The impacts of rising unemployment costs: Cash flow considerations for not-for-profits
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.
Steps to take now
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:
- Maximize draws on lines of credit while availability is still there.
- Take advantage of the payroll tax deferral program that is available. A not-for-profit that was a recipient of a Paycheck Protection Program loan may still use the deferral prior to and during the eight-week period before forgiveness starts.
- Take appropriate action to obtain special board-approved endowment allocations or borrowings.
- Delay accounts payable payments.
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.
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.
