February 12, 2015
After the stock market crash in October 1929 and the subsequent Great Depression of the 1930’s, the national unemployment rate exceeded 25%. Simultaneously, throughout the world, industrialized nations began creating systems of insurance to support and compensate workers for wages lost during periods of unemployment. Nearly all of these nationalized systems became compulsory as each government enforced the coverage using laws, regulations and taxing powers to fund the growing financial liability.
The primary purpose of unemployment insurance is to deliver economic assistance and compensation to employees for wages lost during periods of economic decline and/or periods of involuntary unemployment. A secondary purpose, and one most relevant during the years that followed the Great Depression, is to keep the trained labor force in one location from dispersing to other locations where jobs are more plentiful.
The structure of unemployment compensation in the United States is a federal (FUTA, aka Federal Unemployment Tax Administration) and state (SUI, or state unemployment insurance, aka SUTA, State Unemployment Tax Administration) partnership that obligated states to comply with laws that occurred as a result of the Social Security Act of 1935. While the Act imposed a FUTA tax on all employers, a credit against federal taxes was provided if they paid state taxes to states with unemployment laws that met FUTA requirements and had solvent Unemployment Trust Funds. For example, employers in Massachusetts, Oregon and Tennessee were charged a 2014 FUTA tax rate of 0.6%, since their state unemployment agencies all have solvent Unemployment Trust Funds and meet FUTA requirements. Employers in Kentucky, North Carolina and Ohio had 2014 FUTA rate of 1.8%, since their Unemployment Trust Funds are insolvent and are therefore not eligible for a credit.
The Act gave states the autonomy to determine their preferred mechanisms of their own SUI programs. Consequently, the 50 state SUI programs and taxing procedures are all quite different and have contrasting impacts on employers. In the USA, as a matter of perspective, in 2014, the estimated 50 state average employer tax contribution as a percentage of gross wages ranges from a low of 0.36% (South Dakota) to a high of 1.71% (Washington), with a national average of 0.82%. Consequently, an employer with a $2,000,000 payroll would have a tax cost of as low as $7,200 in South Dakota and as high as $34,200 in Washington.
Source: First Nonprofit Group’s “Financial Mechanics of Funding SUTA” series
Next article: “Unemployment Insurance Is Not Really Insurance”
Visually Impaired Preschool Services has been a client of First Non-Profit since it was first offered as a benefit of VisionServe Alliance. We completed a thorough evaluation of cash savings to our agency before taking advantage of this wonderful benefit and it has been a very wise decision. Our experience with the processes from accounting to claims have been professional, expeditious and easy.
The Ensight Skills Center has enjoyed working with First Nonprofit for several years. We are enrolled in their Unemployment Savings Program and although we have not required a lot of intervention, there have been a few times. I know others have dealt with the same problem of unemployment fraud over the last year and in our case, a call to First Nonprofit (they actually answer their phones) cleared up the issue. They also sent us a letter to send to all our employees telling them what they needed to do to prevent this in the future and protect themselves. What a relief! Over the years if I have questions or concerns, they are happy to listen, advise and help if they can. Another BIG advantage of using First Nonprofit is that all the money that is paid into the Unemployment Savings Program lives on my balance sheet as an asset. The money continues to be Ensight’s not the governments. First Nonprofit has certainly given me peace of mind.
In addition to their money-saving purpose on behalf of nonprofit organizations like AHS, First Nonprofit’s Nonprofit Unemployment Fund streamlines the information we need to efficiently manage unemployment claims. Our relationship with NU Fund gave us access to such things as advice on planning for what’s ahead and how to analyze cost scenarios when unexpected events occurred. Both experiences were very helpful.
We have had a great experience with FNP. During Covid, when there was the chance that reimbursable nonprofits would have to pay 50% of the unemployment costs, FNP went to bat for us. We would receive weekly information on the Unemployment claim and how they were working to reduce the costs to reimbursable nonprofits. They have a great service also working with [our claims administrator] to make sure all the paperwork is completed correctly for any unemployment claim.
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Job One was spending a lot of money on unemployment. Our insurance broker, Mark Simcosky, recommended that we switch over to First Nonprofit. We did just that! This switch has been a huge savings for us! This switch saved us over $10,000 in the first year. Their customer service is Superior! Any time we have a question, we get a response very quickly. Any time we send them a report and they have a question; they call rather than just assuming. They were very responsive during COVID, even when they were in crisis mode their selves. They also were always there when we needed during COVID and very helpful! We would 1,000% recommend First Nonprofit to anybody that could benefit from it!
My experience with FNP has always been positive. Every time I have had to contact them, I’m always put in contact with a friendly and knowledgeable person. If something is missing from our account, they reach out to us to request it. It’s nice to work with a company that makes sure our account is current. I would recommend them to any nonprofit looking to reduce their unemployment insurance costs.
We’ve saved tens of thousands of dollars PER YEAR by changing to become a reimbursing employer, freeing funds for much needed capital investment. FNP has been a valued partner in this process, providing assurance that we have stopgap coverage for extraordinary claims and keeping claims response painless and simple. It’s a huge Win/Win!