November 01, 2016
Use It or Lose it: Nonprofit Deadline to Exercise Exemption for 2017
The Unemployment Services Trust (UST) is pleased to announce its new affinity partnership with the District of Columbia Behavioral Health Association. The D.C. Behavioral Health Association has chosen to pair up with UST to help their member organizations reduce unemployment costs and direct more funds toward mission advancement objectives.
Every day is Earth Day for nonprofit members of the Unemployment Services Trust (UST) who are reducing their paper trail. More than 91% of the organizations that participate in the UST program now handle the details and filing of their unemployment claims online. 68% of UST members are participating in the online unemployment claim dashboard that allows them to view claims detail related to their organization and process information requests from the state. And an additional 23% of UST members have elected secure email channels as their method of claims response, further eliminating paper waste and increasing the speed of communication.
Last year the Unemployment Services Trust (UST) identified $3,532,485.26 in unemployment tax savings opportunities for more than 200 nonprofits that requested a Savings Evaluation. Additionally, UST found $1.7 million in state errors that were credited back to current participants in the UST program after state charges were carefully audited by the claims administrator.
The South Central Behavioral Health Network (SCBHN) is made up of 39 mental health and substance abuse programs that are funded by the Connecticut Department of Mental Health and Addiction Services. Focusing on programs that benefit the homeless and addicted populations served by member agencies, SCBHN runs multiple programs that offer addiction counseling and support, job training, and grants for consumer-run projects.
It also operates a very successful program which allows homeless people to move into sober living houses and provides them with case managers.
Each year, the SCBHN houses more than 130 people, and their programs focus on helping people successfully stand on their own two feet. Believing that those who have already experienced the success of conquering addiction and homelessness provide the best examples to those still struggling, SCBHN provides those connections and helps make sure that peer counselors are always available.
A very unique program, SCBHN began as a membership organization for the substance abuse and mental health organizations in the area surrounding New Haven, CT. Now providing direct services to clients of their membership agencies, SCBHN faces a challenge because they have committed themselves to hiring peers to help those they serve. For them, this means that they have committed to hiring two part-time peers for each position, instead of one full-time entry level employee who had never experienced the hardships of homelessness, substance abuse, or mental health concerns. In the last few years, SCBHN has been “hurt around the edges” as donors for their homeless programs dropped out, which forced them to cut back on the number of people they can serve, even as the population grew.
Needing to save money and feeling that self-insuring is far too risky for the majority of nonprofits, SCBHN joined UST and was able to see an immediate decrease in their annual rates.
“What’s the downside of joining UST?” asked Executive Director Edward Mattison. “I certainly confess that I didn’t pay any attention to unemployment before it became important, but the Trust is less expensive than staying with the state and it’s far less risky than trying to self- insure.”
Mattison’s sentiment proved to be extremely true when SCBHN was forced to dismiss an employee who clients alleged was stealing money from them. After dismissal, the employee filed for unemployment benefits claiming she deserved them for her work at the agency, but SCBHN felt that she had harmed clients and should not receive benefits. “The claims staff has [always] been very helpful for us in prepping us for claims interviews and hearings,” said Mattison.
Working with their claim monitor and hearing representative to figure out how to best approach the situation, what documentation to provide for the hearing, and who should be interviewed, SCBHN was able to win the claim early on.
“I’m not a person who wants to deny people their rights, but the idea that someone who was allegedly stealing from clients should receive benefits made me very angry,” said Mattison.
Looking to save on operational expenses, SCBHN learned about UST and the benefits of joining a Trust. Being offered substantial savings which allowed them to put more money back into their homeless programs, SCBHN finds UST to be important to their mission because, in part, they are protected from high state rates and can get help in defending themselves against fraudulent or inappropriate unemployment claims.
In the case of the fraudulent claim, claims representatives were able to help SCBHN collect all the necessary information for the unemployment hearing they had requested. Organizing statements, testimony, and the evidence, their representative was able to help SCBHN successfully defend themselves against the claim and save their homeless clients from being offered fewer services. UST's claims administrator then went on to help SCBHN set up stronger documentation systems to prevent any future issues with employees who harm clients.
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.
What does that mean? Well, by federal law, 501(c)(3)s are allowed to opt-out of paying taxes into their state unemployment tax fund, and instead only reimburse the state if and when they have an actual unemployment claim, dollar-for-dollar.
It can be a savings opportunity for many nonprofits who have lower claims than what they pay in state unemployment taxes—which are often driven up by for-profits and other companies that go out of business, as well as state fund deficits and improper payments made in error.
The Unemployment Services Trust (UST) performed more than 200 free unemployment tax savings evaluations for nonprofits with 10 or more employees in 2013, finding a total of $3,532,485.26 potential unemployment tax savings if they were to exercise their exemption and join the UST program instead.
This year, UST is aiming to identify more than $7 million in unemployment tax savings for nonprofits through free savings evaluations. But time is running out. Most states have a December 1 opt-out deadline, so UST needs all savings evaluation forms submitted before November 15th at the latest in order to meet the state deadline.
You can view your state's unemployment tax exemption deadline here: www.chooseust.org/state-unemployment-tax-opt-out-deadlines-for-nonprofits
Unfortunately, if a nonprofit misses the state deadline, they have to wait until the following year to exercise their exemption and join the Unemployment Services Trust. So if you or a nonprofit you know has not exercised their exemption, be sure to share the free savings evaluation before the November 15th deadline: www.chooseust.org/request-a-savings-quote