October 5, 2021
COVID-19 has brought many changes and challenges to our everyday lives as individuals, employees, and employers. In order to move forward, it is important to understand how the unemployment system developed and responded during other times of crisis.
Even though several states proposed unemployment laws as early as 1916, it wasn’t until the Social Security Act was passed in 1935 that mechanisms were established to help unemployed workers to replenish their lost income. The law required states to establish and manage State Unemployment Insurance Trust Funds that are financed through employer payroll taxes, also known as State Unemployment Tax Assessment (SUTA). States would now pay Unemployment Insurance (UI) and unemployment benefits to individuals that had lost their job through no fault of their own. The way these UI Trust Funds receive and distribute funds, the annual SUTA amounts employers pay, and the benefits awarded to individuals are all determined by each state. It is only through Federal Acts or Law changes that the Federal Government can affect change on UI Laws and Trust Funds. There have been several of these acts since the Great Depression, including:
– The Temporary Unemployment Compensation Act of 1958: created State Extended Benefits providing additional benefits over the standard weeks at times of high unemployment.
– The Middle-Class Tax Relief and Job Creation Act of 2012: established that individuals can only become eligible for benefits if they are currently seeking work, are able to work, and are available to accept any reasonable job offer.
Pre-COVID-19, employers could expect a certain amount of predictability within their state UI systems. I.e, unemployment benefits were typically only awarded to individuals who lost their job through no fault of their own and they had the ability to to protest claims in which they disagreed with the former employees’ eligibility to receive benefits. The shutdowns created chaos for UI systems with initial claims filed nationally reaching 77.5 million in a one-year period from March 21, 2020 through March 20, 2021. This was a huge increase from the 50.9 million initial claims filed during two years of the “Great Recession” from December 1, 2007 through November 28, 2009 (source www.doleta.gov). In addition to the delays this unprecedented volume of claims caused, employers were faced with states eliminating waiting weeks, work search requirements, ability and availability to work requirements, and the need for an individual to have become unemployed through no fault of their own. This all but eliminated the consistency employers had come to expect.
Historically, most of the Acts that have impacted unemployment were driven by severe economic downturns or recessions. The economic impact of COVID-19 was no different with Congress providing safety nets for both businesses and individuals, resulting in the Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020 and the American Rescue Plan Act (ARPA) of 2021. The sections of the CARES Act impacting unemployment provided additional benefit weeks, benefits to those that would normally not qualify (gig workers and self-employed), and, for the first time ever, additional benefits over and above state awarded benefit amounts. Initially, individuals received an additional $600 per week through the CARES Act. The additional weekly amount was reduced to $300 per week through American Rescue Plan Act (expired September 5th, 2021).
Although UI Trust Funds and the employers paying SUTA are not directly liable for the additional benefits, they will still see the lasting impact of COVID-19 related closures. State Funds have been depleted and, in many cases, decimated by the unprecedented amount claims in such a short period of time. The historic number of individuals fully exhausting their standard unemployment benefits combined with the additional funds has resulted in most recipients at full wage replacement or receiving an income boost as benefits exceeded prior earnings. Employers paying SUTA can expect to see their taxes rise as states rebuild their Trust Funds to pre-COVID levels. Reimbursing (self-insured) employers’ concern will shift to secondary claims filed by the long term unemployed.
As ARPA provisions come to an end, many employers are hopeful they will no longer compete with enhanced unemployment benefits to fill available positions. This coupled with an economic rebound are reasons to feel confident for the future, but there are approaching headwinds for employers. Reimbursing employers will start to see 100% claims liability as they did prior to COVID-19. All employers will face potential of higher costs with the proposed changes introduced through the Senate Finance Committee, Senator Ron Wyden, and Senator Michael F Bennet. (www.finance.senate.gov). A few of the proposed changes to the current UI System would require all States to offer at least 26 weeks of unemployment, thus changing the tiered systems found in several states, including Florida and North Carolina. It would also look to require a state to implement 75% wage replacement for all unemployed workers, cover part-time workers that quit their jobs with good cause, and pay workers for their first week of unemployment, “the waiting-week”. Again, such changes would impact benefit amounts that will eventually be passed on to the employers through SUTA or higher costs for reimbursing employers.
As we move forward to 2022 and beyond, we remain hopeful that things get back to some semblance of normal. For those employers paying SUTA, be mindful that with recovery will come the need to prepare for rising costs as the state funds rebuild to pre-COVID levels. For reimbursing employers, secondary claims as well as the federal administration’s desire to drastically expand unemployment to near a full wage replacement program will be the two largest items to monitor. In doing so we best prepare for the future.
Working with Marshal Whittey at First Nonprofit has been a great experience. He handles our request as a priority and goes above and beyond to resolve any issues we have in a timely manner. Marshall follows through to the end and ensures our needs are met. He has been a great resource for LSC and our “go to” for any tax questions we may have. With LSC transitioning several facilities into one federal tax identification number, First Nonprofit was able to assist and provide guidance with best practices resolving claims to each entity. Additionally First Nonprofit provided knowledge (information materials) and one on one training to HRS group with best practices to handle claims state adjudicated, fraudulent claims, and appeals. And processing information in the First Nonprofit [unemployment claims] system allows for timely information can be collected.
My experience with FNP has been wonderful. Unemployment in general is quite confusing and FNP has simplified the process for us. Everyone we have reached out to or worked with has been very helpful and follows up to be sure we understand the information. I am so happy we made the switch to FNP!
First Nonprofit smoothed the unemployment perils for our organization during Covid. Without the ability to cap our UI exposure, we would not have been able to weather the storm. The program worked perfectly and we have come out of the pandemic ready to forge on. Thanks FNP!
My experience with the FNP has been fantastic. The idea of setting funds aside for the unemployment tax liability is a bedrock for nonprofit organizations like mine, namely ASHBA; what is even more advantageous is having the FNP as a custodian of those funds. 100% recommended!
I would like to comment on my experience with FNP….to date our District has saved $1,000’s of dollars by being enrolled in the First Nonprofit program. My only regret is that we did not know about this method of paying unemployment tax years ago….as I had figured about five years
ago, had we enrolled 15-20 years ago, we could have saved our small school district upwards of $500,000 in payments to IDES. Also we would have had a pretty hefty sum of money in our Reserve Account. Thankfully I attended a workshop hosted by First Nonprofit back in 2015 which got the ball rolling!
I have worked with the First Non-Profit Team for many years, and I appreciate the quick response and care that Cecilia and the team provides anytime I have questions. While there are other providers that may provide like services, First Nonprofit will always be my first choice! I appreciate you!
First Nonprofit has been easy to work with and makes the administrative process easier and smoother. We enjoy working with you.
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!