How do nonprofits handle unemployment claims?
With Colorado facing record numbers of unemployment claims due to the impacts of the COVID-19, navigating Colorado's unemployment insurance (UI) processes has become essential knowledge not only for nonprofit employees who been furloughed or laid off but also for nonprofit organizations making difficult employment decisions.
Unlike many employers, nonprofit organizations are exempt from paying federal unemployment taxes. Colorado's unemployment insurance laws typically affect nonprofits as follows:
- Exempt from paying UI premiums. Applies to nonprofits with fewer than 4 employees and many faith-based organizations
- Required to pay UI premiums. Applies to nonprofits with 4 or more employees for at least 20 weeks during the calendar year. Premium amounts depend on a nonprofit's "experience rating," which is a calculation of premiums based on recent UI claims by former employees
- Pay the state for UI claims in lieu of premiums. Many nonprofits choose to reimburse the state when UI claims are made rather than paying premiums. Typically, this is done by nonprofits to save money, streamline handling of claims, or other such reasons.
- Participate in an unemployment trust. Rather than paying premiums, nonprofits can join an unemployment trust, such as the Unemployment Services Trust, to save on state taxes and pool resources for paying unemployment claims. Trusts often provide claims management services and have stop-loss insurance to minimize costs and administrative burdens on nonprofits.
How has COVID-19 affected handling of unemployment claims?
Unlike many decisions made at the discretion of nonprofit organizations or employees that result in separations of employment, many nonprofit organizations have laid off or furloughed employees as a result of compliance with public health orders that have limited their ability to operate or raise funds from the public. Organizational finances have also been negatively impacted in workplaces where employees have been unable to work due to COVID-19.
Because many of these impacts have resulted from governmental actions and factors outside of the control of nonprofit leaders, elected officials have taken actions to hold employers harmless for unemployment claims related to the COVID-19 pandemic and governmental responses.
Colorado has taken the following key actions that hold many nonprofit employers harmless for COVID-19 claims:
- Governor Jared Polis issued Executive Order D 2020 012 on March 20 to prohibit unemployment claims related to COVID-19 from counting towards an employer's experience rating
- The Colorado Department of Labor and Employment (CDLE) has issued guidance allowing employers that are exempt from paying UI premiums to set up UI accounts
These actions should cover most nonprofits that pay unemployment premiums and those who are exempt but choose to pay unemployment premiums in response to COVID-19 and economic circumstances.
What relief is available for nonprofits that participate in trusts or directly reimburse the state?
Anticipating the need to also hold nonprofits harmless if they participate in a trust or reimburse states when claims are made, Congress included some relief for these self-insured nonprofits. Section 2103 of the CARES Act provides federal funds to states to exclusively reimburse self-insured employers- including nonprofits, local governments, and federally recognized tribes – for half of their liability for unemployment claims related to COVID-19.
Given that many nonprofits may have laid off substantial percentages of their workforce, tapped their reserves, and are seeking donations from financially-strapped donors, these organizations will be hard pressed to come up with the other half of their liability.
Relevant guidance by the U.S. Department of Labor (DOL) on April 27 has made the situation worse for self-insured nonprofits by essentially requiring them to pay 100 percent of liability up front and seek 50 percent reimbursement. This is like asking nonprofits to front interest free loans to state unemployment funds only to get half of the amount back. The intent of the assistance provided by the CARES Act is undermined if self-insured nonprofits have to delay re-hiring, make further cuts to staff and programs, or go out of business altogether.
Even though some states have proposed or enacted additional relief for self-insured nonprofits, such as paying the other half or delaying payment of liability, DOL’s guidance also limits the flexibility of states to provide additional relief. If states cover more than 50% of self-insured nonprofits’ claims, then they will not receive full federal support under this section of the CARES Act. Updated guidance from DOL has indicated that states may provide relief for self-insured employers provided that comparable relief must also be provided to employers that pay premiums to states.
How can self-insured nonprofits advocate for more assistance?
Nonprofits should ask their members of Congress to take two actions:
1. Hold nonprofits harmless by covering 100 percent of unemployment claims related to COVID-19.
2. Clarify that nonprofits do not have to pay 100% up front to receive 50% reimbursement. A bipartisan bill has been introduced to allow states to make this clarification.
This is part of a package to help nonprofits in future COVID-19 related legislation that includes providing dedicated loan assistance for nonprofits and expanding the charitable deduction for non-itemizers in the CARES Act.
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