Unemployment costs can be a significant line item for nonprofits, however, it may be costing you more than it needs to. There are two strategies that your non-profit can use to be sure you are only contributing the amount of unemployment insurance that is necessary. And though the process may seem cumbersome or complicated, many organizations enlist the help of nonprofit audit services to support them.
Audit your contributions and claims
It is the burden of employers to ensure their unemployment charges are correct and to rectify any errors. In order to keep your records up-to-date and accurate, it is important to notify the state of any new hires or other employment events. It is also helpful to regularly review benefits statements with an eye for typical discrepancies, such as duplicate charges for the same period, charges assessed during a waiting period, or benefits charges that are greater than the approved amount. While these are common errors that your state agency may make, you may also observe inaccurate claims on behalf of former employees. If a former employee has other sources of income or has secured new employment, they are required to report it, and failure to do so is considered fraud. In these instances, employers must notify the state agency so it can investigate. Further, it is important to weigh in with your state agency’s decisions regarding the reward or denial of benefits to former employees. If you disagree with claim decisions, appeal them. Unemployment insurance, like other non-profit expenses, requires vigilance.
Explore non-tax options
Instead of paying regular unemployment taxes to your state agency, your nonprofit may benefit from becoming a “reimbursing employer.” With this designation, you would reimburse the state only for claims filed and paid out to former employees. This strategy has the potential of costing you less than the unemployment tax rates, though it does have a degree of uncertainty. Your nonprofit would be required to reimburse your state agency the total amount of benefits discharged as soon as the claims are made. Depending on your current financial situation and the number of unemployment claims filed, this could create a squeeze if you need to reimburse more than you’ve budgeted for.
Being a reimbursing employer can also entail more administrative work, so it may be worth exploring third-party reimbursers, such as a membership association. Third-party reimbursers can help with the paperwork and ensure claims are accurate, in addition to offering trust accounts to help with cash management. There are pros and cons to becoming a reimbursing employer, but like monitoring statements for accuracy and ensuring all claims are legitimate, it is worth your time and may save your nonprofit money in the end.
Ernst Wintter & Associates LLP specialize in California non-profit audits and tax preparation. Contact us today for help with your non-profit audit or tax prep needs.
