Tom Yamachika: How The Unemployment Tax Works In The Nonprofit Sector


About the Author

Tom Yamachika

Tom Yamachika is the president of the Tax Foundation of Hawaii.


Two weeks ago, in this space, we discussed the unemployment tax and insurance system and how employers are likely to be hit with a significant and automatic rate increase at the end of this year.

For many nonprofit employers, the system works differently. Tax-exempt 501(c)(3) charities (like the Tax Foundation of Hawaii) may “self-insure” against unemployment claims.

That means a nonprofit sector employer doesn’t need to pay the unemployment tax that for-profit employers need to pay, but if a nonprofit sector employee gets laid off and makes an unemployment claim that the state pays, the state bills the employer and doesn’t take the money out of its unemployment insurance trust fund.

Some of the larger nonprofits have cash reserves and can pay the bill. Others buy unemployment insurance from insurance companies selling only to the nonprofit sector and find that their premiums are quite a bit less because they are not sharing losses with high-cost seasonal businesses.

Princess Ruth Keelikolani Building. Unemployment office. May 1, 2020

The offices of the state’s Department of Labor and Industrial Relations. The CARES Act has brought them more work.

Cory Lum/Civil Beat

With employees in the nonprofit sector dropping like flies just as in the private sector, nonprofits have good news and bad news.

The good news is that the huge rate increase that is likely to hit at the end of the year won’t affect them. The bad news is that they need to get out their checkbooks now to pay the unemployment claims that they are being charged with.

One provision of the CARES Act, section 2103, is supposed to help with that situation. It says that the federal government is going to cover half of the unemployment benefit costs that self-insured employers need to pay to the state for weeks of unemployment beginning on or after March 13 and ending on or before Dec. 31.

But, according to the U.S. Department of Labor, the employer needs to pay the state Department of Labor and Industrial Relations first, the federal government reimburses half the cost, and then DLIR repays or credits the employer for the federal money received.

(The CARES Act says that the state workforce agency can’t use the money for any purpose other than reimbursing the employers, so it can’t keep the money.)

More Work For DLIR

The trouble is that these reimbursement processes “take a while,” and by the time the state receives the federal funds and gets around to repaying the nonprofit employer, the employer either may have closed for good or may be overwhelmed with penalties and interest if they couldn’t pay the full amount of the unemployment benefits when they were billed.

When I spoke with the Employer Services Section at the DLIR, the good folks there were aware of the federal provision but hadn’t yet received guidance from their leadership on how the state was going to implement it. (Translation: They either haven’t figured out what to do or haven’t yet been convinced that they have to do anything.)

The public needs DLIR and the nonprofits do too.

I can’t help but wonder if the DLIR feels like it is being forced to do something it doesn’t want to do. It’s certainly more work for DLIR to keep tabs on its self-insured employers, put together claims to the federal government, and then dole out the money to the employers when the federal money appears.

DLIR doesn’t get separately paid to do that. And it does seem that they already have their hands full fighting the backlog on individual unemployment claimants.

DLIR, please hang in there. The public needs you and the nonprofits do too!

Community Voices aims to encourage broad discussion on many topics of community interest. It’s kind of a cross between Letters to the Editor and op-eds. This is your space to talk about important issues or interesting people who are making a difference in our world. Column lengths should be no more than 800 words and we need a photo of the author and a bio. We welcome video commentary and other multimedia formats. Send to news@civilbeat.org. The opinions and information expressed in Community Voices are solely those of the authors and not Civil Beat.


Read this next:

John Pritchett: Political Backfire


Before you go…

During a crisis like this, it’s more important than ever to dig beyond the news, to figure out what government policies mean for ordinary citizens and how those policies were put together.

This is perhaps the biggest, most consequential story our reporters will ever cover. And at no other time in Civil Beat’s history have we relied on your support more. Please consider supporting Civil Beat by making a tax-deductible gift.

Contribute

About the Author

Tom Yamachika

Tom Yamachika is the president of the Tax Foundation of Hawaii.


Latest Comments (0)

If for whatever reason the unemployment trust fund has too few dollars in it, employer tax rates will remain high. It’s a mathematical formula. At least until the lawmakers decide to change the rules again. 

TYamachika · 1 week ago

And Ministers are not covered either way.

Fruitfarmer · 1 week ago

Aloha Tom, Mahalo nui loa for highlighting this issue. I wonder how someone might check to see if a non-profit they plan to / or  support - is paid up concerning their unemployment claims. Is there an unemployment delinquent list published by the DLIR? if so - where might we find this list. Donors - do your due diligence BEORE cutting that check!

Soul · 1 week ago

Join the conversation

About IDEAS

IDEAS is the place you'll find essays, analysis and opinion on every aspect of life and public affairs in Hawaii. We want to showcase smart ideas about the future of Hawaii, from the state's sharpest thinkers, to stretch our collective thinking about a problem or an issue. Email news@civilbeat.org to submit an idea.

Mahalo!

You're officially signed up for our daily newsletter, the Morning Beat. A confirmation email will arrive shortly.

In the meantime, we have other newsletters that you might enjoy. Check the boxes for emails you'd like to receive.

  • What's this? Be the first to hear about important news stories with these occasional emails.
  • What's this? You'll hear from us whenever Civil Beat publishes a major project or investigation.
  • What's this? Get our latest environmental news on a monthly basis, including updates on Nathan Eagle's 'Hawaii 2040' series.
  • What's this? Get occasional emails highlighting essays, analysis and opinion from IDEAS, Civil Beat's commentary section.

Inbox overcrowded? Don't worry, you can unsubscribe
or update your preferences at any time.