Perhaps thanks to a tough economy in which job-seekers are often unqualified for the few jobs that are actually available, nonprofits are gaining recognition for being ahead of the pack in their move to retrain employees for new positions. Actively teaching job seekers skills that will help them move into new industries, across many sectors of the economy, nonprofits with job retraining programs are helping to lower unemployment related costs.

Placing even more workers than many government-funded programs, as found in this article by The NonProfit Times, the ongoing trend is more than promising to the unemployed.

Instead of being set back by the economy and their lack of government funding, many nonprofits are helping more and more workers, both with and without successful employment histories, find gainful employment by offering high-class workforce readiness programs, new employment training, mock interviews, and resume coaching. Teaching out-of-work job seekers to translate and hone their already established skills into skills for their new positions, the programs are highly successful in getting applicants placed in long-term jobs.

Providing courses and training to applicants of all ages and most backgrounds, the push to re-employ America is strengthening the economy and lowering unemployment insurance taxes for employers

Bridgestar, an initiative of The Bridgespan Group, has created a Hiring Toolkit to help nonprofits better enhance their internal effectiveness and more quickly fill new and recently opened employee positions.

After a study conducted by Nonprofit HR Solutions reported that43% of nonprofits are expecting to add to their staff in 2012, as reported in our March 26th post, it is becoming increasingly important that nonprofit hiring teams are thoughtful and proactive in developing their own hiring toolkit.

Hiring toolkits help nonprofit hiring teams draft the strongest job descriptions, write the most compelling job ad, and outline how to select the best candidate. But, most importantly, they strengthen agencies abilities to compete with for-profit companies who are offering similar positions at typically higher pay rates.

Because the findings of the Nonprofit HR Solutions study “suggest that the nonprofit sector should be more focused on retention practices than it is currently,” it is even more vital that hiring teams know exactly who and what they are looking for when reading through stacks of resumes and applications.

Bridgestar suggests that hiring teams create a system for reviewing resumes to improve the chances of including “the most relevant candidates” and “uncovering those hidden gems.” To do this, they’ve offered 4 reviewing steps:

Step 1: Agree on your resume review process and how each team member is going to be involved before looking at any application packets.

Step 2: Organize the cover letters and resumes you receive in order of receipt to speed the reviewing process. Let the candidates know that you have received their resume and will be beginning your review process shortly.

Step 3: Review each resume packet thoughtfully and objectively. Knowing what core criteria are most important for you, and where you are willing to bring a candidate up to speed helps process resumes; similarly providing the review team with key questions to keep in mind when reading each resume helps sort through applicants who aren’t adequately qualified or don’t fit your mission.

Step 4: Make the interview decision and let applicants who are not selected down easy. For applicants the hiring team wants to speak with further, discuss what more should be learned about them in phone, and eventually, in-person interviews.

As the nonprofit job market grows stronger and more job opportunities are being created across all sectors, agencies must be more competitive in selecting and retaining qualified applicants. Read more about Bridgestar’s suggestions for Processing Applications and Screening Resumes.

According to many recent reports and articles, turnover may be the new normal for NPOs. In a society where the average number of careers changes in a person's lifetime is reportedly 5-7, this may not be shocking news. But recent turmoil in nonprofit hiring and employee satisfaction has nonprofit leaders in a quandary. Can we embrace this new normal but also shift our practices to increase employee satisfaction?

According to the Chronicle of Philanthropy: "Four out of five charity workers are actively seeking new positions—or would be if the economy were stronger, according to the survey of 672 people. Nearly 40 percent of employees said they are dissatisfied with their work."

Much of the dissatisfaction is a result of the economy adding new pressures to employee workload. With fewer employees to do the same amount of work or more, positions are becoming less specific and more generalized, giving employees little sense of accomplishment or ownership over their work. In addition, loss of a sense of job security has given many nonprofit workers reason to seek employment elsewhere. Finally, under-appreciation of employees has set them up to under-achieve and potentially just leave.

Joanne Fritz, writer for the About.com Guide for nonprofits, says in her recent post: "What these employees want is what all workers want, whatever sector they work for: professional development, the chance to advance, clear expectations from managers, participation in the decisions that affect them, and a feeling of being valued."

If the nonprofit sector is going to thrive in this new normal, the new nonprofit employee will need more out of their position than just the feel-good nature of their work. Leaders and human resource professionals at these organizations will need to:

1. Provide Education. Giving employees a chance to hone their skills and build management know-how will not only give them a sense of relevance and job security, but it will refresh your NPO's overall strategies and outlook.

2. Recruit Wisely. "Make employee recruitment an ongoing activity" says Fritz, so that your organization stays aloft regardless of turnover. And to reduce turnover, new tools like online assessment tests can help ensure you're finding the right candidates.

3. Give Feedback. Being involved in your employees' performance, providing rewards and discipline, helps them feel like they are part of a greater mission. By documenting performance, you can also save your organization from suffering from inappropriate unemployment claim costs down the line.

4. Embrace Technology. Giving employees opportunities to work from home with cloud technology and utilizing new online and social media tactics will help employees feel they are working for an organization that stays ahead of the curve and appreciates new ideas.

5. Be Flexible. When compensation dollars are limited, you can boost morale by using other incentives like quality of work life rewards and training opportunities.

Nonprofits who rely on state and other government funding should prepare for a bumpy road ahead in the next couple years says a new report produced by independent philanthropy consulting firm “Changing Our World, Inc.” Although the economy is seeing a shift toward the positive, state tax revenue – and therefore funding for many nonprofits - is nowhere near stable. And while the number of nonprofits has been steadily rising over the past 15 years, charitable giving has dipped significantly and would need an unprecedented rally to make up for the government funding shortfall.

Since World War II, the average recession in America had lasted 10 months. Until Now.”

Unemployment alone has created a crisis in many states. In fact, 44 “crisis states” have significantly reduced spending and are expected to cut spending even more (by $38.5 million) in social services, education and Medicaid says the report. Despite $1.5 trillion of American household wealth lost in just the first three months of the recession, philanthropy on the other hand, has been making modest gains and is expected to slowly trend upward. But the dollars are spread thinner as the number of nonprofits increases and the demand for services explodes. As the Chronicle of Philanthropy put it: "To help nonprofits cover cuts in those services, households in the hardest-hit states would have to step up their giving by 30 percent in 2011 and 60 percent in 2012—an increase the report says would be 'historically unprecedented.'"

So what’s a nonprofit to do?

The report concludes that a multi-faceted strategy is needed for every nonprofit. Waiting on philanthropy or government funding to recover won’t work. “Philanthropy will be an important, indeed critical piece of that strategy, in part because philanthropy is often flexible and can fill in gaps not financeable through other means. However, the sheer weight of the burden will require that multiple revenue pathways be opened as well as that every managerial option for efficiency be considered.”

For nonprofits looking for a guide to this multi-pronged approach, we gleaned these tips from the report:

• Efficiency – Reach out to unemployed workers to become volunteers, possibly with a stipend. You’ll not only give them a step in the right direction but you’ll receive valuable man-hours.

• Collaboration – Reducing overhead costs is possible through a number of collaborative efforts like merging of back offices, joint purchase of property, combination of nonprofits with similar programs into a single service network, etc.

• Messaging - When asking for donations, emphasize progress instead of crisis. Talk about all the good the organization is doing in the face of the economic crisis, not how it’s struggling.

• Financial Expertise – Learn more about managing cash flow and accounts receivable so you can weather late payments and financial dips. Become your own expert on economic trends. Also think about adding people to the board with financial expertise or government experience.

• Don’t Rely on One Source - No more than 60% of any program’s budget should come from government money.

• Maintain a Reserve - This fund should be triggered only by the Board or the Finance Committee, and saved for lean times.

SUMMARY:  Partnership provides potential savings for nonprofits in Georgia during times of rising costs, reports the Unemployment Services Trust.

Santa Barbara, CA.  December 06, 2011 - The Unemployment Services Trust (UST) and Aging Services of Georgia are pleased to announce they are entering into a partnership to offer a new member benefit to nonprofits in Georgia: saving money on unemployment expenses.

Aging Services of Georgia is a statewide association that represents nonprofit and mission-driven organizations dedicated to providing quality housing, health care and community-based services.  Aging Services of Georgia consists of over 150 housing and service providers that proudly embrace the continuum of aging services, representing over 126,000 residents and clients in Georgia.

With Unemployment Insurance (UI) taxes continuing to rise across the United States, it works to the benefit of most nonprofit organizations to consider opting out of the state unemployment tax system in an effort to reduce operational costs.  The current maximum tax rate for employers in Georgia is 7.29%, up from 5.40% in 2008, and these rates will continue to rise until the economy stabilizes.  Opting out of the state unemployment tax system is allowed by federal law for 501(c)(3) organizations and can help nonprofits keep more funds to put toward their mission.

Employers who pay into the state unemployment tax system typically pay in $2.00 for every $1.00 for paid out in benefits.  And, last year alone, Georgia erroneously paid out unemployment benefits by an estimated $53.6 million, so there are a lot of funds going to waste.  Opting out classifies nonprofits as a direct reimbursing employer, where the organization repays the state dollar-for-dollar when an unemployment claim is filed against the organization.  In becoming a direct reimbursing employer, organizations have the options to monitor and protest claims on their own or join an unemployment trust.  Handling unemployment claims within the organization can be burdensome on Human Resources departments, so many nonprofits choose to join an unemployment trust because they can provide claims monitoring services as a benefit of becoming a member.  With UST, organizations make quarterly deposits into a reserve account that is owned by the organization.  When unemployment claims arise, UST reimburses the state with funds from the organization’s reserve, which will be replenished through future contributions.

UST, a grantor trust founded in 1983 by nonprofits for nonprofits, is the largest national unemployment trust with more than 2,000 member organizations.  UST’s long-standing association with 501(c)(3) nonprofit organizations provides an average annual savings of $35 million in claims and has provided over $33 million in refunds to trust members.

For more information about UST, visit www.ChooseUST.org or call (888) 249-4788.  You can also visit Aging Services of Georgia on the web at www.AgingServicesGA.org.

You've already tightened your belt. But now constrained public funding and highly competitive government grants are making sustainability harder than ever for nonprofits, especially those in the human services sector. We think this recent article from the Stanford Social Innovation Review is a great read for nonprofits suffering from funding cutbacks. The article provides guidelines on how to stay afloat during these times, including these five ideas:

1) The importance of strategic clarity and the steps your organization should take to focus on priorities

Nonprofits across the globe offer a wide variety of services. Defining how, where and with whom you have an impact will assist you in finding your niche, and also help you with your funding efforts. From here, nonprofits should define how much it costs to provide each service offered by the organization so you can seek the proper funding needed to keep the program afloat. This allows the agency to locate areas of service that may be altered if funds are lacking and show what areas of the service would benefit the most if funding were increased. Also, focusing on strategic clarity aids the organization in decision making and how you can pursue opportunities for government funding.

2) Diversifying government support streams and how to manage a strapped funding environment

Organizational sustainability is of the utmost importance, so it is imperative that organizations not have all of their funds coming from just one source. Allowing funds to funnel in through multiple sources (government agencies, state programs, donors) can help your organization remain stable amid declining revenues. Nonprofits may consider offering services in different locations or offering their services to others who may benefit from them (for example, offering services for children with behavioral disorders in a school setting, to children with behavioral disorders in foster homes). Organizations can also take contracts that may not cover all of the costs involved with a particular service if there is potential for making up the difference in community support.

3) Improving productivity, efficiency and effectiveness

A notable difference between the for-profit and nonprofit market place is that nonprofit organizations rarely get to name their price when trying to earn a contract. And, since the funds provided don’t always cover the costs required to carryout the work needed, nonprofits find themselves trying to work more efficiently and effectively in order to preserve funds for the future. Many organizations are becoming more tech-savvy and investing in technologies that streamline job processes and free up valuable man hours so they can focus more on “big picture” tasks.

4) Measuring outcomes and utilizing reports to drive internal learning

Many times, nonprofit organizations generate reports to show the results of their efforts to external parties in order to prove they are satisfying funder requirements, government expectations, etc. Measuring outcomes can be a valuable tool in educating internal associates of program productivity and how certain aspects of those programs can be tweaked in order to improve results. Measuring outcomes can also show whether or not a certain program is producing its intended results, ultimately aiding in overall organizational sustainability.

5) Moving beyond “vendorism” and viewing government decision makers as customers

When nonprofit organizations work with government decision makers, keeping in mind that the government is the buyer and the nonprofit is the seller, nonprofits can better position themselves to mold the government’s request for proposals. As Patrick Lawler, CEO of Youth Villages, stated, “We find out where the leadership’s biggest needs and challenges are, and then look at what services we have that can help them solve the problem. We look over every word in new state budgets and the statements made by the governor or head of child welfare services, and put together a plan for how to address the needs identified.”

"If there is one lesson the nonprofit sector has learned in the past few years, it is the value of maintaining healthy reserves,” says Hilda Polanco in a recent article from Philanthropy Journal.

Here at UST, where we help our members create reserves to pay unemployment claims, we couldn’t agree more.

But finding those unrestricted dollars to fund a reserve is easier said than done. However, it is a necessary step in managing sustainability – a lesson all too clear to many nonprofits during the recent economic downturn. Ms. Polanco provides some insight into how nonprofits can start building their operating reserve. Here is what we learned:

1. Start with nurturing a culture (all the way up to the Board) that strives to produce revenue and surpluses – not just “breaking even”

2. Next, when creating your budget, insert a line-item for “Current Year Contribution to Reserves” so that it is a clear priority for both management and staff.

3. Finally, there must be a reserve policy that states when reserves should be accessed, and defines “when is it a ‘rainy day’?” or “what constitutes an emergency?” This will provide the purpose of the reserves based on your organization’s own individual mission.

Overall, says Polanco, the board should figure out “how much of its unrestricted net assets to make available for management to use as needed ("Operating Reserve"), how much to set aside for a rainy day ("Board Designated") and how much to earmark for a specific strategic goal ("Special Purpose").” A reserve is not something that will appear overnight, but by taking these few steps your nonprofit will be on its way toward being a stronger, more stable organization.

SUMMARY: Businesses in states with unemployment funds remaining in a deficit for two consecutive years will not receive the benefit of FUTA tax credit, spelling higher taxes for employers, reports the Unemployment Services Trust.

Santa Barbara, CA. November 21, 2011 -- With chronic unemployment lingering across the U.S., many state unemployment funds are long past being able to support laid off workers without the help of Uncle Sam. These states, whose unemployment funds were depleted during the recession, took out Title XII loans from the federal government to continue paying unemployment benefits. Now with current outstanding balances totaling $37.4 billion, the Fed is eager to see some of this money paid pack. Based on Title XII of the Social Security Act, employers will be tapped for these funds through a FUTA credit reduction, reports the Unemployment Services Trust (UST).

Under the Federal Unemployment Tax Act (FUTA), typically employers pay an annual FUTA tax rate of only 0.6% because the 6.0% tax rate is offset by a federal credit of 5.4%. (The tax was 6.2% for a net tax of 0.8% previously; but the 0.2% surtax passed by Congress in 1976 finally expired June 30, 2011). However, by law, after a state has had an outstanding Title XII loan balance for two consecutive years on January 1, employers in that state face a 0.30% reduction in the FUTA credit if the loan is not paid back by November 10 of that same year. In 2010, three states had outstanding balances for more than two years that could not be paid back by the November deadline. Indiana, Michigan and South Carolina employers saw their FUTA tax rate go up by 0.3% retroactive to January of 2010 because of the credit reduction. Now, a year later, seven times as many states face a FUTA credit reduction. Employers in 21 states will see their federal unemployment taxes rise this year.

- Nineteen new states will have a credit reduction of 0.3%: Arkansas, California, Connecticut, Florida, Georgia, Illinois, Kentucky, Minnesota, Missouri, North Carolina, New Jersey, Nevada, New York, Ohio, Pennsylvania, Rhode Island, Virginia, Virgin Islands and Wisconsin.

- Michigan will have a total credit reduction of 0.9% (0.6% in 2010)

- Indiana will have a total credit reduction of 0.6% (0.3% in 2010)

- South Carolina qualified for credit reduction avoidance, so they will not have a further credit reduction for 2011.

This means that for employers in the 19 states newly experiencing this credit reduction, the federal unemployment tax rate will increase from a net 0.60% to 0.90%. These taxes will be due in January 2012 based on the first $7,000 of wages paid to each worker, retroactive to January 2011. So while other employers pay $42 per employee in federal unemployment taxes, employers in credit-reduced states will now pay $63 per employee.

For each subsequent year that the loans remain unpaid, employers will see a further 0.3% credit reduction. By 2014, they could face a 1.8% net federal tax rate if the state still has not paid back the loan. This year Michigan will see a net tax rate of 1.7% and Indiana will face 1.4% because of their prolonged outstanding loan balance. The federal FUTA tax is paid in addition to the state unemployment taxes that each employer pays on a quarterly basis.

The widespread credit reduction means that more employers will be wary of hiring as they seek to reduce costs – further compounding the unemployment problem. Only 501(c)(3) organizations are exempt from FUTA taxes. However, even these nonprofit organizations could feel the effects in the form of increased state unemployment taxes. In an effort to pay back their outstanding loans, many states will increase their unemployment taxes and taxable wage bases over the coming years as well. Already in 2010 employers saw a 34% national average tax hike, followed by an expected 16% again this year – and these tax rates won’t likely go back down again.

State unemployment funds have been historically under-funded, which is how they got here in the first place. For example, from 1938 to 1973 unemployment reserves lingered around 5% of wages, never dropping below 2%. That average fell to 1% in 1974 and hasn’t reached 2% ever since, meaning state UI funds have had the slimmest of financial buffers, let alone a buffer that could withstand a prolonged surge in unemployment like the one caused by the recent recession.

Even though states have tried to find ways to pay back their Title XII loans (and the $1.3 billion in interest that was due starting on September 30, 2011) without increasing taxes on employers, they are only putting off the inevitable. For example, debt-laden California appropriated money from its General Fund to pay the interest due on its loan instead of raising taxes on employers. This was a common practice among many states this year. While employers can thank the state for now, the fact still remains that the California taxable wage base is only $7,000, which is the lowest possible taxable wage base (states must match or exceed the federal taxable wage base to avoid substantially higher FUTA rates). They are among the 32 states whose taxable wage base remains below $15,000. There is a proposed increase in the FUTA taxable wage base for 2014, however, that would increase the minimum to $15,000 for all states. California taxes could more than double if the proposal passes. This is just one example of how states that have put off raising taxes for decades could face a substantial “correction.” Hawaii employers, who were shocked by a record taxable wage base increase of $21,200 last year (from $13,000 to $34,200) would probably agree that this type of sudden rise in taxes is hardly desirable. But it will be necessary if states cannot adjust their unemployment fund practices to pay off their loans and create sustainable reserves.

In the short term, states will have to make immense efforts this year to avoid another credit reduction for employers in November 2012. According to the DOL, to avoid a FUTA credit reduction for a taxable year, a state must submit an application to the Secretary of Labor prior to July 1st, and the state must:

- Pay the amount that the credit reduction would produce prior to November 10th of the year for which avoidance is to apply

- Repay all loans received during the one-year period prior to November 10th

- Increase solvency for the taxable year through legislative action by an amount equal to or greater than the amount of the FUTA credit reduction

- Not borrow before the next January 31st

SUMMARY: The proposed FUTA taxable wage base increase would have a heavy impact on employer rates, reports the Unemployment Services Trust.

Santa Barbara, CA (PRWEB) November 10, 2011 -- With most state unemployment funds now defunct after being depleted faster than they could be replenished during the recent recession, many states have found themselves with deficits that are growing as time passes. The United States unemployment tax system is in need of some serious restructuring, and it appears that the road out of the red is not a pretty one. Now, it’s ‘all eyes ahead’ through the thick of high unemployment, increased tax rates and special assessments. But, looking ahead to 2014, the proposed increase in the FUTA (Federal Unemployment Tax Act) taxable wage base from the current $7,000 to more than double at $15,000, could be devastating to employers if the proposal goes through, reports the Unemployment Services Trust (UST).

The proposal also includes a cut to the net FUTA tax rate from 0.80% to 0.38%, reducing the percentage by more than half. With the FUTA tax currently set at $56 per employee per year (0.008 x $7,000 = $56), and the proposed tax to be set at $57 per employee per year (0.0038 x $15,000 = $57), at first glance the change may seem trivial. The federal level, though, is not where employers would feel the pinch.

The pinch is found in the fact that states will have to match or exceed the FUTA $15,000 wage base, or face substantially higher FUTA rates. Thirty-two states (as well as Washington D.C . and Puerto Rico) would need to increase their unemployment taxable wage bases. There are currently 20 states with taxable wage bases of $10,000 or lower. The last time that the UI wage base increased was in 1983, so the increase is long overdue. However, it is expected that employers in these states will likely pay fifty percent more state UI taxes beginning in 2014 if the proposal is enacted.

Employers in states like California, who currently have a taxable wage base of $7,000, and for example, have an unemployment tax rate of 4.0%, will see their cost per employee increase from $280 to $600 annually. An increase this large (114%) would be detrimental to many employers, but especially nonprofit organizations, which typically have a tough time raising funds to cover operational expenses to begin with.

For 501(c)(3) organizations, federal law allows organizations to opt out of the state unemployment tax system and instead reimburse the state only for their own workers’ unemployment claims, dollar-for-dollar. When paying into the unemployment tax system, companies across the U.S. pay an average $2.00 for every $1.00 paid out in benefits, and these dollar amounts will likely grow where taxable wage bases will be increasing.

It should be noted, however, that nonprofits may find opting out of the state unemployment tax system to be burdensome on their HR department since they must monitor unemployment claims more closely, both to make sure they are not paying for unwarranted claims and also to ensure they have the funds on hand whenever a claim is filed. Some nonprofits have chosen to join an unemployment trust to help monitor claims, set aside funds in an account, and get support for their human resources department. For more information about joining an unemployment trust, visit http://www.ChooseUST.org.

Unemployment claims can negatively affect employer tax rates for several years and be especially burdensome to small businesses and nonprofits. Standard claims can increase an organization’s unemployment insurance (UI) costs by $4,000 - $7,000 over a three year timeframe. A recent article published by the New York Times quoted employment lawyer David Blaine, saying, “Hiring the right people is the first step in managing unemployment costs.” However, if any problems occur after the point of hire, they should be handled with a system of well-documented disciplinary actions: warnings, suspensions, and termination.

Upon terminating an employee after repeated verbal warnings for misconduct, Dr. Lisa Faast, owner of Faast Pharmacy lost an unemployment hearing for failing to properly document warnings to the employee. “Now, every discussion we have with an employee is written down, and we and the employee sign it. It can get kind of ridiculous. But since we’ve started that, we’ve won every case,” she stated in the NY Times article.

Here are some ways HR managers can help impact their unemployment costs through proper documentation and staying on top of claims:

- Workers who separate with the company voluntarily should be asked to give written notice of the separation in order to avoid a later unemployment claim.

- An employee fired for misconduct can be denied unemployment benefits; one fired for incompetence can collect. So make sure written warnings show that an employee broke a rule they knew about, if they did.

- Small business owners should monitor their UI statements as government numbers show that in 2010, 11.2% of UI benefits were paid out erroneously.

- Hire a claims monitor (or join a trust as a nonprofit) to get help auditing these statements and contesting inappropriate claims. Or if you go it alone, make sure to bring all documentation to hearings and be prepared.

SUMMARY: New data shows billions of dollars in unemployment benefits were paid in error over the last three years, and now businesses are being required to help pay down their state’s unemployment debt through increased taxes. As a result, the Unemployment Services Trust reports a 22% increase in nonprofits evaluating whether they should leave their state unemployment system before the quickly approaching annual deadline.

Santa Barbara, CA, October 14, 2011 -- The Unemployment Services Trust (UST) reports that more nonprofits are exercising their federal right to opt out of the state unemployment tax system just as the DOL releases new data indicating that states overpaid unemployment benefits by nearly $19 billion from June 2008 to June 2011. These overpayments represent an error of more than 10% of the $180 billion paid out in jobless benefits. It’s an unfortunate statistic since employers pay taxes to fund these benefits, and now the same employers are facing special assessment fees and higher taxes to help pay down loans their states took when their funds went into a deficit. This new outlook, along with a November 30 deadline, has many nonprofit employers suddenly looking at their alternatives.

In the long run, the onus lies on both states and businesses to make efforts to reduce these overpayments, explains UST. Most erroneous payments made by states are due to: recipients continuing to collect benefits after they find work, recipients failing to register with state workforce organizations, and employers failing to submit information about employee separation in a timely manner.

However for now, employers will have to pay up. For example, Arkansas owes nearly $360 million in federal loans. Over the past three years, the state has overpaid unemployment benefits by an estimated $161 million, which is 45% of the amount borrowed from the Fed since March 2009. But, these funds are long gone and the debt states are experiencing after taking out loans will ultimately be passed along to employers. Many states have already called for special assessments to begin paying down the interest on the loans, the first payment of which was due September 30. New Jersey, for example, has borrowed $1.05 billion and is asking employers to pay an average of $23 per employee to help settle the state’s debt, which may not sound like much, but for smaller companies and nonprofit organizations who typically work on limited budgets, these costs can add up quickly.

In the nonprofit world, employers with 501(c)(3) status face quite a different scenario, if they choose. They have the alternative of opting out of the unemployment tax system and reimbursing the state dollar-for-dollar when an unemployment claim is filed against the organization. They typically avoid the state tax increases and surcharges, and simply reimburse the state directly for their actual benefit costs. In most states, this option can only be exercised once annually, usually by November 30.

UST, a grantor trust founded by a group of nonprofits to help other nonprofits opt out of their state unemployment tax system, says that being a direct reimbursing employer can help save on operating costs. In addition, becoming a reimbursing employer can also help reduce state unemployment overpayments since employers are more likely to watch their claims closely to ensure they aren’t reimbursing the state for improper claims charges. While examining claims can be more work for HR managers, UST says that there are organizations who can help monitor claims on a nonprofit’s behalf. For example, through the assistance of their own unemployment claims monitoring services, UST’s 2,000 members saved about $38.5 million in 2010, $1.9 million of which were state errors found in audits.

Says Donna Groh, Executive Director of UST: “Already this year we’ve received nearly 250 requests to opt out of the state and join our Trust, which is a 22% increase from this time last year, and they’re continuing to flow in steadily as the deadline to opt out gets closer. It’s not for everyone, but we’re glad to see more nonprofits being proactive about reducing their costs and monitoring their unemployment claims after getting hit with the news about these overpayments and rising state taxes.”

Unemployment Overpayments: Fraud or flawed system?

By Pamela M. Prah, Stateline.org

View article at www.Stateline.org

When the Obama administration revealed that more than $17 billion in jobless benefits had been paid out improperly, a stream of headlines suggested that cheats were bilking the unemployment insurance system.

The reality is a lot more complicated, as the U.S. Department of Labor itself noted when it reported state-by-state numbers last month. While fraud was responsible for a small part of the overall “improper payments” figure, much of the total came from less devilish glitches, such as failing to provide proof that a payment went to the right person. The total also included cases where beneficiaries were underpaid, in addition to the cases where the government paid them too much.

Louisiana is one state that has found itself on the defensive. Federal figures showed that 44 percent of its unemployment insurance payments were “improper.”

“The numbers being reported … for Louisiana are not all overpayments,” Curt Eysink, executive director of the Louisiana Workforce Commission, said in a statement. “Nor should those amounts be collectively viewed as ‘waste, fraud and abuse.’” Eysink notes that what the federal government called “overpayments” largely went to unemployed workers who were eligible to receive unemployment benefits; the problem was that the state couldn’t prove that these people had formally registered with the state to say they have searched for jobs.

Crunch time for unemployment insurance

The issue is a sensitive one for state unemployment offices, which have been crushed by heavy workloads as joblessness remains stuck above 9 percent nationally. In the first year of the recession, states saw a 120 percent increase in claims from unemployed workers.

The program, run jointly by the federal government and the states, provides monthly benefits to workers who become unemployed through no fault of their own. Most states have had to borrow money from the federal government to keep checks going to the jobless; last month, states had to start paying interest on those loans.

The stepped-up scrutiny of jobless benefits is part of the Obama administration’s government-wide effort to reduce the $125 billion in “improper payments” the government made in 2010. Unemployment insurance was named one of the “high-error” programs. That was partly because the error rate of 11 percent was more than double the 5 percent rate that the administration set as a doable goal. The enormous size of the program, which paid out $156 billion in benefits last year, also was a factor.

Nationwide, Indiana and Louisiana had the highest error rates, with improper payments accounting for more than 43 percent of the total amount paid in both states. Others that landed high on the list include Arizona (20 percent), Colorado (17 percent) and Virginia (18 percent). There’s no financial penalty for states with high error rates, but until they get their error rates down below 10 percent, they’re subject to greater federal scrutiny and reporting requirements.

States say the federal campaign has left the perception that fraud is primarily to blame for their error rates. In fact, the federal government’s own estimate says that 2.4 percent of unemployment insurance benefits were overpaid due to fraud in 2010.

By and large, factors other than fraud are driving error rates. For example, many of the states under federal scrutiny are experiencing “work search” errors that they say are a result of dramatic changes in how people today file for unemployment benefits and look for jobs. Gone are the days when people had to step into a state unemployment office to fill out the paperwork and sit down with a case worker to talk about which employers they applied to for jobs. Nowadays, unemployment insurance applications and job searches are done online and employers don’t always save the hundreds of résumés they receive electronically.

Kevan Kaighn, of Arizona’s Department of Economic Security, suggests the reporting mechanisms may not have kept up with the times. “Arizona has historically asked employers to confirm that a claimant did apply,” Kaighn says. “If the employer was not able to provide verification … the Department would count the claim as an error.”

Complaints of unfairness

Some states also say they are being faulted for having stricter standards than the feds. Nearly 80 percent of Indiana’s improper payment problem was due to difficulties tracking things that the state requires but the federal government doesn’t. For instance, the unemployed in Indiana must show they have looked for work with three employers. If a recipient lists only one job or lists incomplete information for the other two, those are counted as errors, explains Valerie Kroeger of the state’s Department of Workforce Development.

The U.S. Department of Labor says it has been working with states since last year on these kinds of issues. The department says it’s only fair to assess states based on their own rules, but agrees that the wide variation in state unemployment systems may make it misleading to compare different states on their payment accuracy rates. “States with stringent or complex provisions tend to have higher improper payment rates than those with simpler, more straightforward provisions,” the department says on its website.

The private sector also has a role in improving the accuracy of payment information. One of five overpayments nationwide occurs because the worker’s last employer didn’t provide the state accurate or timely information about layoffs or hiring. The result can be people receiving benefits that they may not be entitled to. “We are trying to get the message out to employers how important this is,” says Joyce Fogg of Virginia’s Employment Commission.

Nationally, the leading cause of overpayments is when once-unemployed workers find jobs and continue to claim jobless benefits. On this front, the Labor Department encourages states to check the information from unemployment claims against a large national database of all new hires. Washington State, which has been doing this for years but nevertheless posted an error rate of 14 percent, estimates that these matches uncovered half of all its fraud-related claims. According to the National Employment Law Project, an advocacy group, states typically recover about half of the money lost to improper payments.

James Sherk of the Heritage Foundation says states have a point that the headline numbers would lead people to believe that more fraud occurs than actually does, but says states still need to fix the problems. “The state should not be continuing to send checks to workers after they have returned to work, and it should be verifying the work-search requirements are met,” Sherk says. “Those and other requirements exist for a reason and need to be enforced.”

Outdated technology blamed

What many states say they need most is money to replace outdated computers, which they say account for many of the problems. Arizona and Colorado are part of four-state consortium that was recently awarded $72 million in federal funds to replace archaic systems. “This represents a desperately needed modernization,” says Kaighn of Arizona, who says the state is currently using 1980s mainframe technology.

Washington State estimates it will cost more than $100 million to replace its two main computers involved in processing unemployment claims. The state is spending $54 million to replace the main tax computer and has set side another $30 million for the benefits side. According to Sheryl Hutchison, a spokeswoman for the state’s Employment Security Department, it will probably take up to eight years for those projects to finish.

Employers Hit by Unemployment Tax Hikes

By Tami Luhby

Read the article at CNNmoney

NEW YORK -- Companies have yet another reason not to boost hiring: rising unemployment taxes.

Employers around the nation are getting socked with higher state unemployment tax bills as states are forced to shell out more than $1 billion in interest payments this month. More than 30 states have had to borrow billions from a federal fund to cover unemployment benefits for their jobless residents in recent years.

And this is only the first of two tax spikes employers are contending with, on both the state and federal level. Come January, companies in 24 states could have to shell out between $21 and $63 more per employee in federal unemployment taxes.

These hikes are the latest in a series of unemployment tax increases as states look to replenish their unemployment trust funds devastated by the Great Recession.

Last year, employers paid 27.8% more in state jobless taxes, said Doug Holmes, president, UWC Strategic Services on Unemployment & Workers' Compensation, a business trade association.

"Unemployment taxes, which were a relatively low bottom-line cost in 2008, are now becoming a significant cost," Holmes said. "It discourages companies from electing to hire new employees."

9 hard-to-fill jobs

This is the first time during this economic downturn that states have had to pay interest on their federal borrowing, which currently totals nearly $38 billion. The 2009 stimulus act waived interest payments for two years, giving both cash-strapped states and their employers some breathing room.

Both groups lobbied Congress last year to extend the relief for another two years, but lawmakers declined.

So states were forced this year to make some tough decisions on how to handle the interest charges at a time when they were struggling to balance their own budgets. Some dipped into other state funds or borrowed money, but most shifted the burden to employers.

New York, for instance, sent its companies a bill in mid-July requesting a lump-sum payment of up to $21.25 per employee to cover its $95.4 million interest charge due September 30.

Companies were not pleased, said Mike Durant, New York state director for the National Federation of Independent Business. For small employers, even a couple of hundred dollars in unexpected expenses can hurt, he said.

For Margery Keskin, an executive at four construction-related companies in upstate New York, the extra $2,000 her companies had to shell out means less money goes to bonuses or profit sharing for her roughly 40 employees. And she will have to think twice before she hires anyone.

"We try not to hire because we will be socked by a bigger tax bill for unemployment insurance," said Keskin.

Other states, however, have tried to spare their employers.

California, for instance, borrowed its $303.3 million interest payment from a disability insurance fund. Texas issued bonds at a lower interest rate to wipe out its balance before the interest came due. And Ohio dipped into tobacco settlement funds to settle a roughly $70 million interest bill.

"We did not want to increase the tax burden on job creators," said Ben Johnson, spokesman for Ohio's Department of Job and Family Services.

Even in states trying to shield companies, employers could see their taxes rise next year. That's because federal unemployment taxes are scheduled to go up for firms located in states that have been borrowing in recent years.

In most of these states, the 2012 federal levy will rise by $21 per worker. But that amount increases the longer the state has been borrowing. Michigan companies, for example, will have to pay $63 per employee next year.

While states have been slowly paying down their balances by hiking taxes and curtailing benefits, many are likely to have loans outstanding for years to come, experts said. That will help prompt companies' federal unemployment tax levy to soar by 89% by 2016, according to U.S. Labor Department estimates.

During the recessions of the 1970s and 1980s, it took states eight years to pay off their loans, said Rich Hobbie, executive director of the National Association of State Workforce Agencies. This go-around will be worse.

"We're going to struggle longer than that," he said.