Unemployment Insurance is Not Really Insurance

March 11, 2015

Unemployment Insurance is Not Really Insurance

But it can act like it is!

In the world of for-profit companies, State Unemployment Insurance is a payroll tax assessed on employers to fund unemployment benefits. It is habitually and imperfectly called “unemployment insurance” or SUI (aka SUTA). Insurance Commissioners in nearly every state differentiate other forms of insurance from this employer tax assessed by their state to collect funds to pay for unemployment “insurance” benefits. In fact, those tax payments are often referred to as “employer contributions” in much of the unemployment literature published by the various state agencies.

However, in the world of 501c3 nonprofits, tribal enterprises and governmental employers, SUI actually provides the option to either elect to pay that tax, or opt out and reimburse, or essentially self-insure the cost of re-paying the state for benefits paid out in the future. Oddly enough, accountants practicing double entry accounting might see reimbursement payments to a state as both a liability and an expense of business operations. In reality, every type of future liability presents an occasion for risk transfer and/or insurance coverage.

As a straightforward financial transaction, making the reimbursing election seems easy enough and it nearly always is immediately cheaper. But how a nonprofit funds future unemployment benefit losses turns out to be anything but simple.

For nonprofit organizations, at the core of the problem is the natural human inclination to pay small financial losses that are sure to occur, in favor of avoiding much larger losses that are less likely to happen. When applied to a recognized insurance product, this means that many people would often rather pay premiums, i.e., small but certain losses (SUI tax, or some other pooled risk), even if it exposes them to potentially disastrous future losses.

Insurance experts often opine that people would make better decisions about their future risk if they understood that a place still afire from a lightning strike is as likely to be struck again as any other. Rather than regarding premiums paid for insurance that doesn’t immediately appear to pay a claim as an uncompensated loss, it is, in fact, financial protection against future ruinous loss.

So, having a thoughtful financial strategy utilizing some level of solid, established coverage of future unknown risk is an excellent business practice. First Nonprofit Group brings nonprofits, tribal enterprises and governmental employers to speed on the benefits of having both a solid financial strategy and coordinated cost control measures that meet a variety of diverse needs now and in the future.

For more information about First Nonprofit Group unemployment services, please contact us.


Source: First Nonprofit Group’s “Financial Mechanics of Funding SUTA” series

Next article: “Savvy Nonprofits Create a Solid Funding Strategy

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Throughout our membership in the Unemployment Savings Program, First Nonprofit understood our demands, community dynamics, and the importance of seamless services; that allowed us to serve our constituents better.

Prevent Blindness America, Chicago, IL

Because INCS advocates for the operating conditions that allow charter public schools to provide high quality public education, partnering with First Nonprofit was an easy decision. First Nonprofit’s unemployment programs provide our member schools two operating elements crucial to their ability to provide high quality public education: savings and budget certainty. Capable, committed teachers are the key to student success. By participating in the unemployment insurance savings plan, charter public schools gain peace of mind and are able to invest more money in their teachers.

Illinois Network of Charter Schools, Chicago, IL

It has been our sincere pleasure to maintain a strong, vibrant business partnership with First Nonprofit. We greatly admire their strong industry knowledge, technical expertise, constant professionalism, knowledgeable and dedicated staff. They are always extremely responsive, personable and provide us with the necessary guidance and recommendations on a numerous variety of employment scenarios.

Thresholds, Chicago, IL

NYCON members who use First Nonprofit’s programs enjoy enduring savings and improved efficiency. Our association knows that success, because from the beginning, we achieved the same great benefits. Great savings, seamless technology, and responsive service. NYCON highly recommends First Nonprofit’s remarkable unemployment solutions.

New York Council of Nonprofits, Albany, NY

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.

Visually Impaired Preschool Services, Louisville, KY

Luckily for us, our interactions regarding any issues with staffing has been very minimal! I can say that all other interactions with regards to billing, 941 reporting, etc. have been extremely pleasant, accommodating and easy to work with. Kim Ghanayem is always prompt, professional and friendly. Thank you so much!

Neurologic Music Therapy Services of Arizona, Phoenix, AZ

First Nonprofit has been easy to work with and makes the administrative process easier and smoother. We enjoy working with you.

Visually Impaired Preschool Services, Louisville, KY

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.

Ensight Skills Center, Inc, Fort Collins, CO