Unemployment Compensation Isn’t Very Charitable
A typical unemployment compensation matter is rather straightforward. The employer pays the unemployment compensation tax for each employee and the employee, if separated from employment through no fault of his own and if he has worked sufficient benefit weeks, applies for and receives benefits. This fairly typical scenario is significantly different when the employer is a not-for-profit entity.
If the employer is not-for-profit, while it is, with exception for the below, obliged to contribute toward unemployment compensation taxes, it is not obliged to do so with regularity per employee as with a typical employer. Instead, a not-for-profit entity has two other options available to it in order to accommodate the fact that it does not make a profit and may not have many assets to contribute toward the tax.
First, the not-for-profit entity can elect to use the “contributory method.” Under the contributory method, the employer must pay its unemployment compensation taxes quarterly and for the first $8,750 of each employee’s compensation, at a rate specified by the unemployment compensation law which can be found on the Pennsylvania Department of Labor’s website.
Second, the not-for-profit entity can elect to use the “reimbursable method”. Under the reimbursable method the employer must simply reimburse the Unemployment Compensation Fund, dollar-for-dollar, for the benefits outlaid. The reimbursement must be paid on a monthly or quarterly basis or else the not-for-profit employer will be switched to the contributory method.
Now, if the not-for-profit entity is a religious organization, it, pursuant to 43 Pa.C.A. Section 753(l)(4)(8)(a), is subject to a religious exemption and need not pay into the unemployment compensation fund at all but, as a result, none of the employees who work for that religious organization are able to collect unemployment compensation benefits regardless of the cause or reason for their termination and/or separation from employment. The aforesaid statute indicates that the religious organization exemption only applies to houses of worship, associations of the same, and/or entities which function and/or operate and/or are supported and/or controlled by the same which exist primarily for religious purposes. In applying this statute, cases such as Imani Christian Academy v. Unemployment Compensation Board of Review, 42 A.3d 1171 (Pa. Cmwlth. 2011) make it clear that an entity such as an even a religious school would likely not be eligible for the exemption as the a school’s primary purpose is education as opposed to religion. The law is clear that an entity’s primary focus must be religion in order to receive the exemption.
The rules and law for unemployment compensation are generally applicable to most employers, however if the employer at issue is a not-for-profit entity and/or a religious organization, it must be aware of the special rules and guidelines which apply specifically to them.
Originally published on May 14, 2014 in The Legal Intelligencer Blog and can be seen here.