How Unemployment Insurance Can Help Nonprofits
As an insurance broker, you may have a special connection to your nonprofit clients. After all, these organizations undertake some of the most noble work in our society, serving those in need or advancing research that helps create a better world. They also typically operate on thin budgets, working to drive as much money as possible back to their missions. While staff can be significant, they may have no more than one or two employees dedicated to human resources.
Clients like this rely on their brokers to help them break through the complexity of the insurance and benefits worlds while also finding cost effective ways to manage risk and provide peace of mind.
One way that brokers can help their nonprofit clients is by encouraging them to look at their state unemployment tax expenditures. In fact, the Federal Unemployment Tax Act of 1972 allows 501(c)(3) nonprofits to opt out of paying the state unemployment tax to become “reimbursable employers.” When an organization operates in this way, it reimburses the state dollar-for-dollar for unemployment benefits paid out to former employees, rather than paying taxes.
Considering that nonprofits participating in the state unemployment tax system, pay, on average, $2 in unemployment taxes for every $1 in benefits paid, leaving the system to become a reimbursable employer can seem like an attractive option. However, there is also significant risk in an already overburdened organization taking on the sole responsibility of reimbursing the state in the event of layoffs. In addition, the amount of time it takes to file paperwork, attend hearings and monitor benefits paid to former employees can place a serious burden on small human resources departments.
Directing your nonprofit clients toward private unemployment insurance makes great sense in most cases. Not only does it allow you to expand your product line, it provides your clients with a truly supportive, low-risk and cost-saving way to avoid overpayment. It also protects the nonprofit from the burdens that come from managing unemployment claims and navigating state systems.
Unemployment insurance providers offer an alternative approach with solutions tailor-made to the realities of nonprofits’ organizational structures, employment trends and budgetary realities.
A good unemployment insurance provider will work with you and your client to determine a fixed rate based solely on that organization’s individual claims history and future expectations. This alone can result in significant savings for the average nonprofit as the money spent applies directly to the organization’s own unemployment compensation expenditures rather than subsidizing employers with higher expenses, such as in a state unemployment pool.
Unemployment insurance providers can also help ensure that a nonprofit organization is prepared in the event of unexpected layoffs due to restructuring or funding losses.
Insurers also typically handle all the administration that goes along with unemployment claims, including paperwork, attending hearings, and managing appeals. The insurer also helps audit claims as they are paid, which could result in additional savings for the nonprofit organization.
Most unemployment insurance providers are interested in working with insurance brokers, offering varying commission structures. They know that when it comes down to it, brokers are relationship builders who rely on the trust and goodwill of their clients.