance is ahead of target, and the state has been slowly building a reserve fund, which is now at $55 million. Still, Noonan said the department is bracing for an uptick in unemployment rates during the winter months when contractors, farmers and other seasonal employers drop workers.
Rep. Dave Sharpe, D-Bristol, said lawmakers wanted to address the issue of benefits for employees with return to work dates but they couldn’t reach an agreement during the intense negotiations over tax increases and benefit cuts. Vermont has one of the highest rates in the country of seasonal workers with call-back dates who rely on unemployment benefits, he said.
“It’s reasonable to ask people who are out of work for that long to look for work,” Sharpe said. Because unemployment compensation isn’t enough to live on, he said it’s common for temporary workers to pick up under-the-table contract employment in the off-season. Sharpe, who remarked that these workers aren’t “playing by the rules,” said he’ll introduce legislation this year based on a successful program in Maine that would make it possible for laid-off workers to receive benefits and start new businesses.
Ski areas support the rule
About 8,446 seasonal workers with return-to-work dates received unemployment benefits in 2010. The pay out that year was $40 million – or about one-third of the total amount the state distributed in compensation to laid-off workers that year, according to Noonan. She couldn’t say how much the new rules would save the state in future.
The biggest seasonal employers include the construction industry, manufacturers, retailers and hoteliers, according to Department of Labor data.
In many instances, the amount these businesses put in is less than what the state pays out in benefits to employees, putting the state in the position of effectively subsidizing employers that issue call-back dates. The most dramatic example of lopsided payouts is in the construction industry, which has been hit especially hard by the Great Recession. In 2010, the state distributed $32 million in compensation for laid-off construction workers; the department collected just under $10 million in taxes from construction companies that year, according to statistics from the Department of Labor.
The 10-week rule will level the playing field between “negative balance employers” (businesses that pay in less than their employees draw out) and companies that are paying in more than their workers receive in benefits, Noonan says.
“The unemployment system is intended to assist workers who find themselves unemployed through no fault of their own and help them transition to new job,” Noonan said. “We don’t believe the system was developed for employees to work three to six months a year and then take rest of the time off.”
Amanda Ibey, government affairs director for the Home Builders and Remodelers Association of Vermont, which represents residential contractors, said most of her members employ small crews to work through winter so they can avoid “this seasonal issue with a return to work date.”
Parker Riehle, executive director of the Vermont Ski Areas Association, applauds Noonan and Shumlin for saving the state more money and taking “proactive steps to help folks find replacement employment.”
“It’ll reduce the burden on the system, and that’s great for the sake of Unemployment Insurance Fund and the economy in general,” Riehle said.
The ski industry employs about 12,000 workers in the winter months; about 9,000, or 75 percent, are laid off when the season ends, Riehle said. Most of the state’s resorts don’t issue call-back dates for workers, he said, because they don’t want to stress the unemployment system.
Riehle said he anticipates that resorts will be more inclined under the 10-week rule to issue call-back dates for employees as a way of offering them job security.
Higher taxes, lower benefits equation
Meanwhile, though some of the provisions in the 2010 legislation are in place, several more won’t go into effect until the New Year.
State officials have increased the tax base for the unemployment system over the last several years to help bridge the gap between the amount of benefits paid out to workers and the total taxes contributed by employers. They also cut unemployment benefits, which were considered to be more generous than those offered in many other states.
As of Jan. 1, 2012, employers will have to pay state unemployment taxes on the first $16,000 worth of compensation for each employee. In 2008, the taxable wage base, as it’s called, was $8,000. The increases in the total tax payments have been graduated over a two-year period. In 2010, employers paid an unemployment tax on the first $10,000 in employee wages, and in 2011, the taxable wage base was increased to $13,000.
The taxable wage base had not been increased since 1983. More was paid out in benefits than was supported by state unemployment taxes for 14 years out of a 20-year period that began in 1989, according to a report from the Department of Labor. The $8,000 wage base in 2009 was the equivalent of 22 percent of the average wage in Vermont, as compared with 50 percent in 1989.
On the flip side, Vermont’s maximum weekly benefits are on the high end at $425 per week, compared with other states nationwide, though two of our neighbors — New York and New Hampshire — are on par.
The maximum weekly benefit for laid-off workers has been frozen at $425 per week. In addition, as of July 1, 2012, all beneficiaries will have to wait one week before becoming eligible for benefits.
Vermont ranked 9th highest in the country for the percentage of unemployed workers receiving compensation. About 48 percent of laid-off workers received benefits in 2009.
Want to read more? Check out this story about the 2010 legislation. Or read this piece by Kevin Kelley of Seven Days about return to work rules.
ProPublica’s 2011 graph that shows how the fund has been depleted.
Download the Department of Labor report,Unemployment Insurance 101, April 30, 2010.
