While the CARES Act provided unemployment payment accommodations to keep state and local governments financially afloat during the COVID-19 pandemic, nonprofits have not had the same benefits. To combat a nonprofit financial crisis, Congress passed and the President signed the “Protecting Nonprofits from Catastrophic Cash Flow Strain Act of 2020” into law. The law provides an update to emergency unemployment relief for nonprofit organizations and governmental entities.
The new legislation ensures that nonprofit organizations, state and local governments, and federally-recognized tribes can receive unemployment relief through the CARES Act without facing a serious reduction in cash flow.
Under state unemployment programs, nonprofit organizations, state governments, and local governments have the option to reimburse employees, which means they can make payments instead of contributions for their unemployment benefits. Most states will then periodically bill employers for benefits paid to former employees during that period. That means the employers utilizing that payment method are not required to pay unemployment insurance payroll taxes.
The CARES Act provided federal financing for 50% of the unemployment insurance (UI) obligations for those employees for the period from March 13, 2020 to December 31, 2020, but the policy created a potential financial crisis because reimbursing employers were required to pay their bill in full before receiving reimbursements. The resulting financial impact increased the risk of reductions in services, additional layoffs, and closures.
The new law allows states to provide the 50% emergency unemployment relief to nonprofit organizations without the full bill payment requirements. Now the reimbursing employer will be responsible for half of the bill and the federal government will finance the other half. This is great news for nonprofits and other entities that would otherwise face a cash flow crisis.
COVID-19 guidance and legislation continues to develop, but we are monitoring the latest information and will provide updates as they become available. If you have questions about this new law and how it will affect your nonprofit organization, please contact the professionals at BSB. We understand that each situation is unique and we can work with you to develop a plan.