March 10, 2014
The volatile state of unemployment insurance in the U.S. is having a heavy impact on employers as well. While widespread unemployment has pushed many workers out of their jobs and into the unemployment office, the system that provides the benefits has become overburdened. State funds for many unemployment agencies dried up early on in the recession due to high demand.
To continue paying claims, many states had to take loans from the federal government. After two years, the loans must be paid pack in full, with interest, or the federal government reduces tax credits to employers to hasten the loan repayment. This means many employers could see an increase in UI costs without a change in unemployment at their own organization.
According to the website News-Leader, Missouri owes over $300 million to the federal government, meaning employers in the state would need to be taxed that much to pay back the loan. Tax credits will continue to decrease each year in the state until the loan is entirely repaid. Even after the loan is repaid, the state will also need to replenish the fund for existing unemployment claims.
The problem and solution for nonprofits
Nonprofits with tight budgets often find it difficult to meet rising cost responsibilities. The unpredictability of future unemployment insurance expenditures are bad news for organizations that may have already found themselves in a tight spot. While nonprofits are exempt from paying federal UI taxes, the state taxes are where there the employer credit disappears so their costs rise just like those of traditional employers.
However, one advantage offered to nonprofits is the ability to opt out of unemployment insurance tax pools and become a self-reimbursing employer. Under this designation, nonprofit employers are responsible only for the actual cost of claims submitted by former employees. Simply put, a nonprofit with no claims would have no costs related to state UI.
Enrolling in an unemployment savings program
There are risks for nonprofits, though. Should they see a sudden increase in claims they will find themselves responsible for a large financial obligation. Without the funding provided by the state tax pool, the cost could be devastating.
The solution is a program that provides a fixed annual cost that is lower than the tax rate and still provides security against an increase in claims. Unlike state tax payments, contributions to an Unemployment savings program, such as that offered by First Nonprofit Companies, can be made each quarter. This allows for a smaller, more predictable payment which is easier to budget for.
In state tax pools, contributions are made every year regardless of UI claims, so nonprofits are often paying to cover the costs of other businesses. In a savings program, there is no shared risk and the annual fee is based on the nonprofit's own risk profile. Furthermore, the account can be carried on an organization's books as an asset and is returned should they leave the program.
Ready to chat? Get in touch today to request a no-obligation savings evaluation.
First Nonprofit has saved us so much money over the state’s program. We had one little glitch with the state recently and we contacted FNP immediately. FNP staff called us back immediately and moved to remedy the problem.
First Nonprofit has been a great partner. They have helped us saved hundreds of thousands of dollars! They have awesome resources for our nonprofit organization. Thanks for the partnership.
Life is certainly busy these days but having business partners like First Nonprofit has made some of the process hassle free. We have worked with this team for years. When we changed payroll systems, they outlined every step. I think this team is terrific and I know they get the job done! Thank you, Cruz, to all the team at FNP.
FNP has helped our agency to save thousands of dollars every year on our unemployment coverage. The service is phenomenal, and we are thankful to their team as our partner. My experience working with Marshall on the advocacy around UE for nonprofits was also a highlight as someone who teaches advocacy and lobbying for nonprofits. Really, your whole team is top shelf, so thank YOU!
Chicago Children’s Theatre has greatly benefited from our partnership with First Nonprofit, and I have always enjoyed working with the staff on our filings and any complicated questions. I would not hesitate to recommend First Nonprofit to fellow nonprofits. We’re very happy customers.
FNP is a great resource for Daniel Kids. To have a TPA that we can count on to take point on not only managing our unemployment claims, but to support and guide any protest hearing, is invaluable. All the professional support staff we have worked with have been excellent, very knowledgeable and responsive. We are grateful for the help and support, thank you.
When I first began in my position at my organization, I hadn’t had experience working with a company like FNP. The staff was so patient and helpful in helping to explain the benefits of First Nonprofit. Anytime I reach out with a question I receive a quick, clear, and thorough response. I’m so thankful that we decided to partner with FNP. Their excellence in customer service, coupled with their variety of packages frees us up to truly serve our staff and community with a peace of mind knowing that our organization is protected against unanticipated unemployment insurance expenses.
First Nonprofit gets an A+ in my book. You are so easy to work with & very knowledgeable! Whether it is my quarterly correspondence with Kim or my random interactions with Dawn about a bond … I am so pleased that I get to work with such a helpful company. Thank you!