On August 3, 2020, the Protecting Nonprofits from Catastrophic Cash Flow Strain Act (S. 4209) was signed into law. Click here to see the announcement. This new federal law “fixes” provisions in the CARES Act and subsequent guidance issued by the U.S. Department of Labor (USDOL) so that “reimbursing” employers will not be required to first pay 100% of their unemployment insurance (UI) bill in order to get the 50% emergency UI relief.
- 4209 preserves the intent of the CARES Act to provide needed relief to nonprofit organizations and governmental entities impacted by historic numbers of unemployment claims stemming from the Covid-19 pandemic by removing the requirement for such employers to make a full up-front payment of UI benefit costs, and then receive a 50% credit at some later date.
Under the UI Program, nonprofit organizations, state and local governments, and federally recognized Indian Tribes generally have the option to be “reimbursing employers” – meaning they make payments or “reimburse” state UI agencies for benefits paid to their unemployed workers, rather than paying quarterly tax contributions like merit-rated employers do to fund the Program. State UI agencies bill reimbursing employers, typically monthly or quarterly, for any benefits paid. In other words, nonprofit organizations reimburse the states for 100 percent of the unemployment benefits collected by their former employees.
Recognizing that reimbursing, nonprofit employers were at great financial risk due to extremely high volumes of pandemic-related unemployment claims, and that they wouldn’t be able to cover huge UI bills, the CARES Act provides emergency UI relief by allowing reimbursing employers to pay only 50% of UI costs to the states and the federal government covered the other 50%. However, the subsequent USDOL guidance requires state UI agencies to collect 100% of UI costs from reimbursing employers, up-front, and credit them at some later date – a requirement that puts the viability of many hard hit nonprofit organizations at risk and essentially negated the “relief” intent of the CARES Act. S. 4209 amends emergency relief provisions by requiring that nonprofits only be required to reimburse 50% of UI costs up-front to state UI agencies, and the federal government still picks up the other 50%. The net cost outcome remains the same, but without ruinous financial burden to nonprofit organizations.
Because many state UI agencies have already begun administering relief under the original CARES Act law requirements and USDOL guidance, we understand there are safe harbor allowances in conjunction with S. 4209, for claim weeks prior to the date of enactment. We are still researching the details of such provisions and will advise accordingly.