In your state, as in all states, a nonprofit has two options for unemployment insurance while a for-profit corporation only has one.
Typically, a nonprofit and for-profit pay for unemployment claims through a state unemployment insurance tax (SUI). But unlike their counterparts, nonprofits have an alternative choice – to become a reimbursing employer. This means that it can pay the state only for claims paid out to former employees.
Because the SUI tax rate method varies, a nonprofit could end up paying more than if it had used the reimbursement method. Many nonprofits however don’t realize they are eligible for this method and continue to pay into the state’s unemployment tax system.
For example: A nonprofit that had $20,000 in claims for a given year, but was paying the state $40,000 in SUI, would find itself overpaying by $20,000 a year! By becoming a reimbursing employer, that money that was being wasted in taxes could be used for other expenses such as fundraising, office supplies, or even hiring more employees. Imagine what your nonprofit could do with that extra money.
Under the reimbursement method, a nonprofit reimburses the state unemployment compensation fund for the amount of unemployment compensation benefits actually paid to former employees.
This method works best for agencies that have stable employment and low unemployment claims. Nonprofits with fewer than 10 may not be the best candidates for reimbursement status. A nonprofit with an annual gross payroll of $500,000 or more, however, likely can realize substantial savings.
In the end, the goal of reimbursing is to save money. And isn’t that what we all want?
For more information, or to find out how much your nonprofit is overpaying into the State’s Unemployment Tax System, please contact Woody Clark with the Nonprofit Unemployment Fund at (888) 386-3001 or email@example.com.