3 Things Your Nonprofit MUST Know About Unemployment Insurance
Nonprofits that proactively learn about unemployment taxes, also known as unemployment insurance (UI), can lower associated costs. Here are the top 3 things every nonprofit should know.
1. What is the state Unemployment Insurance (SUI) Tax?
The state Unemployment Insurance (SUI) tax is an insurance program that provides temporary, partial wage replacement to workers who have become unemployed through no fault of their own. The program is funded by Unemployment Taxes paid by employers. Each employer is assigned a tax rate, which is based on the amount of benefits charged to their account each year.
2. Is Your Nonprofit Liable?
501(c)(3) nonprofits are exempt from federal unemployment taxes, but may be liable for state unemployment taxes if they meet something called the “4 for 20” provision. This provision is triggered when four or more individuals are employed on the same day for 20 weeks in a calendar year, though not necessarily for consecutive weeks.
Even for small nonprofits that are exempt from liability, we strongly encouraged that they pay into the unemployment tax system, or an alternate coverage plan, to protect their current employees from the ups and downs of employment.
3. What are Potential Cost-Saving Alternatives?
There are cost-saving alternatives available to nonprofits with 10 or more employees who are interested in lowering the cost of unemployment.
Unemployment Services Trust (UST) provides an alternative to paying into the state unemployment tax system. Through UST, agencies directly reimburse the state only for the claims of their former employees, dollar for dollar. This saves organizations an average $100 per employee upon joining UST.
MANP has partnered with the Unemployment Services Trust (UST) since 2002 to help our members lower the cost of unemployment. Learn more in just 60 seconds! You can also email UST at Info@ChooseUST.org or call them at (888) 249- 4788.
If a small nonprofit organization shuts down, are its officers/directors liable for unemployment compensation payments made to former employees?
Thanks for your question. It depends. Our understand is that claims related to COVID-19 will not affect the employer’s experience rating record if the employer has been paying into the state’s Unemployment Insurance Program. 501c3 organizations are uniquely able to opt out of the state’s UI program and instead be “direct reimbursers” of claims. Right now, employees of direct reimbursers are still able to make a claim, but direct reimbursing organizations remain liable for reimbursing the state for that claim. (MANP is advocating for relief for direct reimbursers. )
Some very small organizations (for-profit and nonprofit) are exempt from paying into the Unemployment Insurance system as described in this post. Some choose to pay in anyway. If they have, then what I said above applies. If they have not, however, their employees are not eligible for unemployment insurance so if an employee makes a claim they will likely be denied (and there would be no cost to the employer).
You may also want to check out our webpages on COVID-19 and Relief/Funding for nonprofits and their employees.
I hope that helps!
This is helpful, thanks.
We are a small nonprofit and opted out of the requirement to pay into the fund but, I understand, the organization is still liable for benefits paid.
My specific question relates to the situation in which we might have to shut down our operations because of the virus and would cease to have revenue. If the organization becomes insolvent, is there any risk that officers and directors would be personally liable for the reimbursement of the Department of Labor?
Dick – Thanks for your question. I am in your specific situation as well. It looks like several months have passed since your question. Were you able to find an answer? I am seeking the same information for my organization – to no avail.