The Senate has passed bipartisan legislation to help nonprofits, state and local governments and federally recognized tribes remain financially viable during the COVID-19 pandemic. The Protecting Nonprofits from Catastrophic Cash Flow Strain Act ensures that organizations receive federal help for unemployment payments upfront, instead of being reimbursed later.

Some helpful background

Nonprofits across the nation have (for decades) opted to be “reimbursing employers” also referred to the "pay as you go" option to pay their states for unemployment benefits attributable to their former employees instead of contributing unemployment insurance payments in advance (based on the employer’s experience with how many people normally leave employment).

In most cases the "pay as you go" option was the most cost effective option, until Coronavirus. Coronavirus restrictions led to mass layoffs resulting in a significant unplanned increase in the unemployment costs for these nonprofits.

What’s inside the Act?

The Cares Acts provided 50% emergency relief to reimbursing employers but required the employer to pay the full amount first then the state would reimburse the 50%, once full payment was received. The Protecting Nonprofits from Catastrophic Cash Flow Strain Act is a procedural fix that allows the nonprofit to get the benefit of the 50% emergency relief without having to pay the full amount first.

Here is an example to illustrate the impact:

Current Legislation: The nonprofit's unemployment bill at the end of the quarter is $40,000, they are required to pay the full amount of $40,000 to avoid penalties. Once the full payment is received then the state can reimburse the 50% emergency relief of $20,000.

The Protecting Nonprofits from Catastrophic Cash Flow Strain Act: The nonprofit's unemployment bill at the end of the quarter is $40,000, the 50% emergency relief is applied to the amount and the employer's quarterly bill is the $20,000.

This is poised to significantly lessen the strain on nonprofits’ resources, freeing up funds to focus on the mission, invest in new technologies, improving operational efficiency and more. The bill was presented to the President on July 22, 2020. We will keep you updated on the bill’s status. Contact our Nonprofit Services Group for more information.