Unemployment Insurance for Nonprofit Organizations: A Smarter Option

Managing unemployment insurance is a mandatory task for every employer in America, including nonprofit organizations. Traditionally, this involves making quarterly payments into state unemployment pools and creating a reserve fund for potential unemployment claims. However, 501(c)(3) nonprofits have an alternative that could lead to significant savings.

Introducing the Reimbursement Employer Model

Nonprofits can opt to be “reimbursement employers” rather than “taxpayer employers.” Instead of making regular quarterly payments, they reimburse the state only for actual claims made by their former employees. This model is particularly advantageous for nonprofits, which often experience turnover due to employees moving to other jobs rather than layoffs.

The Financial Upside

Nonprofits typically overpay when they follow the taxpayer model because contributions are based on past unemployment experience, payroll, employee count and their state’s taxable wage base. Each state has set their own taxable wage base and uses their own tax rates to calculate the amount owed each quarter but in many states nonprofit organizations are subsidizing other employers with higher rates of turnover.

Leveraging Insurance Policies for Reimbursement

To simplify this process, certain insurance carriers offer reimbursement insurance policies. These policies analyze past claims, charge a premium, and handle all reimbursement costs and claims administration. Additionally, they provide outplacement services and job search coaching for terminated employees, minimizing the duration and impact of unemployment.

Choosing the Right Insurance Carrier

It’s essential to work with an admitted insurance carrier that is compliant across all 50 states, ensuring your claims are protected and offering the option to file complaints if necessary. Unlike non-admitted carriers backed by surety bonds, admitted carriers provide a safety net through the state’s guarantee fund in case of carrier insolvency.

A Real-World Success Story

One nonprofit CFO shared her relief upon discovering the reimbursement option. Facing budget cuts, she found that switching to a reimbursement model could save her organization 27%, a significant amount that allowed them to maintain essential services without layoffs.

For 501(c)(3) nonprofits looking to explore this cost-saving alternative, reach out to learn more about how becoming a reimbursement employer can benefit your organization.

About the author

Drew Colwell is a commercial insurance agent and risk manager who specializes in working with nonprofit organizations, healthcare providers and other human service related businesses all over the US. His contact information is below.

Phone: 406-204-3666

Email: andrewc@wafdinsurance.com

LinkedIn: https://www.linkedin.com/in/drewcolwell/

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