Qualified 501(c)(3) organizations are exempt from Federal Unemployment Tax (FUTA) and can elect to be self-insured for State Unemployment Insurance. For many nonprofit organizations, who historically had low turnover, opting to be self-insured provided them with a large savings. Unfortunately, with the Coronavirus pandemic, many nonprofit organizations who have been benefitting from self-insurance all these years, may find themselves in a very difficult spot. With many nonprofits experiencing dramatic declines in funding, many of them are feeling the squeeze to lay-off or furlough staff, resulting in a large number of staff collecting unemployment. To further exacerbate the issue, the federal government has increased the amount that individuals can collect under unemployment by $600 per week for up to four months.
To compensate nonprofits for the additional burden associated with the large number of lay-offs arising from the pandemic, the federal government also added provisions that would cover half of the unemployment benefits costs that self-insured nonprofits will incur through December 31, 2020. Even so, this could leave a big hole for self-insured organizations.
With other stimulus relief available, such as the Paycheck Protection Program and other credits outlined within the CARES Act, self-insured nonprofit organizations should not be in such a haste to let go staff. Organizations need to perform some level of analysis to determine the impact of laying staff off or keeping them.
The analysis should consider:
- Impact on funding (especially if deficit funded or funded differently for salaries verse fringes);
- The cost of unemployment (uncertain as to how long it will take individuals to find new jobs);
- The amount of stimulus relief available for retaining staff;
- The ability to find qualified staff once the pandemic has subsided; and
- The impact on employee morale
Spending a little time to go through the calculations could have a significant benefit in the long-term. Let us know if we can help.
Kenneth R. Cerini, CPA, CFP, FABFA
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.