MANP Help Desk FAQ: 5 Things Your Nonprofit Should Know About Unemployment Insurance
We get a variety of questions related to unemployment tax – also known as unemployment insurance – and encourage nonprofits to be proactive in learning about this system.
- What is Unemployment Tax?
The MDOL provides a helpful overview of the program, and this summary: “Unemployment is an insurance program providing temporary, partial wage replacement to workers who are unemployed through no fault of their own. The program is funded by Unemployment Taxes paid by employers based on the amount of wages paid for covered employment. The Unemployment Tax is paid on the first $12,000 in gross wages an employer pays to an individual in a calendar year.”
- Is Your Nonprofit Liable?
501(c)3 nonprofits are exempt from federal unemployment taxes, but may be liable for state contributions 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. It is important to note that who is considered “employed” for these purposes is not always straightforward – see #4 below.
- Why You Should Consider Coverage Even If You’re Exempt
While many nonprofits in Maine are very small and potentially exempt, MANP encourages all nonprofits – as a best, ethical practice – to pay into the unemployment tax system or alternative coverage (see #5) to protect their current employees. At the very least, your employees should be made aware of whether or not you provide unemployment coverage. Unemployment compensation is a safeguard for people – and our communities as a whole – against the potential economic and emotional domino effects of losing a job.
- Why Independent Contractors May Still Be Considered Employees
There are different rules and tests used by government agencies to determine independent contractor status, because different agencies are responsible for separate aspects of law. For the purposes of unemployment insurance, the Maine Department of Labor uses something called the “ABC test”, which makes it sound simple, but is more complicated when applied to real situations. The ABC Test establishes criteria that an work relationship must meet in order to for the services of that individual to not be considered employment. The three parts of the ABC Test relate to employer control/direction of the worker, place(s) of business or courses of business, and proof that the worker is independently established in the trade. A nonprofit may have to pay unemployment taxes even if IRS or Maine Revenue Services determine that, for income tax purposes, individuals may be independent contractors. Nonprofits should be familiar with this FAQ resource on Independent Contractors, and with this guide about Independent Contractors and the ABC test.
- Cost-Saving Alternatives
The Unemployment Services Trust (UST) provides an alternative to paying into the Maine unemployment tax system, and can be a cost-saving option for nonprofits, especially those with more than 10 employees. Through UST, agencies directly reimburse the state only for the claims of their former employees, rather than paying the state unemployment insurance tax which covers all Maine employees.
MANP is hosting a FREE webinar tomorrow, September 12, from 1-2pm to help nonprofits learn about UST. FMI and to register, contact Jessica Lantos. Can’t make the webinar? To find out if your organization could benefit, call 1-888-249-4788, e-mail info@chooseUST.org, or visit http://www.chooseUST.org.
This post does not constitute official or legal advice, and MANP suggests consulting the Maine Department of Labor’s full Guide to Maine Unemployment Laws, the relevant section of Maine law, staff of the Maine Department of Labor, or an attorney with employment law expertise for your organization’s specific questions.