Are Church Employers Excluded from Unemployment Insurance?
By Patty Edwards Shaver
Career Development Facilitator
With the nation experiencing the highest unemployment rate (8.7 percent; N.C. 10.9 percent) since 1983, Churches and non-profit organizations are facing financial challenges. Many are cutting budgets and salaries, freezing pay and cutting employee’s hours. Others are forced to lay off personnel and close their doors, which means 89 percent of these workers, nationally (NC 99%), may not be eligible for state unemployment benefits.
Religious organizations exempt
The Federal Unemployment Tax Act (FUTA) excludes 501(c)(3) organizations with church affiliations from paying unemployment taxes and permits states to do the same. However, nothing in federal law requires states to exclude these organizations from paying UI tax. According to Comparison of State Unemployment Insurance Laws, “Most states permit voluntary election of coverage by employers for excluded workers,” however, very few actually volunteer to pay in. A recent call to the Employment Security Commission in Raleigh, N.C. asking if a non-profit could voluntarily pay Unemployment Insurance, prompted a bleak response: Due to the number of claims currently being paid out, it is unlikely that 501(c)(3) organizations would be accepted.
Workers in religious organizations number more than 1.65 million (61,500; NC) of America’s workforce and earned $28,307 million($971 million; NC) in 2006. Only 11 percent (1 percent; NC) are entitled to state unemployment benefits -- many of these work in the few states that require religious organizations to pay state unemployment tax.
It is difficult to determine what the unemployment rate is for exempt organizations since they are not required to report layoffs to state unemployment agencies. This information may be obtained through Census data which is collected only once every 10 years. This census data is due to be collected again in 2010.
Many may question why churches and religious organizations don't offer unemployment benefits to their workers when they offer ministries to help the needy in the community. The answer may be that these groups have had a reputation of being "recession proof" for decades. Being "safe" through tough economic times in the past may have given them a false sense of security, therefore, they just didn't think it was necessary to plan for economic times like the present.
According to an Ethics Daily article titled, “Ministers Can Collect Unemployment, Court Says,” some churches provide unemployment options for their employees regardless of state laws. In 1986, bishops from the Catholic Church in Wisconsin were instrumental in developing a Church Unemployment Pay Program “to assist parishes, schools and other church employers in meeting their social justice responsibilities by providing church funded unemployment coverage for lay employees.”
Solutions
After years of holding a recession-proof reputation, churches and non-profits are simply unprepared to provide unemployment benefits. But it doesn’t have to be that way any longer. Here are some examples of what 501(c)(3) organizations can do to provide laid off workers with economic benefits:
Contact a private insurance company that specializes in unemployment insurance for nonprofit organizations.
Set aside funds for severance packages based on employees’ salary and longevity.
Provide career transition assistance to help with reemployment and recommend a local networking group.
Many non-profit managers state that the worst part of their job is letting people go. Knowing how to prepare for tough economic times may help the employer make a very difficult situation a little bit easier.
* Data provided by Employment Security Commission's Labor Market Division.
See other articles related to this research:
Federal Help for Premiums Leaves Church Workers Stranded published in Ethics Daily, May 21, 2009
Any Unemployment Insurance for Non-Profits? also published by Tony Cartledge blog, Baptists Today, and Ethics Daily
