Nonprofit Employment Fares Better in Downturn

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As nonprofits weathered the recent economic crisis better than for-profits in terms of employment, the Unemployment Services Trust predicts that more 501(c)(3) organizations will exercise their rights to opt out of the state unemployment tax system.

Since many nonprofits realized their claims were much lower than other employers’, there was an opportunity for them to save...

Nonprofits have proven more resilient in the recent economic downturn than many expected. According to a new report from the Johns Hopkins Nonprofit Economic Data Project, they fared even better than their for-profit counterparts.

“While other sectors are shedding jobs, nonprofit organizations boosted their employment by nearly 1 percent between 2009 and 2010,” reports the project, which analyzed U.S. Bureau of Labor Statistics data from 45 states. In 2008 and 2009, nonprofit employment had an even greater upswing, causing total growth in nonprofit jobs from 2007-2010 to reach 5%. Compared to for-profits, who experienced a total job decline of 8% over the same years, this growth is quite noteworthy.

This is not to say that nonprofit job growth has not faltered over the years under economic pressure. U.S. nonprofits jobs growth fell from a rate of 2.6% in 2008 to a 0.8% growth in 2010. But overall, nonprofits have shown better employment trends throughout the decade compared to for-profits.

The UST Division of Nonprofit Research has seen similar employment trends among the Unemployment Services Trust's 2,100 nonprofit members. Says Donna Groh, Executive Director of UST, “Although the recent Great Recession hit nonprofits the hardest we’ve seen in UST’s 28 year history, we’ve always seen that they weather the economic storms better than the for-profit sector.”

In fact, 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. As a result, there were a large number of nonprofits who 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. While for-profits are locked into paying state unemployment taxes, nonprofits are allowed by federal law to opt out of the state UI tax system and only pay for their own workers’ unemployment claims.

“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” says Groh. The result? UST had some of the largest growth in membership they’d had in years. Many of UST’s new members in 2010 were looking for help opting out of the state UI system, while others realized they needed help monitoring the unemployment claims and more HR support as direct reimbursing employers.

With more nonprofits realizing that their employment history doesn’t warrant the type of unemployment tax increases they are seeing from the state, UST expects that even more nonprofits will exercise their right to opt out of the UI system and become reimbursing employers in 2011. With many states tacking on special assessment fees in order to help pay for all of the unemployment fund borrowing over the past few years, there’s little question that employers across the nation will see their unemployment costs go up. And as Groh says, “Nonprofits are getting smarter and savvier from the financial crisis… This is one cost they’re learning they can save on.”

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Megan Maulhardt
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