DES Advises Self-Insuring Arizona Nonprofits to Hold Off Prepaying COVID-19 Impacted Unemployment Claims

Alliance of Arizona Nonprofits

The Department of Economic Security (DES) has issued a statement advising Arizona nonprofits that self-insure for unemployment insurance purposes to disregard billing statements requiring full prepayment for unemployment claims until new statements can be issued reflecting Congress-established guidelines removing the full prepayment requirement. Interest on the balances will not accrue until Oct. 31, according to the DES statement.

On Aug. 20, Congress passed the Protecting Nonprofits from Catastrophic Cash Flow Strain Act of 2020, which removed the full prepayment requirement. A provision in the CARES Act (Coronavirus Aid, Relief, and Economic Security) passed in April forgave one half of reimbursements owed by self-insuring nonprofits, which would be paid by the Federal government.

For-profit businesses pay a percentage on an employee’s first $7,000 in wages for unemployment benefits. Non-profit organizations choosing to self insure “do not make regular contributions to the state unemployment trust fund, but instead reimburse the state for full costs of unemployment benefits the state has paid to former employees,” according to the DES statement. Nonprofits were at additional financial risk due to increased unemployment benefit filings because of the pandemic.

“COVID changed everything,” said Alliance of Arizona Nonprofits CEO Kristen Merrifield. “Nonprofit organizations provide direct services to the community, many in response to the pandemic. The pandemic’s impact on fundraising combined with the large number of layoffs and furloughs means many nonprofits face tremendous challenges and uncertainties heading into 2021. The Alliance of Arizona Nonprofits has strenuously advocated for full forgiveness of COVID-19 related claim reimbursements owed by self-insured organizations and to prevent those claims from being charged to their experience rating.”

In June, ValleyLife, which provides group-home services to individuals with developmental disabilities, received a reimbursement statement of $48,000, the full pre-CARES Act amount.

“We never furloughed any employees because we have to provide services in group homes that must be staffed according to levels established by the Division of Developmental Disabilities,” said ValleyLife Chief Financial Officer Linda Miller. “We couldn’t lay off anyone because it would have reduced the hours we would have been able to provide for the group homes.”

But ValleyLife was affected by turnover, an ongoing challenge in the nonprofit industry. “In our industry, we have a turnover rate between 60 and 70%.  Direct-care work in group homes is hard work at low pay,” Miller said.

She is expecting a revised statement for $24,000 reflecting the 50% forgiveness.  “We’re going to have to come up with the funds from someplace to pay the balance,“ she said.

Merrifield said the Alliance continues working with the governor’s office and other advocates to “make a productive change in the current requirements to level the playing field for nonprofits choosing to self insure. Nonprofits are critical in providing vital services and resources to communities across the state.  We are committed to ensuring their long-term impact.”

For more information about the Alliance of Arizona Nonprofits, visit www.arizonanonprofits.org.

Speak Your Mind