The unemployment insurance (UI) process can be incredibly confusing for both workers and organizations. Since it is almost always tied to some radical shift or downturn in an organization’s priorities, the people involved are typically weathering significant changes in their life and career. Many employees may not understand their benefits or even know if they are eligible, and many organizations may not fully understand the obligations they have to disclose this information during a layoff. This is particularly true for nonprofits and other mission-driven organizations, which may not have the legal or HR resources to build a dedicated layoff process.
One of the most common sources of misunderstanding is the idea that only employees who have been laid off are eligible for UI. While it does follow a certain basic logic, namely that UI benefits are dedicated to employees who lose their employment for reasons outside of their control, this logic does not hold when dealing with the multitude of different circumstances that lead people to leave their jobs. Since unemployment is meant for more situations than just layoffs, it is important that you understand the many circumstances that can lead to an unemployment claim in order to plan accordingly.
Unemployment Benefit Basics
Unemployment is a service which allows people facing financial hardship from job loss to avoid difficulty or destitution by receiving a portion of their lost wages, typically paid out in installments over time. It is a federally mandated program, but it differs from state to state in terms of the size of payment and eligibility requirements, as well as the application process. It is available to employees who were laid off, quit for “good cause,” or are unable to work due to a contract or labor dispute. In all cases, it is incumbent on the employee to provide evidence of their eligibility.
It is also important to note that employers have the right to contest unemployment claims, particularly when an employee has resigned or when the circumstances surrounding their separation are disputed. The final decision rests with the state unemployment office, which will review evidence from both the employer and the employee.
What About Nonprofits?
Nonprofits, particularly those tied to religious causes or missions, have unique rights and exemptions under federal law. 501(c)(3) organizations do not pay federal unemployment taxes, but they are still obligated to provide unemployment benefits at the state level. They can do this in one of two ways: by paying State Unemployment Tax Act (SUTA) taxes on employee income or by “self-insuring.” This process requires the organization to reimburse the state for any unemployment claims made by former employees. The reimbursement can be paid directly from the organization’s accounts, from an unemployment trust, or from a private insurance policy.
Some organizations are exempt from this obligation under certain circumstances, including:
- Religious organizations, churches, associations, or nonprofits that exist primarily for religious purposes. These are typically exempt from both federal and state unemployment taxes in most states.
- Nonprofits with fewer than four employees. This exemption applies in several states but is not universal. Organizations can check with their specific state unemployment office to confirm whether this exemption applies to them.
- In some states, this exemption also applies to nonprofits that provide assistance to the physically or mentally disabled. Again, this varies by state, and nonprofits are encouraged to confirm local requirements.
It is essential to understand that unemployment regulations for nonprofits and religious organizations are highly state-specific. What is true in one state may not apply in another, which makes it important to consult local regulations and seek expert guidance if your organization is unsure.
Unemployment Eligibility
While many believe that UI is only available to those who have been laid off, there is another category of eligibility that covers situations where the employee voluntarily left their position. Eligibility for UI in these situations depends on the laws of the state in which they worked. As with layoffs, the burden of evidence is on the employee to prove that they qualify.
If your nonprofit is looking to build out a process to handle these cases due to an anticipate layoff or believe an employee may resign for “good cause,” it is helpful to research the relevant laws for your state and understand when you might be obligated to provide unemployment benefits.
Some common examples of “good cause” quitting include:
- Major changes in hours or working conditions: This often includes a reduction in hours that might no longer provide a living wage or changes to a schedule that an employee cannot meet due to outside obligations. For example, if you reduce a team’s hours to part-time (20 hours per week) and several of them quit, they might be eligible for UI benefits. This can also apply in cases where there are significant wage reductions.
- Harassment or unsafe working environments: Workers who quit to escape harassment, violence, sexual assault, or other circumstances that put them at risk of physical, mental, or emotional harm may be eligible. This can apply even when the employer is not the direct cause. For example, if an employee’s spouse or family member is subject to harassment or abuse, and the employee must leave the job to relocate, they may still qualify for benefits.
- Family caregiving responsibilities: An employee may quit a job to care for themselves or a family member who requires full-time attention. Some states, such as California, have disability insurance and paid family leave programs that might offer better support in these cases, but UI may also apply depending on the situation and state law.
- Spousal relocation: Employees who leave their job because their spouse or partner has secured work in another location and they are unable to work remotely may qualify for UI in many states.
- Job offer rescinded: Employees who leave their current job because they have accepted a new position, but the new offer falls through for reasons beyond their control, may be eligible to collect unemployment benefits.
It is worth emphasizing that states define “good cause” differently, and eligibility rules can vary significantly. If you are preparing your organization’s policies around UI or employee separations, it is important to verify the rules that apply in your state.
What Are Your Obligations to Employees Who Quit?
Employees who resign for any reason are entitled to several post-employment benefits. These include participation in the Continuation of Health Coverage (COBRA) program, a final paycheck, and information on any other form of deferred payment, such as a pension plan, retirement account, or equity compensation.
Some organizations also use the offboarding process as an opportunity to educate departing employees about their rights, including potential UI eligibility. This is not a legal requirement in most states, but it is considered best practice to maintain goodwill. If your organization is exempt from both federal and SUTA taxes, you can disclose this information to the employee at this time.
Employers should also be aware that they can participate in the unemployment claim process by providing documentation and, if appropriate, disputing claims they believe are not valid. In the case of a voluntary resignation, employers often have the right to provide evidence that the employee did not leave for “good cause,” which can impact whether the claim is ultimately approved.
Maintaining positive relationships with former employees can be beneficial to your organization’s reputation and culture. Discussing unemployment eligibility, especially in situations where the employee is resigning under difficult circumstances such as health issues or significant reductions in hours, can be a way to demonstrate care and support during their transition.
Staff Turnover Is Difficult. We’ve Been There.
As nonprofit experts, we formed 501(c) Services to help organizations like yours find the resources they need to handle unexpected resignations, layoffs, and other organizational challenges. If you would like to learn more about our work, please get in touch with us today.
About Us
For more than 40 years, 501(c) Services has been a leader in offering solutions for unemployment costs, claims management, and HR support to nonprofit organizations. Two of our most popular programs are the 501(c) Agencies Trust and 501(c) HR Services. We understand the importance of compliance and accuracy and are committed to providing our clients with customized plans that fit their needs.
Contact us today to see if your organization could benefit from our services.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
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