VICTORY! Unemployment Relief Legislation for Reimbursing Non-Profit Employers Signed Into Law
New Jersey non-profits that were facing steep unemployment bills arising from the COVID-19 pandemic are applauding the enactment of legislation that will bring welcome relief. Legislation to clarify and update an earlier state law to provide relief for employers that have had to lay off employees due to the COVID-19 pandemic has been signed into law.
A-5691 (Greenwald/Murphy) / S-3714 (Madden/Gopal) (P.L. 2021, c. 143), signed into law July 1 by Governor Murphy after passing both houses of the Legislature unanimously, provides that employers that reimburse the state for unemployment claims are not liable for any portion of the payments of unemployment benefits which are not paid by the federal government pursuant to the CARES Act, the American Rescue Plan Act, or any other applicable federal law.
We thank Governor Murphy and his office, sponsors Senators Fred Madden and Vin Gopal, Assemblypersons Louis Greenwald, Carol Murphy and Anthony Verrelli, as well as Senate President Sweeney, Assembly Speaker Coughlin, and all of the cosponsors and legislators who championed this issue. Many thanks, too, to the NJ YMCA State Alliance, the NJ YMCA State Alliance, the Jewish Federations of New Jersey, New Jersey Business and Industry and the many others who advocated on this bill. Read our press release
We will share additional updates regarding the NJ Department of Labor and Workforce Development’s implementation of the law as they become available. If you need more information, contact Doug Schoenberger (doug @ njnonprofits.org) or Linda Czipo (lczipo @ njnonprofits.org) at the Center.
Why S-3714/A-5691 was Needed
On January 4, 2021, Governor Murphy signed P.L. 2020, c. 150 (legislation strongly supported by the Center for Non-Profits) to address employers’ issues on multiple levels:
- It provides that the layoffs and separations precipitated by this crisis will not adversely affect the experience rating for employers that contribute to the state’s unemployment fund (for-profits and experience-rated non-profits).
- The law postpones and spreads out the burden of a payroll tax that will likely be needed to keep the state’s unemployment trust fund (through which unemployment claims are paid) solvent.
- For 501(c)(3) non-profit and government employers that “self-insure” and make direct payments to the state to pay for unemployment claims, the statute was intended to cover the 50% that was not funded pursuant to the federal CARES Act and supplemental laws, thus enabling these organizations to avoid potentially crippling unemployment bills.
The need for clarification arose because of how the state Department of Labor and Workforce Development interpreted the January 2021 statute, and because the American Rescue Plan Act changed the federal funding to 75% of the unemployment bill from April 1, 2021 through September 6, 2021.
Like other employers, most non-profits are required to withhold SUI taxes from their employees’ paychecks and remit these to the State to contribute to the state unemployment system.
However, for the employer’s portion, federal law permits non-profit organizations exempt under Section 501(c)(3) of the Internal Revenue Code to, if desired, opt out of making quarterly contributions to the State, and instead reimburse the state directly for claims.
Many organizations remain in the state system and make their quarterly tax payments to the State. But the self-insurance option can be advantageous for certain non-profits (especially those with 15 or more employees and a stable workforce) because they would otherwise end up paying far more into the state system then would be paid out in claims. Self-reimbursing (or pooling resources with other 501(c)(3)s in a grantor trust) allows the organization to pay based only on its own claims, thus retaining more assets for its charitable purposes.
Separate but related problems exist for non-profits that pay their unemployment taxes directly to the State system as contributing employers, as well as those that elect to self-insure and reimburse the state directly for claims incurred. To address these issues, some important government actions are needed:
- Federal – pass legislation to provide additional relief for reimbursing employers and to clarify a misinterpretation of the CARES Act. [In an important victory for non-profits, federal legislation to fix the misinterpretation problem has been enacted. See below.]
- State – pass legislation to ensure that employers’ unemployment experience ratings are not adversely affected by the COVID-19 emergency, and take any additional actions necessary to ensure that the State of New Jersey is eligible for emergency unemployment funds under the federal Families First Coronavirus Relief Act that are reserved for states that experience an increase of unemployment of 10 percent or more. [P.L. 2020, c. 150, signed into law by Gov. Murphy on January 4, 2020, addresses this issue for New Jersey experience-rated (contributing) employers.]
- Provide financial relief and hold harmless those 501(c)(3) employers which, as permitted by federal law, have exercised their option of self-insuring and reimbursing the state for UI claims. [P.L. 2020, c. 150 was indended to address this issue for New Jersey non-profits and government and tribal employers that self-insure, but additional clarification is needed. Additionally, non-profits, government and other employers in many other states that self-insure are still seeking relief and without it are facing devastating unemployment bills. Congressional action would address this problem for self-insuring non-profits across the country.]
Federal Stimulus Bills and Non-Profit Employers
The federal Families First Coronavirus Relief Act (FFCRA) provides emergency supplemental appropriations to assist states with the spike in unemployment claims. A portion of these funds, $500 million in emergency grants for states that experience at least a 10 percent increase in unemployment, require the states to take certain actions such as temporarily easing eligibility requirements for benefits, and ensuring that employers are not penalized for increased claims.
As noted in our March 2020 letter and the August 2020 New Jersey Non-Profit Community Letter to the Governor, Lieutenant Governor and legislative leaders, it is vital that the State enact measures to ensure that the layoffs and separations precipitated by this crisis do not adversely affect an employer’s experience rating and to meet the conditions in the FFCRA. However, as important as addressing this problem is, it will only help those employers that are still in the state system and does not assist those that made a business decision to self-insure as permitted by federal law.
Extra Problems for Self-Insured Employers
Reimbursing employers made an actuarial decision to self-insure based on the size and stability of their workforce and regular fluctuation of economic conditions. However, the COVID-19 emergency has created a financial crisis that was not at all anticipated and has thrown all reasonable actuarial predictions into disarray. Without relief from the federal and state governments, these organizations (including many hospital systems, social service organizations, food banks, youth organizations, senior service providers, behavioral health providers and others) will suffer dire financial consequences and may have to significantly reduce services or even close permanently.
The federal CARES Act provides an appropriation to states to reimburse non-profits (and governments and other self-reimbursers) for half of the costs they incur through December 31, 2020 to pay unemployment benefits. But this still subjects these organizations to a potentially crushing financial exposure at a time when their budgets are already taking a huge hit and their services are needed more than ever. Worse yet, in late April 2020, the U.S. Department of Labor issued guidance that would require these employers to immediately pay 100% of their claims costs to states up-front before the 50% can be returned to them. Fortunately, following strong advocacy by non-profits at the national level and across the country legislation was enacted to clarify that non-profits do not need to prepay these claims in their entirety. However, even with this important fix, self-reimbursers are still facing steep unemployment bills that are not confronting experience-rated employers.
Policy Changes Needed:
Advocates are calling for a series of steps to relieve non-profit employers from these potentially catastrophic burdens:
- Enact state-level legislation to ensure that the unemployment experience ratings of contributing employers are not adversely affected by the COVID-19 emergency. [P.L. 2020, c. 150, summarized above, addresses this issue for contributing employers in New Jersey.]
- Amend the federal CARES Act to clarify that states do not have to require 100% up-front claims payment from reimbursing employers. [Federal legislation enacted in July addresses this issue.]
- Amend federal law to hold harmless self-insured nonprofits for 100% (rather than just 50% or 75%) of their COVID-19 related unemployment insurance claims.
- If federal law is not amended to provide 100% relief as recommended above, state legislation should be enacted to provide additional supplemental relief to self-insured employers, and offer maximum flexibility in payment options for self-insured non-profits. [In New Jersey, this issue is addressed by P.L. 2021, c. 143, for New Jersey non-profits and government and tribal employers that self-insure, but many other states do not provide this relief.]
For more details or to become involved, contact Doug Schoenberger (doug @ njnonprofits.org) or Linda Czipo (lczipo @ njnonprofits.org) at the Center.
- National Council of Nonprofits, Self-Insured Nonprofits and Unemployment Insurance
- North Carolina Center for Nonprofits, Problematic DOL Guidance on Nonprofit Unemployment… and How to Fix It
- Center for Non-Profits, Issue Summary: NJ Non-Profits in dire need of unemployment relief
Information on this website does not constitute legal advice or a legal opinion. For answers to specific questions concerning your situation, you should consult a knowledgeable attorney who can advise you regarding your particular circumstances.