As the U.S. grapples with growing unemployment rates, which rose from 10.3% to 14.7% in April,(1) not-for profit organizations have a significant cash flow issue to contend with related to the costs of unemployment. For some time, not-for-profits were allowed to opt out of state unemployment insurance programs and instead make payments of the actual costs of the benefits when incurred. Typically, this results in cash savings to individual not-for-profits. However, with rising layoffs resulting from the COVID-19 pandemic, not-for-profits are expected to see a significant increase in unemployment claims.
Congress’ response to address this issue under Section 2103 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act was to reduce the amounts that self-insured not-for-profits owe by half; however, as noted in our article, "Department of Labor (DOL) deals cash flow blow to not-for-profits," guidance was recently issued stating that in order to receive the 50% reduction, not-for-for profits must pay the entire 100% of their unemployment charges upfront, and they will receive a 50% reimbursement sometime in the future. There is no guidance noting when the reimbursements will be received. It is likely that to weather this cash flow storm, not-for-profits may need to be prepared to take additional measures if Congress and the DOL do not take action soon.
To maximize cash flow in the short term in order to respond to the likely increased unemployment payments, not-for-profits should consider the following:
Given the additional challenges within this sector, it is especially important for not-for-profits to diligently forecast their cash flow in order to understand when additional cash flow saving measures may need to be acted upon. Learn more in our article, "Developing a 13-week cash flow model for not-for-profit organizations.”
Your Value Architects™ at Baker Tilly will continue to keep you informed as information is available. For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.