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.