Many people find the U.S. nonprofit sector confusing. Nonprofit indicates that an organization puts any income it earns right back into its budget. They’re allowed to pay their employees, but cannot distribute profits to anyone. There are many different types of organizations that receive tax exemptions from the federal government. Section 501(c) of the U.S. Internal Revenue Code specifies there are roughly 29 different classifications of nonprofit organizations that are exempt from some federal taxes. The most common – section 501(c)(3), with more than 2 out of every 3 nonprofits falling into this category. Such organizations obtain a 501(c)(3) status by applying with the state and obtain tax-exemption from the IRS. This classification includes businesses engaged in charitable, educational, literary, animal welfare, child welfare, public safety, religious, or scientific pursuits.
Each quarter, every business with an unemployment insurance-covered employee is required to report monthly employment, quarterly wages, and unemployment insurance contributions to their respective state. The Bureau of Labor Statistics (BLS) recently released a new set of data on nonprofit organizations covering the period from 2007 through 2012 and offers important insights into this cross section of the economy. The data provided in the newest report focuses only on the 501(c)(3) class of nonprofits in the private sector.
Under state unemployment insurance laws, some nonprofits are not required to submit quarterly unemployment insurance contributions. Alternatively, these organizations are allowed to reimburse the unemployment insurance system when a claim is made, dollar for dollar, instead of paying a flat fee into a state pool – also known as being a reimbursable employer.
Most states restrict the reimbursable opportunity strictly to 501(c)(3) nonprofits but there are several states that do not. A complete state-by-state listing of which states restrict reimbursing to 501(c)(3) nonprofits can be found on the nonprofits page on the BLS website.
Nonprofit employment, total annual wages, and the number of establishments grew steadily each year from 2007 through 2012 – faster than either the government or business sectors in terms of number of people employed and wages paid. During this period, nonprofit employment increased 8.5 percent, increasing every year during the review period – even during the 2007–2009 recession. Total annual wages increased from $421 billion in 2007 to $532 billion in 2012, a nominal increase of 26 percent. During this same period, the number of nonprofit establishments also increased by 15 percent, from 232,396 to 267,855.
As of 2012, the District of Columbia had the largest percent of employment attributed to nonprofits at 26.6 percent, followed by New York and Rhode Island, tied at 18.1 percent. The smallest concentration of nonprofits was found in Nevada at 2.7 percent, followed by Texas at 5.1 percent, and Alabama at 5.4 percent.
This data provides valuable information into how the nonprofit labor market has been doing and helps us to better understand the importance of the nonprofit sector’s importance to the U.S. economy.
If you’re a 501(c)(3) with 10+ employees, you can submit an Unemployment Cost Analysis for FREE today to see if you qualify as a reimbursable employer! Let us help you save money so you can better serve your mission!
For the full Bureau of Labor Statistics report, click here.