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Should Your Nonprofit Participate in a State Unemployment Insurance Program?

October 13, 2016 | Leave a Comment

All employers are required to pay for state unemployment insurance. But what are the options?

For-profit companies have only one option, and that is to pay a tax into the state unemployment fund. However, nonprofits and governmental agencies can decide to self-insure and not pay the tax.

A 501(c)(3) organization has the option of opting out of its state unemployment insurance program. Instead of paying a set amount of unemployment tax to the state every year regardless of claims, it reimburses the state only for unemployment claims the state actually pays out to its former employees. This can save big money because nonprofits typically pay more in unemployment taxes than the state pays out for the nonprofit’s former employees’ claims. One insurance carrier’s 2015 members saved an average of $21,659.

But there are obvious risks to this approach as well. If your nonprofit entity has significant layoffs, the unemployment costs could far exceed the unemployment tax it would otherwise have had to pay. This risk is greater now than in the past because so many nonprofits are experiencing declining funding. To mitigate these risks, there are several programs a nonprofit entity can take advantage of:  bonded service programs and unemployment savings programs are a few of the most common. These programs include fixed annual costs, budgetary certainty, insurance protection, and claims administration.

If you are a nonprofit or governmental agency with stable employment, this may be a perfect opportunity to reduce costs and improve your cash flow.

To learn more about alternative funding and risk management programs designed uniquely for nonprofits and governmental employers, please contact Steve Kickham with The Cornerstone Insurance Group at


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