Work with Connecticut employer clients reveals that many non-profits and their administrators are not fully aware of their treatment under the law when it comes to unemployment insurance.
Non-profit organizations, exempt from federal taxes under §501(c)(3), are still covered by the Connecticut Unemployment Compensation Act. Connecticut General Statutes §31-223a. However, unlike most employers, such non-profits may elect to either:
•(1) be covered by contributing the prevailing rate for unemployment insurance to the Unemployment Compensation Benefit Fund (“the Fund”), applicable to all employers;
•(2) or by electing to reimburse the Fund for any unemployment insurance benefits paid because of employment with the subject non-profit. Connecticut General Statutes §31-225(g)(1).
The benefits of electing to reimburse the fund for unemployment insurance are apparent – namely, not having an ongoing non-refundable payment for insurance coverage. Nationally, non-profits typically pay more in unemployment premiums than their total payout for benefits. However, every non-profit is different, and it is important to evaluate each organization’s unique situation. One non-profit may actually save money by choosing the insurance. In making this assessment, it is important to consider the following challenges that might not be as apparent:
Variability of Unemployment Insurance Benefits
One thing to consider when determining whether a non-profit can elect to reimburse its unemployment claims, is if the organization has the capacity to deal with the variability of potential unemployment claims. Unusual circumstances could lead to a higher liability one year, which if not planned for could lead to undue stress on the organization. A complete evaluation and budgeting for potential unemployment benefits could help employers mitigate this concern.
Reimbursing Employers Not Entitled to Relief from Charges
With enough experience dealing with unemployment claims, it becomes second nature that certain disqualifications relieve an employer from being charged for an unemployment claim. Most commonly, employers are not charged for unemployment when:
(1) an employee voluntarily quits,
(2) the employee is discharged for willful misconduct,
(3) refusal of the employee to accept suitable work, or
(4) refuses an offer by the charged employer to be rehired.
However, under federal and state law, non-profit organizations that choose to reimburse unemployment benefits are chargeable despite these disqualifying circumstances. Connecticut General Statutes §31-225a(c)(3). An example of when this might come into play would be a situation where an employee left the employ of a reimbursing non-profit for another job. If that same individual was subsequently terminated by the subsequent employer, the reimbursing employer would still be liable for reimbursing unemployment benefits attributable to the wages earned from it by the former employee.
This can come as a shock to some non-profits. But accounting for this consideration and others ahead of time can help to budget for such costs and avoid unexpected costs. In most situations, a non-profit can save money by electing to reimburse unemployment benefits as opposed to paying for unemployment insurance. As long as the organizations and its administrators are cognizant of the differences and pitfalls, this choice can still work to the organization’s benefit.