Minnesota Nonprofits and COVID-19: Special Considerations for Unemployment Insurance
UPDATE March 31: In Section 2103 of the CARES Act, Congress partially addressed this issue by providing funding for states to reimburse nonprofits 50% of the amounts paid for unemployment compensation through December 31, 2020. More will become known about the logistics of receiving this credit in the coming days.
With Emergency Executive Order 20-05, Minnesota Governor Walz provided much-needed relief to Minnesota employers and employees facing immediate loss of work because of COVID-19. The March 16th Order waives the one-week waiting period before individuals can be considered eligible for unemployment and relaxes otherwise strict requirements to maximize the chances that unemployed and underemployed workers receive benefits quickly.
The Order also provides relief to employers by assuring that benefits paid because of COVID-19 will not impact employers’ unemployment tax rate. By way of background, employers pay unemployment insurance tax into a state-wide fund that is used to pay all unemployment insurance benefits. Employers each have an assigned tax rate, and tax rates are adjusted up or down based on employers’ use of the fund. Each claim paid to a former employee can raise the employers’ unemployment tax rate. Under Emergency Executive Order 20-05, employers’ tax rates are not affected by COVID-19 related claims. That is welcome news for many employers whose businesses have either slowed down or been shut down entirely as a result of the pandemic.
Nonprofits, however, may see little benefit from the Order. That’s because nonprofits are given an option not to pay into the unemployment insurance trust fund and to reimburse the state directly for unemployment insurance benefits paid to their former employees. These occasional reimbursements are typically more expensive than quarterly unemployment insurance tax payments, but they may also be so infrequent that opting to reimburse can have significant financial benefits. For example, nonprofits with stable workforces and those where turnover is due to voluntary resignations rather than terminations can avoid the costs of unemployment entirely (in an ideal, though possibly not realistic, world).
The challenge with Emergency Executive Order 20-05 is that it does nothing to help reimburse nonprofits who suddenly have to furlough or lay off large percentages of their employees. The employees should be eligible to receive unemployment benefits under the Order, but nonprofits will face significant financial burdens if they will have to reimburse the state dollar-for-dollar. While there may be uncertainties as of today, we can report we’ve been in touch with the state and know that discussions are happening to address the issue.