March 27, 2012
DOL Helps Businesses Fight Unemployment Fraud
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
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
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
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.
From the Wall Street Journal
by Sara Murray
Nearly $19 billion in state unemployment benefits were paid in error during the three years that ended in June, new Labor Department data show.
The amount represents more than 10% of the $180 billion in jobless benefits paid nationwide during the period. (See a map of improper payments by state.) The tally covers state programs, which offer benefits for up to 26 weeks, from July 2008 to June 2011. Layers of federal programs that help provide benefits for up to 99 weeks weren't included.
The figures were released Wednesday as the Obama administration promotes its bid to reduce waste at federal agencies. The federal government foots the bill for administering the programs, and states are supposed to pay for the benefits. Many states exhausted their unemployment insurance trust funds during the long recession and slow recovery, prompting them to borrow from the federal government to replenish their funds.
Improper payments most often occur when recipients claim benefits even though they have returned to work; employers or their administrators don't submit timely or accurate information about worker separations; or recipients don't correctly register with a state's employment-service organization.
The Labor Department launched a plan to crack down on the improper payments, targeting Virginia, Indiana, Colorado, Washington, Louisiana and Arizona in particular for their high error rates. Those states will undergo additional monitoring and technical assistance until their error rates dip below 10% and remain there for at least six months, according to the Labor Department.
"The Unemployment Insurance system is a unique partnership between the federal government and the states. States bear the responsibility of operating an efficient and effective benefits program, but as partners the federal government must be able to hold them accountable for doing so," Labor Secretary Hilda Solis said in a release.
Indiana had the highest error rate, with improper payments accounting for more than 43% of the total amount paid. But Mark Everson, commissioner of the Indiana Department of Workforce Development, said the differences in error rates stem from variations in state programs.
"To characterize it as waste, fraud and abuse is just manipulative," Mr. Everson said. "There's no way in the world you could cut the 43% of people off."
Mr. Everson pointed out that in Indiana, benefit recipients are required to list three work searches. If a recipient fills out only two of the three searches correctly, there are cases when the recipient can still receive benefits. But that counts as an error.
The Labor Department noted, "it may be misleading to compare one state's payment accuracy rates with another state's rates States with stringent or complex provisions tend to have higher improper payment rates than those with simpler, more straightforward provisions."
Nonprofits have proven more resilient in the recent economic downturn than many expected. According to a new report from the Johns Hopkins Nonprofit Economic Data Project, they fared even better than their for-profit counterparts.
"While other sectors are shedding jobs, nonprofit organizations boosted their employment by nearly 1 percent between 2009 and 2010," reports the project, which analyzed U.S. Bureau of Labor Statistics data from 45 states. In 2008 and 2009, nonprofit employment had an even greater upswing, causing total growth in nonprofit jobs from 2007-2010 to reach 5%. Compared to for-profits, who experienced a total job decline of 8% over the same years, this growth is quite noteworthy.
This is not to say that nonprofit job growth has not faltered over the years under economic pressure. U.S. nonprofits jobs growth fell from a rate of 2.6% in 2008 to a 0.8% growth in 2010. But overall, nonprofits have shown better employment trends throughout the decade compared to for-profits.
The UST Division of Nonprofit Research has seen similar employment trends among the Unemployment Services Trusts' 2,100 nonprofit members. Says Donna Groh, Executive Director of UST, "Although the recent Great Recession hit nonprofits the hardest we've seen in UST's 28 year history, we've always seen that they weather the economic storms better than the for-profit sector."
In fact, in 2010 surging unemployment caused many states to increase unemployment taxes on employers, a trend that is expected to continue as states try to recover from unemployment fund deficits. As a result, there were a large number of nonprofits who realized that it didn't make sense for them to continue paying a tax rate that subsidized the unemployment costs of all employers across their state. While for-profits are locked into paying state unemployment taxes, nonprofits are allowed by federal law to opt out of the state UI tax system and only pay for their own workers' unemployment claims.
"Since many nonprofits realized their claims were much lower than other employers', there was an opportunity for them to save, and open up more of their unrestricted funding" says Groh. The result? UST had some of the largest growth in membership they'd had in years. Many of UST's new members in 2010 were looking for help opting out of the state UI system, while others realized they needed help monitoring the unemployment claims and more HR support as direct reimbursing employers.
With more nonprofits realizing that their employment history doesn't warrant the type of unemployment tax increases they are seeing from the state, UST expects that even more nonprofits will exercise their right to opt out of the UI system and become reimbursing employers in 2011. With many states tacking on special assessment fees in order to help pay for all of the unemployment fund borrowing over the past few years, there's little question that employers across the nation will see their unemployment costs go up. And as Groh says, "Nonprofits are getting smarter and savvier from the financial crisis... This is one cost they're learning they can save on."
Infographic: A due date nears on unemployment trust fund loans
by Carla Uriona and Mary Mahling at Stateline.org
View the story at http://stateline.org/live/details/story?contentId=597982
"Later this month, states will have to make the first interest payment on the money they borrowed from the federal government to keep sending unemployment checks to workers who’ve lost their jobs. Some 28 states have outstanding loans with the federal government. According to a May estimate by Federal Funds Information for States, the total interest due by September 30 is $1.3 billion. The federal stimulus package had provided interest-free loans to states, but that grace period has expired. Earlier this year, President Obama asked Congress to waive those interest payments for another two years, but the idea went nowhere. The proposal could resurface when Congress returns this month and takes up the president’s jobs package."
Summary: A partnership with the newly-formed association Washington Nonprofits will increase potential savings for many nonprofits in the state of Washington, reports the Unemployment Services Trust.
Santa Barbara, CA, September 8, 2011 -- The Unemployment Services Trust (UST) and Washington Nonprofits are pleased to announce their new partnership agreement that will help nonprofits in Washington state save money on their unemployment expenses, helping reduce operating costs for members long-term.
Unemployment tax rates are expected to continue rising over the next decade because even though unemployment is decreasing, demands on state funds are driving taxes up. Washington legislation allowed the state to lower unemployment taxes for about 80,000 small businesses (those in rate classes 1-34) after large tax hikes last year. While tax breaks have provided relief to many nonprofit employers, there are still many recovering from the recession and looking for new funding and ways to free up more of their funds to support their mission.
Since 1991 Northwest Nonprofit Resources has partnered with UST to help nonprofits save money and receive support on unemployment claims. Now Washington Nonprofits, which formed just last year, will also work with UST to help nonprofits save money on unemployment expenses. “UST exists to save money for nonprofits so they can use those funds to advance their missions. Now, more than ever, nonprofit organizations need to maximize their resources. UST will work with members of Northwest Nonprofit Resources and Washington Nonprofits to do just that,” states Sandra Gill, director of NNR.
Donna Groh, Executive Director of UST stated: “Building on our history of working with NNR to assist nonprofits save money to put towards their mission, we are very pleased to enter into this new partnership with Washington Nonprofits to bring the benefits and cost savings of the Trust to even more organizations throughout Washington.”
UST, a national unemployment trust, helps 501(c)(3) organizations in Washington and across the country to opt out of the state unemployment tax system, as they are allowed by Federal law. Once out of the system, they are able to simply pay back the state, dollar-for-dollar, any time a former employee files for unemployment. UST provides them with asset protection and unemployment claims monitoring to safeguard their cash flow from volatile or unwarranted unemployment claims, and helps create a savings program so that they have the reserves to pay for claims when they need it. Because they own their accounts, nonprofits who join UST can consider their account an asset instead of a state tax liability.
The UST program is just one of the many resources available to members of Washington Nonprofits. To learn more about the organization and its benefits, visit www.WashingtonNonprofits.org. For more information about UST, visit www.ChooseUST.org.
Summary: Employers across the U.S. are being asked to make payments to help compensate for the states’ shortfall in unemployment funding, and resulting interest owed to the Feds, reports the Unemployment Services Trust.
Many businesses received letters recently stating they would have to pay supplemental fees to help pay down debt their state governments have racked up in the course of paying out unemployment benefits. Many state unemployment funds are insolvent due to the prolonged recovery of the recent recession, and some state debts continue to grow, reports the Unemployment Services Trust.
In Colorado, where the state borrowed $346 million last year, about 35,000 employers will be required to make special assessment payments. On average, businesses will pay $340 each, totaling $11.9 million to help the state pay the interest owed. Connecticut has borrowed more than $810 million from the federal UI fund, a number that is expected to increase to $1 billion before it begins to shrink. Employers will be required to pay up to $25.50 per employee, which may not sound like much but can really add up quickly. New York has borrowed more than $3 billion to continue paying unemployment benefits and is also requiring businesses to pitch in to pay down the $95 million due to the Fed on September 30. Employers in New York will pay up to $21.25 per employee, a number formulated based on taxable wages for the latest fiscal year. Most states will assess interest payments quarterly until loans are paid off, which, depending on the individual state’s surmounted debt, could take several years.
The news of these special assessments has made employers grow even more wary. Terry Jannsen, President of Jannsen + Company, an accounting firm in Pewaukee, Wisconsin stated in a release, “This may not sound like a big expense to employers, but the negative impact could be substantial for companies already feeling the pinch. If you are a small business, you may not have budgeted for this expense, and don’t have the reserves to make the interest payments. If you are a larger company, the assessment may cost one or more jobs in an already lean economy.”
Employers are hoping that lawmakers pass legislation that would waive the interest fees as they did in 2009 and 2010, however, to date there has been no indication this will happen in 2011. In a time when new job creation is imperative to our economy’s overall health, these special assessments are not only stifling company growth, but sustainability to boot. A few organizations, however have found some relief.
Direct reimbursing employers across the United States are exempt from most special assessments since they fund their unemployment claims on their own, repaying the state each time a claim is filed against the company instead of paying into the state’s unemployment tax system. According to federal law, 501(c)(3) organizations have this distinct opportunity. There are a couple ways to do this:
Many organizations opt for the unemployment trust in order to lessen the stress on their Human Resources department as the mitigation process can be burdensome. One such trust is the Unemployment Services Trust (UST). With UST, organizations make quarterly deposits into a reserve account that belongs to the organization itself. Each time an unemployment claim is filed against the organization, the Trust reimburses the state for the exact amount that is billed, instead of paying into the state tax system where typically only $1 is paid out in benefits for every $2 that is paid in taxes.
Currently, more than 2,000 nonprofit organizations work with UST to lower unemployment costs and opt out of the state unemployment tax system. For more information about the organization, visit http://www.ChooseUST.org or call (888) 249-4668.
Summary: Partnership creates potential savings for many nonprofits in the state of Maryland, reports the Unemployment Services Trust.
The Unemployment Services Trust (UST) and Maryland Nonprofits are proud to announce that they are joining forces to work with nonprofit organizations in Maryland to help save money on unemployment expenses.
Maryland Nonprofits is the primary source for guidance and assistance on nonprofit management issues for Maryland’s near 1,600-member nonprofit community. Maryland has 255,408 nonprofit employees within all service areas, including: Arts, Culture & Humanities, Education, Environment & Animals, Health, Human Services, and Public & Societal Benefit. Each year, more than 300,000 nonprofit professionals utilize Maryland Nonprofits’ resources, and now Maryland Nonprofits will be better able to assist its members with the help of UST’s cost-saving program.
Donna Groh, Executive Director of UST stated: “We are so pleased to enter into this partnership with Maryland Nonprofits. UST exists to save money for nonprofits so they can use those funds to advance their missions. Now, more than ever, nonprofit organizations need to maximize their resources and UST will work with Maryland Nonprofits’ members to do just that.”
UST, a national unemployment trust, helps organizations opt-out of their state's unemployment tax system. Permitted by federal regulation, opting-out allows nonprofits to handle their own unemployment claims, and save money. UST members own their own account, which is a pre-paid asset used to cover unemployment expenses that occur when an unemployment claim is filed by a former employee. The nonprofit becomes a "direct reimbursing employer," meaning they only pay for unemployment collected by former employees, and are sheltered from rising tax rates. UST offers asset-protection and unemployment claims monitoring that many nonprofits need to safeguard their cash flow from volatile or unwarranted unemployment claims. In addition, UST members benefit from conservative asset investment, stop-loss protection, bonding, and professional human resources support.
UST, founded by nonprofits for nonprofits, is the largest of all national unemployment trusts. Consisting of more than 2,100 member organizations from 47 states (and DC), UST has been helping nonprofits reduce expenses since 1983. UST's long-standing relationship with nonprofit organizations has provided more than $33 million in refunds to trust members; and an additional $35 million in annual unemployment claim savings, presenting organizations with valuable resources to put toward achieving their missions.
For more information about UST, visit http://www.ChooseUST.org or call (888) 249-4788. You can also visit Maryland Nonprofits on the web at http://www.MarylandNonprofits.org.
Summary: The rough economy has left many organizations looking for ways to reduce expenses. According to the Unemployment Services Trust, becoming a direct reimbursing employer is one viable step toward lessening expenditures.
Many nonprofit organizations are continuing to feel the aftershocks of the late Great Recession. The fluctuating nonprofit workforce teamed with contracting budgets and heightened demands for services have these organizations experiencing stresses like never before, reports the Unemployment Services Trust (UST).
A recent survey performed by the Nonprofit Finance Fund reported that 2011 will continue to be another tough year as 85% of the 1,900 nonprofit organizations surveyed are expecting an increase in service demands, while just 46% expect to be able to fully meet the increased need for services. Another recent survey performed by the Nonprofit Research Collaborative found that, of the 2,500 organizations examined, 20% stated that their budgets for 2011 are lower than that of 2010, and 7% of nonprofits fear closure due to financial pressures. When organizations predicted budget cuts, the most frequently cited measures to reduce expenditures were cutting program activities, services or operating hours. These measures were planned by 66% of organizations anticipating a budget reduction, while 59% indicated that staff compensation would be cut.
And, not only are total contributions down, but nonprofits are finding that donors who are making contributions are putting their money toward the program itself and not providing funds to be put toward employee salaries or paying for utilities. “One of the hardest things is finding funding for operating support,” stated Ann King, Executive Director of the Tri-Valley Haven in Livermore, California. “Last year, we received more restricted money and less of the important general funds that help us manage the organization.” This spells trouble for many organizations – increased demand for services and less money to put them in action means more volunteer workers, less full-time employees and a potential increase in unemployment claims.
This has left many nonprofit organizations asking: What can we do to better manage our expenses when our budgets are already tight as it is?
Donna Groh, Executive Director of the Unemployment Services Trust, says that becoming a direct reimbursing employer is one option for reducing expenses that can be beneficial to nonprofits in a couple ways. Federal law gives 501(c)(3)s the distinct option to become self-reimbursing employers by removing themselves from the state unemployment tax system and paying dollar-for-dollar for unemployment claims filed against the organization – good news for organizations who are tired of watching their valuable dollars disappear. “When paying into the state unemployment tax system, organizations typically pay $2.00 in taxes for every $1.00 in benefits paid out due to socialized tax rates that force employers to cover the unemployment costs of other employers, so there is a lot of money going to waste.” Groh continued, “Opting out of the state unemployment tax system means that nonprofit employers are not obligated to pay for tax increases that come as a result of hikes in state unemployment, federal borrowing to cover claims or state fund deficits.”
However, when opting out of the state unemployment tax system, organizations must be aware that this creates a heavier work load for their human resources department as they will have to either monitor unemployment claims in-house or outsource them to a claims monitoring service. Unemployment trusts often provide claims monitoring services as an added feature to joining the trust. “Claims monitoring services are very beneficial to the organization in both a financial and a logistical sense, freeing up valuable employee time and resources,” says Groh.
Unemployment trusts provide nonprofits with a rate based on their own claims history and create a reserve for the organization to make quarterly deposits into, which the organization owns and holds as a working asset on their books. When an organization experiences a layoff, instead of jeopardizing its cash flow, the trust will pay the state out of the agency’s account, which will be replenished through future quarterly deposits. The rate given to the organization by the trust is often less than the state unemployment tax rate, which helps nonprofits preserve funds that can be allocated according to the organization’s mission, where they belong.
Currently, more than 2,000 nonprofit organizations work with UST to lower unemployment costs and opt out of the state unemployment tax system. For more information about the organization, visit http://www.ChooseUST.org or call (888) 249-4788.
Summary: A lack of cash-on-hand is troubling many nonprofit organizations, putting them in jeopardy just as costs like unemployment taxes are rising. Operating reserves are a necessary foresight in reducing strain on cash flow, reports the Unemployment Services Trust.
In the ever-changing world of nonprofits, it is general practice to have three months worth of operating costs on reserve to remain solvent during times of dwindling contributions, delays in government funding or unforeseen spikes in expenses. However, escalating state unemployment taxes and unanticipated layoffs have left many nonprofits struggling, reports the Unemployment Services Trust (UST). While the tight pockets of contributors and binding red tape of Uncle Sam are out of the control of the nonprofit, it behooves the organization to set funds aside to be put toward expenses that they are obligated to pay, foreseen or not.
It seems though, that this general practice of keeping the reserve tank fully-funded has gone by the wayside in the wake of the Great Recession. According to a survey performed by the Nonprofit Finance Fund, of the 1,900 nonprofits surveyed, 28% reported having one month or less of operating funds on reserve, and 10% had none. However, the future holds more than doom and gloom for nonprofits, as along with the aforementioned results it was reported that 44% of nonprofits had a surplus at the end of 2010, a 9% increase from the year before and, 35% of organizations reported raising more in 2010 than they had anticipated, while 25% contributed to a reserve fund last year.
One option to help preserve funds, says UST, is to opt out of the state unemployment tax system, which is allowed for 501(c)(3)s by federal law. This can help an organization’s budget in a few ways:
1) As a 501(c)(3), opting out of the state unemployment tax system allows nonprofits to
directly reimburse the state dollar-for-dollar for unemployment claims filed against them,
instead of paying the average $2.00 in taxes for every $1.00 in benefits paid out.
2) Direct reimbursing employers are no longer subject to state rates that are socialized to
cover the unemployment costs of other employers.
3) They are also not obligated to pay for tax increases that come as a result of hikes in state
unemployment, federal borrowing to cover claims or state fund deficits.
Opting out of the state unemployment tax system can be tricky though, in that not all nonprofits are prepared to pay those claims when the need arises. And, even if they do set aside funds in preparation for these costs, claims that are filed against the organization are not always monitored effectively, meaning they could be paying claims they shouldn’t. One strategy in reducing these potential risks is to join an unemployment trust, in which nonprofits are given a rate based on their claims history and quarterly deposits are made into their reserve account. When an organization experiences layoffs, instead of jeopardizing their cash flow, the trust will simply pay the state out of the agency’s account, which will be replenished through future contributions.
Overall, as more nonprofits realize the importance of operating reserves, and how they can combat unstable costs like unemployment, the greater equipped they will be for the future.
Currently, more than 2,000 nonprofit organizations work with UST to lower unemployment costs and opt out of the state unemployment tax system. For more information about the organization, visit www.ChooseUST.org or call (888) 249-4788.
Summary: As 501(c) organizations, nonprofits are exempt from many taxes. However, in this economy reluctant to recover, nonprofits should be especially cognizant of taxes to which they are still subject in order to maintain their cash flow and tax exempt status. In addition, leaner budgets and rising unemployment tax rates require that they get the most from every dollar, reports the Unemployment Services Trust.
Many nonprofits are still tightening their belts in an effort to recover from a slumped economy and stiffer funding competition. However, taxes may be an overlooked source of unnecessary drain on their budgets reports the Unemployment Services Trust (UST), a group of more than 2,000 nonprofits joined together with the purpose of managing unemployment tax costs.
What taxes do nonprofits pay? Nonprofits are not subject to federal income taxes, and many states provide exemptions to income taxes, property taxes, sales taxes, and others. However, many nonprofits are subject to the following types of taxes depending on their activities, and should closely monitor their status to avoid penalties, cash flow issues, and paying taxes they may not need to:
1. Unrelated Business Income Tax – Under IRS law, nonprofits can be subject to unrelated business income tax, or “UBIT”, if an activity that generates revenue is not related directly to the organization’s mission. If an organization sells items that have nothing to do with their purpose, even if it is used to fund that purpose, it could be considered UBI. Specifically, an activity is considered UBI if it is considered a business or trade, it is a regular or common activity, and it is not significantly related to the mission of the nonprofit. If unsure, a nonprofit should consult with a tax advisor to find out whether their activities would subject them to these taxes.
2. Federal Employment Tax – Tax exempt organizations with employees are still responsible for Federal Income Tax Withholding (FITW) and Social Security and Medicare taxes (under FICA). An organization typically must withhold federal income tax from an employee’s wages, deposit the amount, and pay a matching sum. Social Security taxes are withheld from an employee’s gross wages until their annual cumulative wages reach the wage base limit. However, all covered wages are subject to Medicare tax, and there is no wage base limit. Unlike UBIT, these taxes are clearly not avoidable for organizations, and must be budgeted for accordingly each year.
3. State Unemployment Tax – An organization that is exempt from income tax under section 501(c)(3) of the IRC is also exempt from FUTA (Federal Unemployment Tax Act). However, this does not exempt them from SUTA, or state unemployment taxes. These taxes can vary across states, and SUTA tax rate maximums exceed 10 percent in a number of states. With unemployment remaining high across the nation, UST and other experts expect that these tax rates will continue to rise over the next decade.
IRS designated 501(c)(3) organizations do, however, have an alternative to paying the SUTA tax under federal law. They can file with the state to leave the SUTA system, and only reimburse the state dollar-for-dollar for benefits paid out if they have an unemployment claim. "Many nonprofits are finding this to be welcome relief from rising tax rates," says Donna Groh, Executive Director of the UST. But some have found that this method, while saving them money long-term, can cause issues if they don’t have the cash flow to pay claims immediately. To remedy this cash flow risk, many nonprofits opt to join an unemployment trust, like UST, where they can deposit a quarterly amount into a reserve account to pay claims. Trusts will often provide other benefits such as claim monitoring, administrative support, and stop-loss protection. UST offers more detail on opting out of the state unemployment tax system at www.chooseUST.org.
In order to maintain tax exempt status and ensure every dollar is budgeted accurately, nonprofits should treat these tax matters seriously, including filing their annual Form 990. They should also consult with a tax expert or tax attorney as needed. The IRS provides a microsite specifically for dealing with these tax topics and more at www.stayexempt.org.
Summary: Charitable giving is looking up again for 2011 but the overall economy is still hindered by high unemployment rates across the U.S. In addition, rising unemployment costs will directly affect the bottom line for nonprofits. The Unemployment Services Trust (UST) details several tactics nonprofits can utilize to reduce unemployment costs.
Charitable donations rose in 2010, according to the January 2011 issue of Philanthropy Journal. This marks a major sign of recovery from the recession, but with one caveat: Unemployment remains a critical challenge to full recovery. Nevertheless, hopes are buoyed by several key factors:
Ongoing unemployment issues pose a serious long-term threat. Rob Mitchell, CEO of Philanthromax, says, “The impact of unemployment on giving is far-reaching and long-lasting.”
Unemployment is not only affecting giving, but also directly affects nonprofit assets in the form of increased taxes.Because unemployment remains so high across the U.S., the state unemployment taxes that employers – including nonprofits – pay will continue to rise over the next decade. The Unemployment Services Trust (UST) has been following the situation closely. “The good news for many nonprofits is that charitable giving appears to be on the rise again as we work our way out of the recession,” says UST’s Executive Director, Donna Groh. “The bad news is because of continued high unemployment, states are raising unemployment taxes to rebuild their unemployment insurance funds. These taxes will directly impact cash flow and potentially eat up any gains realized from increased giving.”
Additionally, the federal government is proposing an increase in the minimum taxable wage base on which unemployment taxes are based. If this passes, the amount of Unemployment Insurance (UI) tax paid by employers per employee could easily double in many states. “While this may well be in the best interests of long term stability for the UI system,” says Groh, “It will create an immediate burden for many employers.”
Groh recommends nonprofits consider the following steps to combat their rising unemployment costs:
1. Become a Reimbursing Employer. Under federal law, 501(c)(3) organizations exclusively can opt to reimburse the state only when they have an unemployment claim from a former employee. Reimbursing employers pay for their own unemployment costs, dollar for dollar, and no longer pay a tax rate based on the high claims of employers across the state.
2. Manage your human resources wisely. Conduct a thorough assessment for talent before hiring. Always perform detailed reference checks. Provide policies to employees and obtain a signed acknowledgement. Be consistent with progressive discipline and document it. Retain documents for at least 18 months to be prepared for any unemployment hearings.
3. Join an unemployment trust. Because being a direct reimbursing employer is self-funding, it can place added burden on an organization’s human resources capacity and also be risky if a nonprofit has sudden claims it cannot pay. To reduce these risks, nonprofits can join an unemployment trust. A trust can aid in building a reserve of funds and provide stop-loss protection for unexpected claims. In addition, it can help reduce administrative burden by assisting with paperwork and by working with the state on the organization’s behalf. Some trusts, including UST, will also provide claims monitoring and hearing support, which is essential to protecting an organization from the liability of inaccurate claims. Generally unemployment trusts are best for 501(c)(3)s with more than ten employees.
Summary: According to a white paper released by the Unemployment Services Trust, employers face increased unemployment tax burdens over the next decade. However, federal law provides nonprofits with cost-saving alternatives.
While employers across the nation are expected to see rising state unemployment taxes over the next five to ten years, not-for-profit organizations have a unique choice that could save them from bearing much of the same burden.
While the recession is said to be over, unemployment still hovers around 9% nationally, further straining already thin state budgets. Nearly all state unemployment insurance funds are facing some kind of jeopardy due to the high payout of unemployment benefits. Thirty-one state unemployment funds have already become insolvent, and thirty-five states are borrowing from the federal government to pay unemployed workers, notes a white paper released by the Unemployment Services Trust (UST) entitled “Rising Unemployment Costs and 501(c)(3) Strategies.”
“In order to pay back these loans… most states will be raising either the UI [Unemployment Insurance] tax rate or the taxable wage base, which both effectively raise the taxes employers pay,” cites the UST report.
For nonprofit employers however, there is an alternative.
501(c)(3) tax exempt organizations are allowed under federal law to leave the state unemployment tax system and only reimburse the state in the event they have an unemployment claim. This can benefit them in two ways:
1. Reimbursing nonprofits no longer pay a tax rate adjusted to cover state borrowing and the high claims of other employers.
2. They are typically not subject to state surcharges like Federal Loan Interest assessments, Workforce Development (Enhancement) Fees and other similar assessments from the state.
For nonprofits with low to average unemployment activity this can provide substantial savings, especially given that “It is expected that [tax] rates will double or triple over the coming few years, and then remain there for at least a decade or more,” according to Douglas Holmes, President of the Strategic Services on Unemployment & Workers’ Compensation (UWC).
This does, however, place more liability on an organization to accurately track unemployment claims and protest improper claims if needed. In addition, there is the risk that sudden increases in claims could impair cash flow, as each claim must be paid out as it occurs. These risks must be weighed against the savings benefits.
One strategy to reduce these potential risks is to join an unemployment trust. The UST white paper explores how nonprofits can be protected from unexpected claims with a trust’s stop-loss protection, in addition to preserving cash flow by building a reserve account out of which all claims are paid. The services provided by a trust can simplify administration and budgeting for a nonprofit, and also provide the necessary claims monitoring needed to detect inaccurate unemployment claims and support court hearings.
There is no single approach that’s right for every nonprofit organization. But a thorough evaluation of the options - becoming a reimbursing employer, joining an unemployment trust, or staying with the state - is indeed warranted, as “the obligation on nonprofits to make every dollar count has never been greater.”
To receive a full copy of the “Rising Unemployment Costs and 501(c)(3) Strategies”white paper, email info@chooseUST.org.
Last week our partners over at the Maine Association of Nonprofits (MANP) published the following article in their e-newsletter and on their blog. We're excited to share this with you because it does an excellent job of breaking down the top 5 things that Maine every nonprofit should know about unemployment insurance. And, because keeping unemployment costs low is vital to so many agencies across the U.S., we've added state-by-state information for taxable wage bases, and a general overview of the unemployment insurance program that applies to all states. MANP Help Desk FAQ: 5 Things Your Nonprofit Should Know About Unemployment Insurance by Molly O'Connell We get a variety of questions related to unemployment tax – also known as unemployment insurance – and encourage nonprofits to be proactive in learning about this system. What is Unemployment Tax? The MDOL provides a helpful overview of the program, and this summary: “Unemployment is an insurance program providing temporary, partial wage replacement to workers who are unemployed through no fault of their own. The program is funded by Unemployment Taxes paid by employers based on the amount of wages paid for covered employment. The Unemployment Tax is paid on the [taxable wage base] an employer pays to an individual in a calendar year.” (Read our overview or see what your state's taxable wage base is.) Is Your Nonprofit Liable? 501(c)3 nonprofits are exempt from federal unemployment taxes, but may be liable for state contributions if they meet something called the “4 for 20″ provision. This provision is triggered when four or more individuals are employed on the same day for 20 weeks in a calendar year, though not necessarily for consecutive weeks. It is important to note that who is considered “employed” for these purposes is not always straightforward – see #4 below. Why You Should Consider Coverage Even If You’re Exempt While many nonprofits in Maine are very small and potentially exempt, MANP encourages all nonprofits – as a best, ethical practice – to pay into the unemployment tax system or alternative coverage (see #5) to protect their current employees. At the very least, your employees should be made aware of whether or not you provide unemployment coverage. Unemployment compensation is a safeguard for people – and our communities as a whole – against the potential economic and emotional domino effects of losing a job. Why Independent Contractors May Still Be Considered Employees There are different rules and tests used by government agencies to determine independent contractor status, because different agencies are responsible for separate aspects of law. For the purposes of unemployment insurance, the Maine Department of Labor uses something called the “ABC test”, which makes it sound simple, but is more complicated when applied to real situations. The ABC Test establishes criteria that an work relationship must meet in order to for the services of that individual to not be considered employment. The three parts of the ABC Test relate to employer control/direction of the worker, place(s) of business or courses of business, and proof that the worker is independently established in the trade. A nonprofit may have to pay unemployment taxes even if IRS or Maine Revenue Services determine that, for income tax purposes, individuals may be independent contractors. Nonprofits should be familiar with this FAQ resource on Independent Contractors, and with this guide about Independent Contractors and the ABC test. Cost-Saving Alternatives The Unemployment Services Trust (UST) provides an alternative to paying into the Maine unemployment tax system, and can be a cost-saving option for nonprofits, especially those with more than 10 employees. Through UST, agencies directly reimburse the state only for the claims of their former employees, rather than paying the state unemployment insurance tax which covers all Maine employees. (You didn't think we'd take this one out, did you?) This post does not constitute official or legal advice. A version of this article originally appeared on blog.nonprofitmaine.org.
The U.S. job market continues to grow after private and government employers added 288,000 jobs in April – achieving the highest monthly total for 2014. And with a slight decline in the unemployment rate, falling by 0.4% to 6.3%, the April Jobs Report marks a milestone on the road to economic repair.
Increased employment affected a wide range of job industries, including professional and business services, retail, construction, and food services. This increase in varied job opportunities provides major worker groups with a variety of employment options, instilling a greater sense of freedom and security.
According to the Bureau of Labor Statistics, 9.8 million Americans are still unemployed. Although the private payroll total remains 98,000 jobs shy of where it was prior to the Great Recession, the U.S. is anticipated to overcome the deficit within the upcoming month.
While the unemployment rate has failed to pick up any momentum over the past 4 months, the unemployment rate has declined by 1.2 percent in the last year. Additionally, the long-term unemployed population dropped by 908,000 within this past year. Even with the slight decrease in long-term unemployment rates, such slow movement remains a substantial concern for the population, as it affects 1/3 of the currently unemployed.
Even with the spike in employment opportunities, the decrease in labor force participation and sluggish movement in the unemployment rate reveals a long road ahead for full labor market recovery. Though the labor market has accumulated a great deal of strength since the Great Recession, the U.S. economy still has a while to go before achieving Congress’s “maximum employment” goal.
by Guest Blogger Barry T. Omahen, CPA, Managing Partner, Lindquist LLP Certified Public Accountants
The American Institute of Certified Public Accountants (AICPA) has issued new standards that may impact your future audit engagement. Statements on Auditing Standards (SAS) Nos. 122–125 (referred to as “Clarified Auditing Standards” or “Clarity Standards”) introduce changes that go into effect for financial statement audits for periods ending on or after December 15, 2012. For most entities, that means the standards will be effective for the year ending December 31, 2012, or later.
Some changes may affect all audit engagements
Certain changes may only apply in unusual circumstances
Some of the benefits of the clarified auditing standards include enhanced communication between your team and your auditors, improved audit quality and increased confidence in the audited financial statements.
These new standards will require auditors to redo much of the system evaluation work and memorandums that they carry forward from one audit to the next. As such, it’s encouraged that you work closely with your auditor to make these changes as smooth and efficient as possible!
For a more detailed version of this article, refer to Lindquist LLP’s website: http://www.lindquistcpa.com/AICPA-Audit-Clarity-Standards-11092012.htm
Barry T. Omahen , CPA, is Lindquist LLP's managing partner based in the firm’s San Ramon office. Barry specializes in serving the audit, accounting and reporting needs of not-for-profit organizations and employee benefit plans. He serves as the partner in-charge of the firm's quality control review and audit and accounting practice. He can be contacted at (925) 498-1546 or email@example.com .
Lindquist LLP provides this information for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.