July 25, 2012
10 Days to Minimizing your Unemployment Costs: Tip 8
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.
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