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Protecting Nonprofits from Catastrophic Cash Flow Strain Act FAQS

Q: What is the “Protecting Nonprofits from Catastrophic Cash Flow Strain Act”?

A: The Protecting Nonprofits from Catastrophic Cash Flow Strain Act is a cash flow aid bill which provides relief for nonprofit organizations impacted by the COVID-19 crisis. The law was signed on August 3, 2020, and it provides a procedural fix to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Please refer to our CARES Act FAQs for more information.

Q: How do nonprofit organizations usually pay for unemployment related costs?

A: Nonprofit organizations, like state and local governments and federally recognized tribes, can either cover unemployment-related costs by paying into the state via state unemployment taxes (“SUTA”) or choose to be a “reimbursing employer”.

Q: What is a “reimbursing employer”?

A: “Reimbursing employers” are self-insuring by not paying SUTA but instead being billed by the state, periodically, after unemployment claims have been paid out to the not-for-profit’s former employees.

Q: What did the CARES Act intend to do?

A: The CARES Act intended to provide 50% of their self-funded unemployment liability for the period beginning March 13, 2020 and ending December 31, 2020. The Department of Labor (DOL), however, interpreted this provision to require nonprofit organizations to pay their unemployment liability bill, as assessed by the state, “in full”, and obtain a refund of 50% once the state received the funding from the federal government. This interpretation to pay 100% of the unemployment bill puts a significant strain on nonprofit finances and cash flows.

Q: What is the procedural fix from the Protecting Nonprofits from Catastrophic Cash Flow Strain Act?

A: Under this new legislation, states would only bill nonprofit organizations 50% of the total unemployment costs. This procedural fix will result in the net cost to the not-for-profit and the federal government to be the same, but will provide relief to the nonprofit organizations by not requiring them to pay 100% of the cost upfront, thereby mitigating a cash crunch.

Q: What if the nonprofit organization already made payments for their unemployment related costs?

A: Under this new legislation, it includes an explicit safe harbor that would be applied prior to the date of enactment. For nonprofit organizations that provided payments after March 12, 2020, states may issue reimbursements or reduce the amount required to be paid.