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Governmental entities are required to pay for unemployment claims in one of two ways:
1) State Unemployment Insurance Tax (SUI)
You pay this tax in advance, at a set rate, based on your wages and unemployment record. The funds go to the state’s unemployment compensation pool to pay benefits on all statewide employees. Rates are based on a combination of the overall risk of the unemployment pool and the individual employer’s experience. Any balance remaining in an employer’s account participating in the state unemployment pool is non-refundable and owned by the state.
2) Reimbursing Financing
This option is available only to governmental entities and 501(c)(3) nonprofits. It began in 1972 when a federal law recognized that these organizations, on average, pay more than their employees claim in benefits and thus subsidize higher turnover industries, such as retail and manufacturing. With this alternative, an employer is only liable for the actual amount of unemployment claims paid to former employees. Opting out of the state tax pool usually saves a lot of money – often 30 – 50% – but this choice does subject your organization to potential risks. The largest risks come from budget reductions, the triggering of extended benefit programs and unstable job markets. In effect, the law allows these organizations to self-insure their unemployment claims.
There is a safe alternative to paying the UI tax and self-insurance.
First Nonprofit Group provides more than 1,800 nonprofit organizations and governmental entities around the country with unemployment insurance at affordable rates. Click here or call 1-(800) 526-4352 to request a free, no-obligation cost savings evaluation. Evaluations include a 2017 rate projection! Click here to view the PDF.
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