Before the pandemic, charitable nonprofits employed more than 12.3 million people—more than 10 percent of the workforce. Today, with more than 33 million people filing for benefits in the last seven weeks, it stands to reason that nonprofit workers are hardly exempt from the ranks of the overwhelming numbers of those seeking unemployment insurance across the nation.
For decades, nonprofits had been allowed to opt out of state unemployment insurance payments and instead make payments of the actual costs of the benefits when layoffs occur. Nationally, federal and state law enables many employers—including states, American Indian nations (“federally recognized Indian tribes”), local governments, and nonprofits—to opt out of prepaying into state unemployment insurance pools. Last month, Jon Pratt, CEO of the Minnesota Council of Nonprofits, told NPQ that he estimates that over 100,000 qualifying organizations, both governments and nonprofits, in the US have this status. As an illustration, he estimated that in Minnesota, roughly 4,200 of 9,100 nonprofit employers—close to half—self-insure in this manner.
Normally, this makes perfect sense. The self-insured system allows for reasoned risk-benefit determinations and provides protections for different sizes and types of nonprofits. Plus, the system encourages nonprofits to refrain from over-hiring to avoid significant layoffs and thereby keeps unemployment insurance costs under control, as well as helping avoid the pain of unemployment for nonprofit workers.
But these are not normal times. The pandemic-linked economic shutdown forced many nonprofits to greatly reduce services, cut staff and operations, or completely shut down with almost no warning. While the shutdown was necessary for sound public health reasons, there is no doubt that government action was the cause of the overwhelming jobless claims, independent of nonprofit performance, and it is government’s responsibility to hold harmless these nonprofits for the results of this action.
Congress’s initial response to address this issue was to reduce the amounts that self-insured nonprofits owe by half under Section 2103 of the CARES Act. This still creates a considerable hardship. But then, in the implementation, the administration made this situation infinitely worse by forcing an unnecessary and burdensome double-reverse reimbursement structure for self-insured nonprofits.
According to US Department of Labor (DOL) guidance—in rulemaking that can only be described as “breathtakingly cruel”—nonprofits must first pay 100 percent of the costs of unemployment benefits paid to employees no longer working as a result of COVID-19. At some unknown time later, the nonprofits that are able to survive the cash crunch will receive a 50 percent reimbursement.
Further, the guidance also threatens to penalize states that worked to provide additional assistance to nonprofits—by withholding full federal support. To date, a number of states—including Iowa, Louisiana, Montana, Nebraska, New Mexico, and North Carolina—have suspended requirements that nonprofits reimburse the state unemployment systems during the coronavirus crisis for benefits their former employees collect. Broad language in Georgia appears to apply as well. These measures too are at risk if the DOL guidance is allowed to stand.
So, what can be done? Here are some options:
Cover All Costs for Self-Insured Nonprofits
The simplest, most straight-forward fix would be for Congress to hold self-insured nonprofits harmless for 100 percent of the costs that would be charged of their COVID-19 related unemployment insurance claims. Otherwise even more nonprofits that communities rely on will close. That’s why the Nonprofit Community Letter submitted to Congress calls for such legislation.
Provide Additional Clarity for Relief
While federal, 100 percent coverage is the best and most needed solution to protecting nonprofit employers and the people those nonprofits serve, other intermediary steps may be needed pending a full federal fix.
- Conform State Statutes to Accept and Use Federal Funding. Some states may need to amend their laws before they can accept the new federal unemployment benefits under the CARES Act. For example, Kentucky lawmakers acted quickly “to expand coverage to self-insured, self-employed, and those otherwise not covered by unemployment insurance who have suffered job loss due to COVID-19.” Self-insured nonprofits will need additional authorization for their coverage in the Bluegrass State. But while this action authorized the acceptance of federal funding for 50 percent coverage, the legislation did not provide coverage for the other 50 percent for self-insured nonprofits, leaving them on the hook.
- Hold Harmless. Experience ratings determine the amount most employers pay into state unemployment tax accounts; thus, when many employees are laid off at once, costs could skyrocket. Some states recently prohibited the experience rating of an employer from being affected by any benefits paid to an individual dislocated or temporarily laid off as a result of the pandemic. Lawmakers in Kentucky, Maine, and Minnesota have provided this “hold harmless” protection for employers, including nonprofits, in their states. Guidelines in Utah eliminated one of two rates normally imposed on employers and greatly reduced the remaining rate during the pandemic.
- Delay Payment Deadlines. States vary on payment deadlines, which can be monthly, quarterly, annually, or some other timeframe. Some states, like Delaware and Utah, have deferred the payment deadlines for self-insured nonprofits and other reimbursing organizations by 90 and 30 days, respectively. Pending legislation in the Massachusetts would allow delays there. More states need to issue similar orders and guidelines immediately to provide a grace period (without penalties or interest), allowing nonprofits to focus on their missions and keep their doors open.
Don’t Wait, Protection is Needed Now!
Nonprofits must wake lawmakers and decision-makers up to the vital need for protections from the enormous burdens of unemployment benefits. Otherwise, many nonprofits may be forced to eliminate programs and services, lay off more employees, delay rehiring their staffs, or close their doors indefinitely.
The economic and health crises facing our nation are massive. A legislative fix and administrative rule adjustment regarding unemployment insurance accounting may seem small amid the historic challenges we face. Going forward, everyone must join in laying the groundwork for truly transformative change that creates a much stronger and more just society.
Nonetheless, as communities turn to local nonprofits in their hour of need, we must do all we can to ensure that nonprofits have the resources needed to be responsive. Unemployment tax policies that penalize nonprofits that are self-insured precisely because they historically kept their staff employed is counterproductive. Congress must correct CARES and DOL must concede.