Unemployment Laws and Nonprofits

North Carolina's modern Unemployment Insurance system was created by the State Unemployment Tax Act (SUTA).  The application of Unemployment Insurance Taxes is significantly different for non-profits than it is for for-profit enterprises, however.  The NC Division of Employment Security, which manages the UI system, maintains an excellent FAQ section detailing many aspects of NC's UI system, including the application of UIT to nonprofits and other entities

 

On January 31, 2013, Governor McCrory signed a bill into law (H.B. 4) to make major changes to North Carolina’s unemployment insurance (UI) system. The state owed about $2.5 billion in debt to the federal government that was borrowed to pay state unemployment benefits. The bill included cuts in benefits for the unemployed, unemployment tax increases for businesses, and new fees for some nonprofits. The state paid off the debt in question earlier this year, and on September 10, the Governor signed a bill (S. 15) that would temporarily - for 2016 - suspend a 20% surcharge for employers that pay state unemployment insurance (UI) taxes, as long as the state has $1 billion in its Unemployment Insurance Fund by March 1 of next year.  Here’s how it affects 501(c)(3) nonprofits:

  • Nonprofits that currently pay state unemployment tax like businesses will see a significant tax decrease if they would have been subject to the surcharge, as long as $1 billion remains in the state's UIF by March 1, 2016.

  • Nonprofits with fewer than four  employees who work 20 weeks during the year will be unaffected. These organizations remain exempt from paying into the unemployment system. 

  • Nonprofits that elect to reimburse for claims rather than pay unemployment tax (about 600 organizations) will also be unaffected, as they are already exempt from the 20% surcharge.

The Center explained to legislators how H.B. 4 might affect nonprofits as that bill made its way through the General Assembly, and as a result, nonprofits that elected to reimburse for claims were not required to pay a new tax of 0.2% of payroll.  The N.C. Department of Commerce has published a useful memo summarizing the changes made to the unemployment system in 2013 and how nonprofits were affected.