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A Change to Illinois Law Affects Small Not-for-Profit Employers

Tax-Exempt Organizations Law Update Norah L. Jones

Effective January 1, 2011, certain small nonprofit employers are required to provide written notice to each of their employees and each member of their boards of directors if the nonprofit's employees are not eligible to receive unemployment insurance benefits. Nonprofit organizations that may be affected by this new law should take steps now to comply.

The Illinois Unemployment Insurance Act makes employees of most nonprofit organizations eligible for unemployment insurance benefits. To be considered a "nonprofit organization" for purposes of the Unemployment Insurance Act, an organization must, among other requirements, be a religious, charitable, educational, or other nonprofit organization defined in Section 501(c)(3) of the Internal Revenue Code of 1986 and must have or have had in employment four or more individuals within each of twenty or more calendar weeks (but not necessarily simultaneously and irrespective of whether the same individuals are or were employed in each week), whether or not such weeks are or were consecutive, within either the current or preceding calendar year. If a nonprofit employer does not have or has not had four or more individuals in employment within each of twenty or more calendar weeks, the employer is not a "nonprofit organization" for purposes of the Unemployment Insurance Act. Accordingly, the organization is not required to make contributions to the Illinois Department of Employment Security and employees of the organization are not eligible to receive unemployment insurance benefits.

Recent changes to the Illinois General Not For Profit Corporation Act of 1986 now require that, beginning January 1, 2011, small nonprofit employers who are excluded from the Unemployment Insurance Act definition of a "nonprofit organization" because they do not have four or more individuals in employment within each of twenty or more calendar weeks must provide written notice to their employees and members of their boards of directors that their employees are not eligible to receive unemployment insurance benefits. The written notice to the employees can be provided either in each employee's written employment contract or in another written form. (It is important to note that these changes do not affect the ability of certain nonprofit employers to elect the benefit reimbursement option-i.e., to "self-insure"-rather than make payroll contributions for unemployment benefits.)

We encourage small nonprofit employers to determine whether they meet the definition of "nonprofit organization" for purposes of the Illinois Unemployment Insurance Act and whether their employees are eligible to receive unemployment benefits. If the employees are not eligible, those employers should prepare and deliver the required written notice and should take steps to incorporate the notice into all future employment contracts (if any). To ensure that it properly complies with the notice requirement, an employer may wish to issue the notice annually or make the notice part of its standard new hire process, provided that the directors also receive the notice.

This update is intended as a general summary of legal matters and not as specific advice to any particular client. If you have any questions concerning the subject matter of this update, please contact the author of this update, Norah L. Jones, at (312) 715-5052 / norah.jones@quarles.com or your Quarles & Brady attorney.