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Five myths about the cost of unemployment to nonprofits

The Unemployment Services Trust (UST) provides an alternative to paying state unemployment taxes. Through a suite of services and resources, UST member organizations can e-file their unemployment claims with the state, access HR advisors and support, and potentially save thousands in unemployment costs annually.

In a newly-published white paper, they bust five myths about unemployment insurance for nonprofits. Here’s a summary, but it’s worth downloading the full paper for valuable context, several practical tips, and a highly-useful self-assessment for figuring out your nonprofit’s unemployment costs.

Myth #1: 

 “Nonprofits have to pay state unemployment taxes.”

The federal government allows 501c(3) employers to elect to stop paying their state tax rate and instead reimburse the state dollar-for-dollar only when a former employee collected unemployment benefits. This nonprofit-only alternative can significantly reduce costs.

Myth #2:

“If an employee deserves to collect unemployment, there's no need to respond to the state's request for info.”

The UI Integrity Act mandates that states require employers to respond in a timely and adequate manner to all requests for information about unemployment claims. If you fail to respond, you could have your ability to protest any future claims revoked an/or suffer additional monetary penalties.

Myth #3: 

“There’s nothing I can do to change my nonprofit’s unemployment claim costs.”

Too often, nonprofits take a back-seat position on unemployment claims and allow former employees to collect benefits even when they really aren’t qualified by law. While this may seem benevolent, it is hurting the nonprofit who then later pays higher unemployment costs as a result—which ultimately takes money away from your mission. Be smart about which claims to protest, and make sure to document, document, document along the way.

Myth #4:

“We can’t win an unemployment hearing.”

For a hearing, you must be prepared to present facts and evidence, and appear in court. Best practices include ongoing documentation of infractions, written acknowledgements from the employee, and objective (not emotion-based) details. One of the best ways to avoid a claims hearing is by providing your employees with an updated company handbook from the get-go, ensuring greater odds of office policy compliance, and proof of the written rules if it comes to a hearing.

Myth #5:

“Unemployment costs are just unpredictable.”

You might feel like sudden staffing changes, whether layoffs or voluntary quits, can make predicting unemployment costs difficult. You can prepare for the “unpredictable” by creating a reserve for unemployment costs. A simple rule of thumb that UST uses for its nonprofit members is the 70/20/10 rule: 70% of your reserve goes to expected claims, 20% for unexpected claims, and 10% for administration costs.

For a more detailed explanation, and an easy four-step process for calculating your unemployment costs, download the white paper from UST today.

Megan Maulhardt is Senior Marketing Manager at Unemployment Services Trust (UST).

Over the past year, UST found more than $3.5 million in potential unemployment cost savings for more that 200 nonprofits. Fill out their quick savings evaluation form to find out your savings potential. If you have any questions, contact the UST team at 888-249-4668 or [email protected].

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