It’s not well-known by all employers, but it’s a compliance liability your nonprofit shouldn’t be risking.
What is it? It’s Unemployment Insurance or “UI” Integrity — and it could put your organization in the very unwanted category of “unable to appeal unemployment claims,” or worse, monetary penalties.
When the recession drove thousands to collect unemployment, states had difficulty collecting all the information behind each claim from employers. This resulted in overpayments and debt in many states.
To limit this problem, the federal government imposed a mandate across all states: Ensure employers respond quickly and accurately to requests for information about unemployment claims… or else.
That “or else” varies by state. But at a minimum, federal law says that state unemployment agencies must deny an employer relief on future benefit charges if the employer shows a pattern of failing to respond in a timely or adequate manner to the state’s request for information on UI claims – resulting in improper payments to the claimant.
In other words, if you ignore that request for information from the state agency about an unemployment claim because you’re “too busy” or you think the former employee ought to collect so “why bother?” or you’re just “a few days late so it’s ok”… you’re putting your nonprofit at risk of never being able to protest future claims and receive credits back for improper claimant benefits.
While federal law suggests that an employer should be penalized after 2 incidences (or 2% of claims) of no response/inadequate response/late response, Section 3303(f)(2) of the Federal Unemployment Tax Act (FUTA) allows states to impose even stricter standards than the federal government requires.
In some states, your first offense could be enough to impose the restriction on future benefit protests/credits.
In others you face a monetary penalty, like in Minnesota where the penalty is the amount of the improper overpayment.
Make sure your organization:
- Knows the penalties in your state, or if you’re in multiple states, know the differences in laws for each
- Assigns someone to handle all unemployment claims / requests for information
- Responds timely and adequately to all requests for information from the state UI agency
- Knows whether your 501(c)(3) is tax-rated or “reimbursing” for unemployment claims as allowed by federal law
- Knows that increases of unemployment benefits paid out to your former employees can result in higher tax rates in the future. Or if your organization is reimbursing, you’re paying higher costs out-of-pocket to the state
If you work with an unemployment claims representative or third-party to handle claims, now is the time to clarify whether they audit benefits paid out for you and handle the requests properly.
At UST, we help nonprofits avoid compliance penalties. Online reporting makes timely response simple, and updates on state laws keep you in the know. Learn more about UST’s nonprofit unemployment claims administration.