In Alabama, unemployment benefits are afforded to (almost) everyone and allow someone who was laid off, unjustly terminated, had hours reduced, and others. (See page 3 of the Unemployment Benefits Rights & Responsibilities document.) Churches and some non-profit organizations, however, are exempt from the benefits which leave many employees of daycares and other closed businesses without assistance during the pandemic.
Unemployment benefits are paid by the employer. Each quarter, an employer makes a payment to the Unemployment Fund based on the rates determined by the Alabama Department of Labor (ADOL). Those payments are not the responsibility of the employee and don’t come out of your paycheck.
Q. Are religious organizations liable for Unemployment Taxes?Employer FAQ from the Alabama Department of Labor
The Alabama UC law provides that services performed in the employ of a church or convention or association of churches; or an organization that is operated primarily for religious purposes and which is operated, supervised, controlled or principally supported by a church or convention or association of churches shall not be considered covered employment.
Additionally, 501(c)(3) organizations (or non-profits) are exempt from unemployment tax when there are fewer than four employees. This is good for small organizations providing public services like food banks and senior centers. Religious organizations, including churches, fall under the 501(c)(3) rule.
Under regular circumstances, this would make sense since 501(c)(3) organizations are exempt from most other taxes outside of payroll. Unemployment claims generally make the employer pay more.
These are not regular circumstances. This is a pandemic where folks will be laid off due to government orders for possibly an extended period of time, but intend to go back to work in the same jobs.
It’s likely the federal government will pass legislation soon that would provide relief and stimulus in response to the pandemic. This would provide those workers with additional income and the ADOL with additional funds for expanding unemployment.
Even if the latter doesn’t occur, the ADOL may still expand unemployment by exempting the 501(c)(3) exemption and providing an exemption to pandemic-related unemployment claims to not raise unemployment benefit rates.