FEDERAL LAW ENACTED IN 1972
The Federal Unemployment Tax Act (FUTA) is contained in Chapter 23 (sections 3301 through 3311) of Title 26 of the Internal Revenue Code. Under the FUTA, employers are required to pay an unemployment tax, based on payroll, to the federal government [Section 3301].
However, FUTA [Section 3309(a)] requires that approved state unemployment programs allow a "religious, charitable, educational, or other organization described in Section 501(c)(3), which is exempt from income tax under section 501(a)" to elect whether (a) to contribute to the state program in accordance with state law or (b) to pay into the state program annually an amount equal to the actual unemployment benefits paid out.
30 Concrete Money Saving Strategies for Nonprofits
The Following is Proprietary Information of the NU Fund
1. Opt Out of Your State’s Unemployment Tax Program (SUI): As a 501(c)(3) Nonprofit, you have the RIGHT to not pay State Unemployment Insurance Tax. The alternative is to pay former employees their actual unemployment benefits. Because Nonprofits typically pay more than twice as much in Unemployment taxes as they would paying their own benefits, making the switch could save your Nonprofit tens of thousands of dollars a year.
2. Establish Personnel Policies to Control Severance Costs: If, for example, an employee leaves your organization with twenty-five days of accrued sick leave and sixty days of unused vacation time, you may be liable to pay her eighty-five days’ severance pay when she resigns, retires, or is fired. Eighty-five days is four full months of pay! If, on the other hand, your personnel policies require staff to take vacations each year and put an upper limit on accrued sick leave, you avoid big severance checks. Also called “Use it, or Lose it”.
3. Don’t Assume Your Staff Would Prefer a Salary Raise: Before giving a general or cost-of-living pay raise, survey the staff to see if they would rather take part or all of their raise in benefits such as time off and health, dental, and life insurance. Every dollar paid to salary costs the organization an additional 8-12 percent in payroll taxes. Most benefits are tax-free to employer and employee. If the staff opts for extra time off, you could add one, two, or three days to the holiday or vacation schedule with almost no cost to the organization.
4. Save Real Money on Payroll Taxes by Using Tax-Deferred Retirement Accounts and Flexible Spending Accounts: When money is put into these plans by Employees instead of being paid out in salary, the expense has shifted from payroll to benefits. Instead of having to pay FICA, Medicare, and other State taxes on the money, there are no longer any tax liabilities for the Employer!
5. Encourage Employees to Opt out of Benefits: Many employees have spouses who already have medical and dental benefits equal to or better than the ones you provide. There is no need for double coverage. Offer your staff incentives – such as cash or more vacation days – to opt out of your benefit program.
6. Increase the Copay Amount on Your Health Insurance Policy: This can reduce the employer’s health premiums by 10-15 percent. Because it raises the amount that the employees pay at the doctor’s office, take your premium savings and set up a fund to reimburse all employees for their added out-of-pocket expenses. The Organization will still come out ahead.
7. Pay Half the Mortgage Amount Twice Monthly: Though the total amount you pay will be the same each month, this payment schedule can shorten the mortgage payoff by as much as five years. This occurs because a portion of the principal is paid slightly sooner each month and interest payments are less.
8. Take a look at Your Water and Sewer Bills: Most sewer charges are based on water consumption during the lowest two or three months of the year. If you keep your water bill low for at least three months, your sewer bill will be significantly lowered for the entire year. Ask your local water and sewer agencies how they calculate these charges.
9. Refinance or Renegotiate Lease-Purchase Contracts: Typically, equipment leased are financed at a high interest rate (10-18 percent). After just four or five payments, you are legally entitled to go back to renegotiate the terms of the lease. The law also allows you to take a three-month hiatus on payments during the term of the lease – a useful option if you have a cash flow problem.
10. Ask a friend to Purchase the Equipment for your Organization (and make a Profit in the Process): Your organization’s equipment purchases can be made using an accounting method called asset conversion. Because a Nonprofit organization is tax-exempt, it has no real use for the tax benefits of depreciation. Using asset conversion, both the Nonprofit and a cooperating individual stand to gain if the latter purchases the equipment, depreciates it, and shares the financial benefit through a leasing arrangement with the Nonprofit.
11. Have a Donor Collateralize Your Equipment Purchase: A friendly donor can establish a certificate of deposit at the bank that you can borrow against. Your equipment loan is secured by the CD. The donor can determine the interest rate he wants to receive on the CD. The bank will loan the money to you at 1-2 percentage points higher than they pay the donor.
12. Become a Travel Agent: Pay a one-time administrative fee to become an independent travel agent and receive a 5% refund on all airline tickets, 20-30% off of car rentals, and 30-50% off on Hotel stays. To become an Independent Travel agent, go to www.inteletravel.com.
13. Reimburse Your Board Members for Travel: Some Board Members simply write off their out-of-pocket expenses for travel to board meetings or other organization events. Offer to reimburse them for these expenses. The board members can donate back the money and get a full tax write-off. You now have unrestricted funds, and can demonstrate to funders that board members contribute to your organization.
14. Brush up on your Insurance Options for Free: An excellent resource on the subject of Insurance for Nonprofits is “Nonprofit’s Essential Handbook on Insurance” which is distributed at no charge by the Nonprofit Risk Management Center (800) 221-7917.
15. Increase Insurance Deductibles: Raising the deductibles on bonding, liability, and comprehensive insurance to $1,000 or even $2,500 will reduce your insurance premium by 5-20 percent. Savings from reduced premiums can be set aside to protect against any loss within the range of the deductible.
16. Send Faxes After Hours: Phone calls after 5:00 P.M are generally cheaper. Program the fax machine to send long-distance or overseas faxes after you lave the office.
17. Set up a Long-Distance Call-Back Service: If you have offices or staff in other countries, you may have noticed that it is more expensive for them to call you than it is for you to call them. Use a telephone call-back service. The person in the foreign country calls into the United States and has the phone call billed in the cheaper direction.
18. Use a Postage Scale: The domestic postage rate for the first ounce of a letter’s weight is higher than the rate for the second ounce. Be sure you are not paying the higher rate for the second, third, or additional ounces. A good postage scale can save your organization a lot of money.
19. Find out if you Qualify for a Property Tax Exemption: If you are a 501(c)(3) educational, charitable, or religious organization, you may be exempt from real estate taxes. But you must apply for this exemption to your local property tax authority.
20. Reduce Interest Payments: If you are paying interest on any debt, have a friendly donor set up a CD at a bank that you can borrow against. Pay off the high interest debt. Negotiate with the donor to set an interest rate that is favorable to you both.
21. Do Not Pay Federal Excise Tax: Nonprofits are exempt from federal excise tax on any item or service.
22. Funders will often Donate to an Employee Educational Fund:…but not to an increase in an employee’s salary. Fundamentally raise an employee’s salary by increasing their educational expense limits with money from the fund.
23. Manage Overtime: Overtime costs 150-200 percent of regular time. The need for consistent overtime can be eliminated by creating a less expensive part-time position.
24. Use Contract Employees: No benefits or payroll tax are payable on contract employees. Use of such employees also makes it easier, cheaper, and faster to implement changes in personnel assignments. You must meet all of the IRS qualifications!
25. Check the Consumer Price Index Hot Line: Before you determine a “fair” cost-of-living increase for the organization’s pay scale, consult the federal government’s Consumer Price Index hot line. It will give you the percentages by which the national and regional CPIs have increased. If the National rate is 4% but your geographic area is 3.4%, you may end up spending thousands of dollars extra a year.
26. Do Not Pay Payroll Taxes: You may not need to pay payroll taxes for any employee who earns less than $600 per year or for any contract employees or consultants.
27. Take Advantage of Tax-Free Housing Allowances: Most churches and religious charities are allowed to pay certain employees a significant portion of their salaries in the form of a housing allowance. Because housing allowance dollars are not subject to tax, both employee and employer save money.
28. Review Your Disability Insurance: Be sure you are not duplicating the benefits offered by government programs. In some states, disability benefits are covered by the state for the first thirty to ninety days that the employee is disabled. If your organization is providing disability coverage, make certain you are not duplicating the government plans. This should save a substantial amount of money on the premium.
29. Change Your life Insurance Benefits: If your organizations offers life insurance benefits, purchase a term insurance policy instead of whole or universal life insurance. Whole life insurance of $100,000 costs $40 per month. The same amount of term life insurance costs $4 per month. The organization will save $432 per year while the employee still gets the same life insurance benefit.
30. Review Your Business Reply Postage Rates: Don’t throw out the business reply envelopes that people unnecessarily put stamps on. Bring them in bulk to the Post Office and you will get a refund equal to the cost of a first-class postage stamp for each one. This can really add up.