What you Should Know Before Laying off Nonprofit Staff

4/3/2020

Making the decision to trim your workforce in challenging economic times is never taken lightly and is probably the hardest decision you will have to make. Before you start the process or make the decision, here are a few steps to help along the way.

For Laid-off Staff

To begin, for any nonprofit employees who file an UI claim and are initially denied because their nonprofit did not pay into the fund, you need to contact the DOL AGAIN and indicate that your employer has failed to report earnings to the IDOL. From what we know you ARE entitled to unemployment benefits and the IDOL will investigate on your behalf. Patience is a virtue and definitely helpful in this situation as they are overwhelmed with UI claims

What does your Contingency Plan State?

First, build your financial contingency plan that includes a total review of your income, expenses, and assets. Click here for a webinar and templates for how we structured ours.

Knowing how much operating reserve/assets you have can be a helpful and comforting feeling.

The Idaho Nonprofit Center board is committed to maintaining our current staffing levels – trimming our workforce would be the last thing on our list. In fact, cutting our workforce did not make the list of cost-cutting strategies. Without my team, the INC cannot serve our nonprofits and right now our mission is more important than ever.

Paycheck Protection Program

Once you know your true financial position – how much in liquid operating expenses you have and how long it can last – start building a cost-savings strategy. If that includes trimming your workforce, consider applying for a Paycheck Protection Program (PPP) loan through the SBA before you do anything else. Call your lender today. The application and verification process is relatively simple and most, if not all, of the loan will be turned into a grant. Consider this as an option to keep your staff employed.

Unemployment Benefit Obligations

While nonprofits are not required to pay into the state Unemployment Insurance Fund, that does NOT exempt you from paying UI benefits to employees. Here’s a great guide to UI (unemployment insurance) in Idaho from the Idaho Department of Labor.

If you do not participate in the state unemployment insurance fund AND you lay off staff, you are still responsible for paying their benefits out of your “own pocket”, so to speak. In other words, make sure you’re covered by UI or you might not be “saving” yourself much money by trimming your staff.

There are two ways nonprofits can deal with UI. There’s the experience rate (which is what we use) or cost reimbursement. Here’s the difference:

Experience Rate vs. Cost Reimbursement*

Experience-rated employers are assigned a tax rate annually. The current tax array can be viewed online on the DOL e-services website. Continue to the Unemployment Tax Rates webpage to view the current tax array tables (find the 2020 here). The standard rate will be assigned until the employer has paid taxes to the Employment Security Fund for at least six calendar quarters prior to the yearly computation date of June 30.

The employer will then be assigned a rate based on the employer’s own experience record and its relationship to the experience record of all other covered employers registered with the Idaho Department of Labor.

Cost reimbursement is another method of paying unemployment insurance tax. It is available to certain nonprofit organizations that qualify for exemption under the provisions of Internal Revenue Code 501(c)(3) and to all governmental entities including public school districts and Indian tribal business as detailed in the next paragraph.

Under this method, employers reimburse the state for the actual cost of unemployment insurance benefits paid. A cost-reimbursement employer will be billed for its proportionate share of a claimant’s benefits based on the percentage of wages paid in the base period. This applies regardless of the reason for the claimant’s separation from the job.

Additional information on Cost Reimbursement options for 501-c-3 organizations:

Governmental units, Indian tribal business and nonprofit organizations as defined in the Internal Revenue Code (IRC) 501(c)(3) are covered employers and are required to report wages for Idaho unemployment insurance purposes. These employers may be able to report either as regular experience-rated employers or as cost-reimbursement employers.

Cost-reimbursement employers have two options for reimbursing the state for benefits paid:

Pay at a rate of 1 percent of gross wages each quarter. The account is reconciled at year end and the employer is billed for any additional tax due or is refunded any excess.
Report but pay no tax until the employer’s account is charged as provided by Idaho Code §72-1315A. The election to report as a cost-reimbursement employer must be made in writing by Dec. 1 of any calendar year or within 30 days from when the employer is determined liable for UI tax. The election will remain in effect for at least two full calendar years. After the two years, a request to change to an experience-rated employer must be made in writing by Dec. 1 to be eligible for the change in the subsequent calendar year as provided by Idaho Code §72- 1349A and §72-1349C.

*from the Idaho Department of Labor UI guide

An employee at the IDOL, who is knowledgeable about these differences, says:

“Nonprofit organizations can make an election to pay quarterly taxes (smarter option) like other experience-rated employers or they can reimburse the state for any benefit charges paid out on behalf of one of their workers.

It may seem appealing for a nonprofit to select the cost reimbursement option because they 'don't pay unemployment' but the reality is they may end up reimbursing the state for a substantial sum of money. One claim at max benefits could cost them upwards of $9,000 compared to the quarterly tax option averaging of $400 in tax for the same worker. It takes some analysis to determine the best method.”

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