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The Council describes it as "breathtakingly cruel" in its impact on charitable nonprofits trying to serve on the front lines in the pandemic crisis. It immediately affects their current employees and the communities they serve.
The DOL guidance instructs states to bill certain tax-exempt employers immediately for 100 percent of the costs of unemployment benefits paid to employees laid off as a result of the COVID-19 pandemic. What follows is the language of the National Council on Nonprofits:
Worse, the guidance informs states that if they show compassion and forgive nonprofits of the burden of these crippling expenses, the federal government will shortchange the state for much of those costs – despite express language in the CARES Act to allow states to interpret their own unemployment compensation laws “in a manner that would provide maximum flexibility” to those nonprofit employers.
The Labor Department’s Draconian guidance declares that affected nonprofits must pay, they must pay now, and any state that cuts the nonprofits slack will be punished by the federal government. At a time when nonprofits are dealing with unprecedented levels of need in their communities, DOL decided to take even more money away from this vital work – and threaten more jobs in the process. Breathtakingly cruel, indeed.
Congress is spending trillions to keep people on the job and called on the Labor Secretary to provide the states “maximum flexibility” on the issue. Yet this misguided guidance from the Labor Department fixates on the word “reimbursing,” forcing an unnecessary and burdensome double-reverse reimbursement: First, nonprofits must divert funds from paying their current employees and conducting operations for their communities in order to reimburse the state for the full cost of benefits paid out. And then nonprofits must wait without crucial operating funds until overburdened state unemployment offices can find the time and money to reimburse the nonprofits half of that amount. This absurd guidance will force nonprofits to lay off even more employees to come up with initial funds to pay unemployment bills and curtail serving their communities. The White House and Congress must step in immediately to reverse course and enable America’s charitable organizations to serve their communities to the best of their abilities in these difficult times.
The DOL guidance applies to a category of tax-exempt entities known as “reimbursing employers,” those that are permitted by Congress to self-insure claims for unemployment benefits by paying back the state unemployment trust fund for unemployment benefits paid to their former employees. “Reimbursing employers” include nonprofits, state and local governments, and federally recognized Indian Tribes that follow the law by electing to make payments in lieu of contributions to state unemployment trust funds. The CARES Act enacted in March provides that the federal government will cover 50 percent of the cost of claims charged to reimbursing employers. To underscore its intent to provide wide latitude, Congress instructed that any interpretive guidance by DOL must give states “maximum flexibility” to interpret their own unemployment compensation laws regarding reimbursing employers as it relates to timely payment and assessment of penalties and interest. Instead, the DOL guidance takes already limited money from productive missions to run through an unproductive circuitous loop.
Under federal and state unemployment compensation laws, there are three types of employers: (1) the majority that pay an unemployment tax into the state trust fund, (2) reimbursing employers, and (3) exempt employers that pay nothing and their employees are not eligible for benefits.
Recognizing that the unemployment insurance system never anticipated an economic impact as severe as the COVID-19 pandemic, the CARES Act holds harmless the employers paying into the state fund and extends benefits to uninsured individuals who, but for the emergency statute, would not be entitled to unemployment payments. Only the “reimbursing employers” have been singled out for immediate, adverse treatment by the new guidance from the Labor Department.
