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.
Visually Impaired Preschool Services has been a client of First Non-Profit since it was first offered as a benefit of VisionServe Alliance. We completed a thorough evaluation of cash savings to our agency before taking advantage of this wonderful benefit and it has been a very wise decision. Our experience with the processes from accounting to claims have been professional, expeditious and easy.
The Ensight Skills Center has enjoyed working with First Nonprofit for several years. We are enrolled in their Unemployment Savings Program and although we have not required a lot of intervention, there have been a few times. I know others have dealt with the same problem of unemployment fraud over the last year and in our case, a call to First Nonprofit (they actually answer their phones) cleared up the issue. They also sent us a letter to send to all our employees telling them what they needed to do to prevent this in the future and protect themselves. What a relief! Over the years if I have questions or concerns, they are happy to listen, advise and help if they can. Another BIG advantage of using First Nonprofit is that all the money that is paid into the Unemployment Savings Program lives on my balance sheet as an asset. The money continues to be Ensight’s not the governments. First Nonprofit has certainly given me peace of mind.
In addition to their money-saving purpose on behalf of nonprofit organizations like AHS, First Nonprofit’s Nonprofit Unemployment Fund streamlines the information we need to efficiently manage unemployment claims. Our relationship with NU Fund gave us access to such things as advice on planning for what’s ahead and how to analyze cost scenarios when unexpected events occurred. Both experiences were very helpful.
We have had a great experience with FNP. During Covid, when there was the chance that reimbursable nonprofits would have to pay 50% of the unemployment costs, FNP went to bat for us. We would receive weekly information on the Unemployment claim and how they were working to reduce the costs to reimbursable nonprofits. They have a great service also working with [our claims administrator] to make sure all the paperwork is completed correctly for any unemployment claim.
PORT Health Services has had a great experience with the Unemployment Savings Program offered through First Nonprofit. Throughout the years we have been involved in the program, we have increased our reserve account significantly through this program and find the reporting we receive both timely and useful. We look forward to our continued involvement with this program and our connection with First Nonprofit for many years to come.
Job One was spending a lot of money on unemployment. Our insurance broker, Mark Simcosky, recommended that we switch over to First Nonprofit. We did just that! This switch has been a huge savings for us! This switch saved us over $10,000 in the first year. Their customer service is Superior! Any time we have a question, we get a response very quickly. Any time we send them a report and they have a question; they call rather than just assuming. They were very responsive during COVID, even when they were in crisis mode their selves. They also were always there when we needed during COVID and very helpful! We would 1,000% recommend First Nonprofit to anybody that could benefit from it!
My experience with FNP has always been positive. Every time I have had to contact them, I’m always put in contact with a friendly and knowledgeable person. If something is missing from our account, they reach out to us to request it. It’s nice to work with a company that makes sure our account is current. I would recommend them to any nonprofit looking to reduce their unemployment insurance costs.
We’ve saved tens of thousands of dollars PER YEAR by changing to become a reimbursing employer, freeing funds for much needed capital investment. FNP has been a valued partner in this process, providing assurance that we have stopgap coverage for extraordinary claims and keeping claims response painless and simple. It’s a huge Win/Win!