Unemployment Insurance Options for Nonprofits

September 14, 2017

Nonprofits, like for profit businesses, pay unemployment taxes to provide funds for any employees who may lose their jobs. Nonprofits interested in independently reimbursing the state for unemployment claims have several alternatives and no one unemployment cost option is right for every 501(c)(3) nonprofit. Weighing the pros and cons of your unemployment tax alternatives can help you make an educated decision on the choice that best fits your organization.

Unlike your for-profit counterparts, 501(c)(3) nonprofits have the unique opportunity, as allowed by Federal law, to opt out of the state unemployment tax system and become a direct reimbursing employer. This means you would pay dollar for dollar for only your employees’ claims as opposed to subsidizing employers with higher claims. Determining whether or not opting out is the right option for you is largely dependent on your nonprofit’s budget model, staff size and claims history. You can reimburse on your own, but the ups and downs of claims can put cash flow at risk and unanticipated layoffs could mean you exceed the state rate cap. The more claims an organization generates, the more it has to pay into the state unemployment insurance tax system. According to the Department of Labor (DOL), the average cost to U.S employers is roughly $5,429 per unemployment claim. Many nonprofits pay $2 in taxes for every $1 in unemployment claims and as a result lose thousands of dollars every year.

The Unemployment Services Trust (UST) provides an alternative to paying into the state unemployment tax system offering claims representation, HR support and outplacement services. The Trust provides protection to participants throughout the ups and downs of the unemployment cycle by helping members establish their own reserve account just for these unemployment insurance costs. Visit www.ChooseUST.org to learn more.

UST is a partner of Washington Nonprofits.


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