Nonprofits Jobs Picture May Lead to Unemployment System Opt Outs

October 4, 2011 ( – The Unemployment Services Trust (UST) predicts that, because nonprofits weathered the recent economic crisis better than for-profits in terms of employment, more organizations will exercise their rights to opt out of state unemployment tax systems.

The Society for Human Resource Management (SHRM) explained that under a federal law passed in 1972, nonprofits can opt out of their state’s UI system and agree, through the UST, to reimburse the state directly only for the claims of their past employees.  

Nonprofits have proven more resilient in the recent economic downturn than many expected, the UST said, noting a report from the Johns Hopkins Nonprofit Economic Data Project that showed that they fared better than their for-profit counterparts. “While other sectors are shedding jobs, nonprofit organizations boosted their employment by nearly 1 percent” from 2009 to 2010, reports the project, which analyzed U.S. Bureau of Labor Statistics data from 45 states, according to the SHRM report. In 2008 and 2009, nonprofit employment had an even greater upswing, causing total growth in nonprofit jobs from 2007 to 2010 to reach 5%. For-profits experienced a total job decline of 8% over the same years.  

In 2010, surging unemployment caused many states to increase unemployment taxes on employers, a trend that is expected to continue as states try to recover from unemployment fund deficits, the UST statement said. As a result, there were a large number of nonprofits that realized that it didn’t make sense for them to continue paying a tax rate that subsidized the unemployment costs of all employers across their state.   

“Since many nonprofits realized their claims were much lower than other employers’, there was an opportunity for them to save and open up more of their unrestricted funding,” said to Donna Groh, executive director of UST, according to SHRM. UST expects that even more nonprofits will exercise their right to opt out of the UI system and become reimbursing employers in 2011.