Did You Know That Non Profits Can Avoid Unemployment Insurance?

In case you didn’t know, 501(c)(3) organizations are not obligated to pay unemployment taxes.  Non profit organizations typically are not aware of this option since the state unemployment office rarely provides this information. Nonprofits can choose to protect themselves by participating in a private unemployment trust such as The Nonprofit Trust. Funding unemployment obligations this way can help nonprofits substantially reduce their costs, especially if the organization has over $1,000,000 in payroll.

The option has existed since 1972 which was when nonprofits were required to provide unemployment benefits to their employees. They were given an option that the private sector does not have – Becoming a reimbursing employer.
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Lets go in to a bit more detail. The employee laid off from a reimbursing employer still files a claim at the unemployment office and still receives checks from the department. The difference is a reimbursing employer does not pay unemployment taxes, but instead reimburses the state for actual unemployment claims paid on their behalf.
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So the only change is in how the organization funds the benefit. Typically they fund it by paying the unemployment tax, but this is rarely the best way for a nonprofit organization to fund unemployment claims because of the following:
  1. Nonprofit employees often make less in wages yet nonprofit employers are still charged just as much, if not more, than private sector employers.
  2. Nonprofit employers tend to have more part-time labor which actually increases unemployment tax expenses.
  3. Nonprofits usually have lower unemployment claims than private sector employers.
Contact a Risk Advisor at Metropolitan Risk Advisory to get more information about the program as well as our other cost saving programs.
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The tax system as a whole has contributed to the problem because:
  1. Due to the economy, unemployment taxes increased in 29 states last year. (Increases were as high as 161% in certain states).
  2. Over 25 state unemployment departments are now insolvent and borrowing money from the Fed. just to pay claims, increasing the need to increase tax rates. This number is expected to climb to nearly 40 by the end of 2011!
  3. States are overpaying claims in error by more than $1,000,000,000 per year!, and the problem is increasing due to the sheer volume of claims being processed due to the economy.
The Nonprofit Trust, mentioned above, offers your clients a safe, secure and cost effective alternative to the unemployment tax system in every state. In addition to the savings, the Nonprofit Trust offers a variety of services not available through State Tax systems:
  1. Savings average between 40% and 50% EVERY year.
  2. Claims administration handles all communications with the unemployment office including initial notifications, claims protests, hearing representation, etc., reducing staff time spent on unemployment, driving claims costs down by winning more cases than employers do on their own (94% vs. less than 50% for employers) and by auditing every single claim processed, catching overpayments made by the states and they are corrected.
  3. Free Human Resources Hotline that assists with any type of HR issue, not just unemployment related issues, which can save the nonprofit time and money in getting the answer they need.
Contact a Risk Advisor at Metropolitan Risk Advisory  to get more information about the program as well as our other cost saving programs for non profits. 

Related posts:

  1. Resources Guide For NY Non Profits