Regardless of your own organization’s unemployment history, your nonprofit could very well be overpaying in unemployment costs. In many states, this is due – in part – to the billions (yes, billions) of dollars still outstanding for states’ unemployment insurance (SUI) funds.
Due to the Great Recession, states across the U.S. have gone into substantial debt trying to provide benefits for millions of unemployed. Although the cumulative debt owed to the federal government has decreased by over $25 billion in the last 3 years (from $47 billion to $21 billion), alternative recovery methods may be influencing the steady rise in some state’s unemployment costs.
Rather than borrowing additional funds from the federal government, many states are increasing employer tax rates, taking out private bond market loans, and creating a shorter-termed unemployment benefits system. For example, in an effort to minimize their tax rate volatility, Washington State has enforced a State UI Taxable Wage Base of $41,300 per employee – the highest of any state in the nation.
An analysis by UWC – Strategic Services on Unemployment & Workers' Compensation reveals that a number of states have state UI trust funds that are so insolvent that they are unlikely to recover before the next recession. For employers in these states, it can be expected that tax rates will continue to rise. The uses of these taxes include:
• Claims of for-profit companies
• Claims for failed companies
• Administration costs for the state
• Claims paid in error by the state
Fortunately for Washington State employers, the State of Washington’s SUI fund balance is solvent, avoiding some of the fiscal pressures found elsewhere. Yet, local nonprofits may still be paying excess taxes to the State – a cost that puts more strain on already restricted budgets.
Enacted in 1972, federal law entitles 501(c)(3) organizations to opt out of their state’s unemployment insurance tax system (SUTA/SUI) and instead reimburse the state only when they have an unemployment claim. In other words, select nonprofits can pay dollar-for-dollar for the unemployment claims of their former employees and not more.
Organizations, such as UST, help nonprofits exercise this alternative the right way, saving them thousands annually. Take the UST quiz to see if your nonprofit is overpaying for unemployment costs.
Recognizing where your nonprofit’s dollars are going, and why, can help you combat potential overpayments for employee turnover. And organizations that tap opportunities to be better stewards of their funds can put cost savings toward serving their mission.
This guest blog post was written by Jenn Smith, Marketing Coordinator for the Unemployment Services Trust (UST). UST was created in 1983 by a group of nonprofits looking to take advantage of the unemployment tax alternative exclusive to 501(c)(3)’s. You can find UST's profile in our Nonprofit Resource Directory under “Benefits brokers & trusts,” "Compensation & benefits," and “Insurance.”