Washington Update

Department of Labor Guidance Could Prove Devastating for Nonprofits

May 01, 2020

The U.S. Department of Labor (DOL) issued guidance this week on how states can implement a new federal law (Section 2103 of the CARES Act) intended to help minimize nonprofits’ liability for unemployment insurance (UI) claims related to COVID-19. Unfortunately, the DOL guidance does not line up with the flexibility intended in the CARES Act provision and could be devastating for many nonprofits. 

The CARES Act allocates federal funding to states to reduce the liability of self-insured nonprofits for their COVID-19 claims with the intention of helping to mitigate the financial impact these nonprofits are experiencing.  The provision authorizes DOL to issue guidance that would “provide maximum flexibility to reimbursing employers” as it relates to payments and assessment of penalties and interest pursuant to state laws. 

The DOL guidance, however, requires states to bill self-insured nonprofits, including colleges and universities that self-insure, for the full amount of their COVID-19 related UI claims and then request reimbursement from their state UI trust funds for 50 percent of the amount paid. In addition, states may be penalized if they attempt to forgive these amounts, or not proceed with collection.  The guidance warns that while states may reimburse the other 50 percent of self-insured nonprofits costs from their UI trust funds, they risk forfeiting a portion of their federal CARES Act funding.  Congressional intervention will likely be necessary to assist self-insured nonprofits in the wake of this guidance.