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State Unemployment Insurance – From a Nonprofit's Perspective
Joseph Poretto
First Nonprofit Insurance Company
State Unemployment Insurance is a mandatory coverage for all employers to provide. Any employer not holding the 501c3 tax classification is required to cover its unemployment insurance through its respective State Unemployment Tax Fund. A 501c3 non-profit organization has options as to how it chooses to cover its State Unemployment Insurance obligation. It can insure through the State Unemployment Tax Fund, self-insure, or insure with a third party.
A Brief Review of the Options
State Unemployment Tax Fund - In Florida, an organization choosing to insure through the State Unemployment Compensation (UC) Fund is assigned an experience rate on a calendar year basis. At the end of each quarter when the employer reports its gross wages to the state, it also calculates its Unemployment Insurance (UI) Taxable Wages and makes its UC Fund contribution. The contribution is derived from multiplying its experience rate by its UI Taxable Wages, which total is limited to the first $7,000 in wages per employee.
Self-Insure – An employer becomes financially responsible to pay back the State UC Fund for all claims paid to its former employees. At the end of each quarter, the state sends an invoice to the employer for actual claims paid out to its former employees during that quarter. There is no cap to the liability that the employer can accrue during a quarter.
Third Party – By paying a fee/premium to the third party, the employer transfers the liability of the claims paid to the third party.
Conditions Facing the Florida Unemployment Compensation Fund
The State Unemployment Insurance system in Florida is 100% financed by the employers of the state. Each quarter, employers make payments via their State Unemployment Taxes into the Unemployment Compensation (UC) Trust Fund to cover the benefits paid to the unemployed. According to the Bureau of Labor Statistics (www.bls.gov), there were over one million individuals receiving unemployment insurance benefits in FL during September 2009. As employers have shed staff to lower payroll expenses during this 19 month recession, the UC Trust Fund in Florida has blown through its once hefty reserve. In January 2008, the Trust Fund had a balance in excess of $2 billion and as of October 28, 2009, according to the U.S. Department of Labor website (www.doleta.gov), has a deficit balance in excess of $567 million.
Although the Trust Fund has a deficit balance, unemployed Floridians will continue to receive their unemployment insurance benefits as the State has become a recipient of the Title XII Federal Loan Program. Florida is one of twenty-four states receiving a Title XII loan, which temporarily is interest free. If the loan is not paid back by January of 2011, Florida’s employers would pick up the financial obligation of the loan along with any accrued and ongoing interest payments in addition to their mandatory State Unemployment Tax payments.
Florida was one of the first states to proactively address the upcoming shortfall in its Trust Fund. Governor Crist signed Senate Bill 810 into legislation on June 1, 2009. Senate Bill 810 will significantly increase Unemployment Insurance Taxes for 2010-2014 by amending portions of unemployment compensation law related to the solvency of Florida’s Unemployment Compensation Trust Fund. As a result, effective January 1, 2010, employers must pay tax on the first $8,500 of wages per calendar year, rather than the first $7,000 of wages per calendar year. In addition, it also allows higher positive adjustment factors to be applied to an employer’s rate thus increasing the tax paid into the UC Trust Fund.
The impact of Senate Bill 810 is estimated to raise 2010 Unemployment Insurance Tax costs by an average of 70% over 2009 costs. For example, if it cost an employer $10,000 to insure its unemployment through the UC Tax Fund in 2009, that same risk will cost the employer $17,000 to insure it in 2010.
First Nonprofit’s Unemployment Insurance Products – Meeting the Needs of Florida'’s Nonprofits
First Nonprofit Companies offers a variety of plans to satisfy a 501c3 non-profit’s State Unemployment Insurance obligation. Our specialized line of unemployment insurance products offers solutions to those paying the state unemployment tax as well as those who have elected to self-insure. These solutions not only effectively manage the social insurance responsibility but also produce significant savings.
Nonprofit employers with 20 employees or more routinely benefit from opting out of the State Unemployment Compensation Fund. Our unemployment insurance offerings safeguard the budgets of employers from the risks of self-insuring and the programs are designed to give each non-profit the option of reducing its unemployment costs in a format that most effectively suits its individual profile. A brief summary of our two main plans is below.
I. Bonded Service Program
This plan is fully-insured, guaranteed cost option. The fee is set a percentage of gross annual payroll and the liability to pay the State for all unemployment benefits paid to your former employees during the term of the agreement is transferred. For a significantly lower cost than the state unemployment tax pool, the Bonded Service Program consolidates all unemployment costs and management components under a single structure. This program includes a leading claims administrative service company to manage your claims.
The fee for your organization is based on its individual unemployment profile and loss experience. You have absolute budgetary certainty, precise allocation of costs to funding sources, and professional claims management all at a cost lower than the State Unemployment Compensation Fund. On a national level from 1998-2008, the Bonded Service Program has offered an average cost savings of 29% compared to the State Unemployment Insurance Funds.
II. Unemployment Savings Program
This highly effective plan provides the non-profit with an opportunity to reduce its unemployment costs up to 50%. A fixed annual cost is provided with quarterly payments deposited into a proprietary reserve account. The deposit is determined by the organization’s payroll and benefit charge experience. Unlike in the State Unemployment Compensation Fund, the organization owns the funds in its reserve account.
Program features include stop loss insurance and professional claims administration. The stop loss insurance is designed to cover against any unexpected claims that might occur as a result of a budgetary shortfall or loss of funding for a program. Claims administration provides counseling, claims validation and protests, hearing representation, auditing and workshops for your personnel.
Unlike other group plans, there are no other assessments of fees, allocated losses, or risk sharing. On a national level from 1996-2008, the Unemployment Savings Program has offered an average cost savings of 41% compared to the State Unemployment Insurance Funds.
If you are interested in receiving a quote, please contact NPIS at marketing@npis.com.