Unemployment Insurance

Federal and state laws give nonprofits the option of operating as self-insured (“reimbursing”) employers that make payments to their state unemployment insurance systems for benefits attributable to them in lieu of advance contributions. Shut-down orders by government officials and program cancellations have forced nonprofits to furlough or layoff staff, triggering immediate, catastrophic unemployment payment bills that are due quarterly in most states. These challenges are exacerbating cash flow difficulties at a time when other employers comparatively will likely experience minimal additional costs resulting from COVID-19-related layoffs. The costs are diverting valuable funds from mission services and forcing additional layoffs.

The American Rescue Plan, passed March 2021, increases from 50% to 75% the federal coverage of the unemployment costs of reimbursing nonprofits through September 6, 2021 and provides continued coverage for self-employed workers and staff of religious and very small nonprofits.

Why It Matters

All employers and employees are experiencing a crisis that the unemployment system was never created to handle. Through the CARES Act, and expanded by the American Rescue Plan, Congress took steps to protect both employees and employers by ensuring that workers who lost their jobs due to the pandemic got the unemployment assistance they need. Most employers – those that contribute taxes to the state unemployment system – will likely experience little or no additional costs resulting from mass COVID-19-related layoffs thanks to federal action; any potential costs are far down the road and will come well after the crisis has passed. Self-insured (also known as reimbursing) employers, however, are suffering the immediate and costly application of a policy that they pay 50-percent of the costs of benefits paid to employees they were forced to lay off or furlough due to the pandemic. While others have been able to conserve resources to weather the pandemic storm, reimbursing employers are forced to make major outlays of cash, now during the pandemic. The better policy, as the nonprofit community has repeatedly communicated to Congress and the Administration, is for the federal government to cover the full costs of claims of coronavirus related job disruptions.

During a virtual briefing on July 15, 2020, Unemployment and Self-Insured Nonprofits: Ending the Pressure to Lay Off More Employees, nonprofit leaders reported staggering unemployment costs that will lead to even more layoffs.

Take Action

Join the #Relief4Charities campaign and ask your Members of Congress to protect nonprofits.

Simply email:

Senator/Representative:

States continue to send out invoices to thousands of charitable nonprofits requiring reimbursement of the unemployment compensation paid to their employees laid off or furloughed due to COVID-19. While other employers are able to conserve resources to weather the pandemic storm, self-insured (reimbursing) nonprofits must make major outlays of cash, now, while the pandemic continues to rage. This means that nonprofits that already had to reduce staffs because of COVID-19 are now going to have to lay off even more employees just to come up with the resources to pay unemployment compensation bills to their states. It’s the public that suffers from this spiraling down of jobs and services. It is imperative that Congress increase the federal unemployment insurance reimbursement for self-insured nonprofits to 100% of costs.

And tweet this message to each:

“.[TwitterHandle], Don't force #nonprofits to lay off more employees to pay massive unemployment bills. Include #Relief4Charities in the next #COVID19 relief bill https://www.councilofnonprofits.org/trends-policy-issues/unemployment-in...”

Where We Stand

We urge Congress to increase the federal unemployment insurance reimbursement for self-insured (reimbursing) nonprofits to 100% of costs.

Urgent Nonprofit Policy Priorities in Reforms to CARES Act, Community Letter, July 13, 2020

Status

Federal Policy

The Department of Labor’s issued guidance (UIPL No. 18-20) in April 2020 that instructed states to charge self-insured nonprofits for 100 percent of the costs of unemployment benefits paid to employees laid off as a result of COVID-19. In some instances the guidance threatened to penalize states that already had provided additional assistance to nonprofits. For instance, some state officials acted to hold nonprofits harmless by not requiring them to reimburse the state unemployment systems during the coronavirus crisis (see below). The DOL guidance, however, provided that these states may be in jeopardy of not receiving any federal funds due to these acts of reasonableness. The North Carolina Center for Nonprofits explains, “Based on the examples provided…, it appears that states can cover some or all of the remaining 50% of self-insured nonprofits’ costs for COVID-19 related claims from their [unemployment insurance] trust funds. … However, the guidance warns that states that cover more than 50% of self-insured nonprofits’ claims from their [unemployment insurance] trust funds will not receive full federal support under Section 2103 of the CARES Act.”

The Protecting Nonprofits from Catastrophic Cash Flow Strain Act (S. 4209) solves half of the problems nonprofits have with the enormous costs of reimbursing their states for benefits paid to laid off or furloughed employees. Specifically, the bipartisan bill corrects the Labor Department’s interpretation that reimbursing employers must pay their states' 100 percent of unemployment claims upfront and then wait to get repaid 50 percent later. The bill does not address the remaining 50 percent. The National Council of Nonprofits and the National Association of State Workforce Agencies issued a joint statement the day the bill was enacted to ensure that the states and employers got the news of the legislative fix. Nine days later, the Labor Department updated its guidance for reimbursing employers to make clear that nonprofits do not have to pay 100 percent of the costs of unemployment claims. The new guidance, UIPL 18-20, Change 1, states: “Under the amendments made by the Protecting Nonprofits Act [S. 4209], states are required to use the transfer of federal funds provided under [the CARES Act] exclusively to reduce the amount required to be paid by reimbursing employers in lieu of contributions.” The Labor Department, however, will still penalize (or short-change) states that forgive reimbursing employers for 100 percent of those costs, explaining that "states that choose to relieve employers of more than 50 percent of the amount owed will be required to return the balance of the federal funds," meaning that any state relief greater than 50 percent will cost the states the federal reimbursement money they would otherwise be due. This is fixable, but it may require states to rewrite executive orders, legislation, and other guidance to stay within the strictures of the guidance.

Additional guidance issued Jan. 19, 2021 (UIPL No. 12-21), requires states to apply sequestration rules to mandatory Unemployment Insurance programs. The sequestration order applies a reduction in nonexempt mandatory programs. Under the guidance, states are required to repay the federal government 5.7 percent of the CARES Act relief received for unemployment extended benefits due to exceeded debt limits in the Budget Control Act of 2011. Expenses are estimated to impact states by millions of dollars and are will most likely come from state unemployment trust funds.

State Policy

Officials in numerous states are working to ease the burden on nonprofit and other employers that opt out of their state unemployment insurance pools and “reimburse” their state system for actual costs of claims. Governors in several states (Louisiana, Michigan, Montana, Nebraska, and New Hampshire) previously issued executive orders to hold nonprofits harmless, and others have taken action either legislatively or administratively in Hawaii, Iowa, Illinois (HB 2455), Kentucky, New Mexico, New York, Ohio, and North Dakota. In Maryland, contributing and reimbursing employers with fewer than 50 employees, including nonprofits, may defer payments, interest-free, until the end of the year and may receive authorization for further deferral in 2022. In North Carolina, legislators acted to extend the noncharging period for COVID-related unemployment claims through the end of the year, building on enacted legislation from last year (H.B. 1043/S.704). Legislation in New Jersey to provide relief was signed into law in January 2021, and new clarifying legislation (S.3714) was enacted in July 2022. Other states (Illinois, Kentucky, Maryland, Minnesota, New Mexico, North Carolina, and North Dakota) have sent clarifications making adjustments under the new law. An executive order in North Carolina ended the state’s policy of not charging reimbursing nonprofits for their COVID-related unemployment claims in September 2021. The Department of Labor in Georgia issued a rule and clarification that only a partial coverage would be offered in 2020 and reimbursing nonprofits would be on the hook to make payments for the third and fourth quarters. The Massachusetts budget for fiscal year 2021 included a provision for a 6-month deadline extension for nonprofit employers that self-insure, delaying balloon payments owed for layoffs that occurred from March to December 2020. At the end of 2020, Minnesota lawmakers extended the number of weeks for which applicants are eligible for UI, and will not bill reimbursing employers for those additional 13 weeks. Reimbursing employers in Pennsylvania that chose to pay the optional solvency fee are held harmless.

States are permitted to use federal monies for unemployment insurance costs for both contributing and reimbursing employers. At least five states (Delaware, Kentucky, Montana, North Dakota, and Ohio) have allocated portions of their Coronavirus Relief Fund under the CARES Act to provide relief for reimbursing employers. The North Dakota Emergency Commission approved $2.65 million of its CRF monies for nonprofit entities and other reimbursable employers “struggling to cover the remaining costs.” Nonprofits in Delaware with a balance of reimbursable unemployment claims related to COVID-19 may self-certify and request that federal CARES Act funding be allocated to their accounts. More states are expected to continue the trend and use State and Local Fund monies under the American Rescue Plan Act to restore unemployment trust funds to pre-pandemic levels to provide additional relief for both contributing and reimbursing employers, as consistent with Treasury Guidance published May 10, 2021.

Resources

• Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule, Department of the Treasury, May 10, 2021.
• Unemployment Insurance Program Letter No. 18-20, Change 1, U.S. Dept. of Labor, Aug. 12, 2020.
• Joint Statement on Signing of the Protecting Nonprofits from Catastrophic Cash Flow Strain Act, Press Release, National Association of State Workforce Agencies and National Council of Nonprofits, Aug. 3, 2020.
• Statement on House Passage of the Protecting Nonprofits from Catastrophic Cash Flow Strain Act, Press Release, National Council of Nonprofits, July 9, 2020.
• Statement to the Senate Finance Committee on Nonprofits and Unemployment Insurance, National Council of Nonprofits, June 9, 2020.
• DOL Issues Breathtakingly Cruel Guidance Inflicting Billions in Immediate Costs onto Charitable Organizations Struggling to Serve Their Communities, National Council of Nonprofits, Apr. 28, 2020.
• Unemployment Insurance Program Letter No. 18-20, U.S. Dept. of Labor, Apr. 27, 2020.

Articles

• Federal Unemployment Coverage, Special Edition Nonprofit Advocacy Updates: American Rescue Plan.
• Some Nonprofit Employers Receive Unemployment Relief, Nonprofit Advocacy Updates, Feb. 22, 2021.
• COVID-Related Unemployment Insurance Relief a Top Action Item, Nonprofit Advocacy Updates, Feb. 8, 2021.
• Unemployment Relief Remains Top Priority, Nonprofit Advocacy Updates, Jan. 11, 2021.
• Governments Ask Return of Unemployment Payments, Nonprofit Advocacy Updates, Dec. 14, 2020.
• Employers, Individuals Alerted to Unemployment Fraud, Nonprofit Advocacy Updates, Nov. 16, 2020.
• States Working to Ease Employer Costs of Unemployment Coverage, Nonprofit Advocacy Updates, Nov. 2, 2020.
• Unemployment, Rainy Day Funds Stretched Across the States, Nonprofit Advocacy Updates, Oct. 19, 2020.
• Challenges Growing for Contributing Employers in State Unemployment Trust Funds, Nonprofit Advocacy Updates, Sep. 21, 2020.
• States Continue to Respond to UI Guidance, Nonprofit Advocacy Matters, Aug. 24, 2020.
• Partial UI Fix Now the Law, Nonprofit Advocacy Matters, Aug. 10, 2020.
• State Agencies Extend UI Relief, But Others Lose Ground, Nonprofit Advocacy Matters, Aug. 10, 2020.
• Nonprofits Await Signing of Partial UI Fix, Seek More Support for Self-Insured Nonprofits, Nonprofit Advocacy Matters, July 27, 2020.
• Self-Insuring Nonprofits Face Disparate Treatment Under State Unemployment Laws, Nonprofit Advocacy Matters, July 27, 2020.
• Congress Passes Partial UI Fix for Self-Insured Nonprofits, Nonprofit Advocacy Matters, July 13, 2020.
• States Acting to Protect Nonprofits from Unemployment Costs, Nonprofit Advocacy Matters, July 13, 2020.
• Act Now to Protect Nonprofits from Government-Induced Cash-Flow Strain, Nonprofit Quarterly, June 29, 2020.
• Tell Your Senators: Pass Nonprofit Unemployment Relief This Week, Nonprofit Advocacy Matters, June 29, 2020.
• Nonprofits, States Seek Unemployment Reimbursement Solutions, Nonprofit Advocacy Matters, June 15, 2020.
• Reforming Unemployment Insurance, Nonprofit Advocacy Matters, June 15, 2020.
• Unemployment and Self-Insured Nonprofits, Nonprofit Advocacy Matters, June 1, 2020.
• Unemployment Insurance Claims Remain Concern for Self-Insured Nonprofits, Nonprofit Advocacy Matters, June 1, 2020.
• Don’t Let Senseless Unemployment Policies Sink Nonprofits—Act Now!, Nonprofit Quarterly, May 8, 2020.
• States Supporting Nonprofits May Suffer Under Federal Guidance on Unemployment Insurance, Nonprofit Advocacy Matters, May 4, 2020.
• Problematic DOL Guidance on Nonprofit Unemployment … and How to Fix It, North Carolina Center for Nonprofits, Apr. 28, 2020.
• States Adjusting Unemployment, Leave Policies, Nonprofit Advocacy Matters, Apr. 6, 2020.
• Self-Insured Nonprofits and Unemployment Insurance, Nonprofit Advocacy Matters, Mar. 23, 2020.