Federal law allows 501(c)3 organizations to OPT OUT of paying into the State Unemployment Insurance (SUI) program. This can save your organization 30% or more compared to paying taxes! Why not use unemployment tax savings dollars for your mission? Depending on which program you participate in, there can be a substantial amount of “excess” in the tax system that could be showing on your balance sheet instead of sitting with the state – and it isn’t really yours! Programs for reimbursers include robust claims management, hearing representation and outplacement services to reduce the length of time of unemployment.
Three Ways to Contain Costs
There are three main ways to contain your costs if you opt out of the State Unemployment Insurance (SUI) program:
- Trust Program – Access to Unemployment Services Trust (UST) is a member benefit of CalNonprofits, which means you already have access. Participants in the trust set up a reserve fund, which is reflected as an asset on the balance sheet – basically self-insurance. This program is great for stable organizations that do not foresee layoffs and want to control their money and reap the benefits of their stability. If you do have a claim, UST manages the claim and provides outplacement services. Last year UST refunded $13,655,820 to 779 nonprofits! 26 of our clients received refunds totaling $329,886. UST has over 2,200 nonprofits participating in it’s program.
- First Dollar Insurance – This is an admitted insurance program that provides first dollar coverage and budgetary certainty. Your total cost is fixed and the policy reimburses the state for benefits paid to your former employees. This program includes professional claims administration, hearing representation and reemployment services for separated employees.
- Stop-Loss Insurance – This is an admitted insurance program that provides coverage in excess of an agreed annual self-insured retention (similar to a deductible). Coverage is customizable based on your organization’s risk tolerance. Since you pay for all claims under the self-insured retention, the premium cost is cheaper than under the first dollar program. However, your organization’s total cost under this program is uncertain since it depends on the actual amount of claims paid under the self-insured retention. This program includes professional claims administration, hearing representation and reemployment services for separated employees.
How Does it Work?
How does the program work for the recently unemployed? It is seamless to the former employee, and they would still contact Employment Development Department (EDD) to make their claim. EDD will pay the claim and then apply for reimbursement. In the meantime, your program (Trust or Insurance) will actively manage the claim to reduce the ultimate claims cost and help the unemployed person find new employment faster.
Opt Out and Save Taxes
California allows nonprofits to opt out at the end of each quarter and potentially have unemployment tax dollars savings. Additionally, if you opt out by the end of the first quarter (3/31), taxes are waived for that quarter! When you select to opt out of the CA SUI program, you are out for at least 5 years. You are able to switch between programs and even between trusts!
Please contact your account team here at CalNonprofits Insurance Services or click here to complete your application today!