501(c) Services

A Mission-Driven ESOP with Purpose

Vital strategies and partnerships pave the path to success at 501(c) Services

In the realm of Employee Stock Ownership Plans (ESOPs), achieving sustained growth requires a delicate balance between executive-level action and a steadfast commitment to the well-being of every employee-owner.

The true essence of a thriving ESOP resides in the day-to-day experiences of its employee-owners being driven by a unifying strategic vision. Leadership must chart a course that combines fiscal responsibility, innovative thinking, and a profound understanding of the organization’s mission.

These strategic decisions, combined with continuous education, skill development, and a culture of open communication and shared responsibility, lay the foundation for macro-level success. By ensuring that each employee-owner feels valued and engaged, the organization creates a workplace where collaboration thrives.

For 501(c) Services, headquartered in San Jose, such a strong foundation has become the everyday norm. Its development as an ESOP serving nonprofit organizations is not merely reflected in financial metrics but is profoundly intertwined with the empowerment and fulfillment of its employee-owners.

It has become a key pillar of support, helping nonprofit companies outsource their unemployment processes with ease.  With every new level of expansion, 501(c) Services continues to positively impact more lives; it’s driven by a community of individuals who find purpose, growth, and a sense of ownership in their professional journey.

501(c)’s Founding Vision and Turning Point

In the early 1980s, 501(c) Services emerged from the inventive combination of both the insurance and nonprofit industries. Using his unique blend of expertise, the company’s founder birthed an ingenious idea – Leveraging opportunities in the unemployment system to aid nonprofits.

By opting out of the state tax system and reimbursing the state for unemployment expenses, nonprofits could potentially save significant funds. As a result, navigating the intricacies of state bureaucracies became the company’s forte, a role that has grown into its primary business focus.

At the core of 501(c) Services’ operations is the administration of the 501(c) Agencies Trust. This trust serves as a lifeline for well over a thousand nonprofits and is the main channel through which the company provides support and guidance in reimbursing the state for unemployment expenses.

The company acts as a facilitator, aiding nonprofits in planning, safeguarding against risks, and ultimately fulfilling their missions effectively. 501(c) Services has evolved from a small team into a dynamic group of 25 dedicated individuals situated in the vibrant Bay Area.

The turning point came when the founder, contemplating retirement in the early 2000s, sought a succession plan that aligned with the company’s culture.

Eric Stemm, Chief Operating Officer

“He truly cared about the folks he worked with,” Chief Operating Officer Eric Stemm says, “I think he was honestly concerned for the people he worked with for the past two decades being harmed in the transition or just working in a place that wasn’t as meaningful.”

Fortunately, those founding concerns were the catalyst for the company’s Employee Stock Ownership Plan (ESOP) structure, which emerged as the ideal solution, ensuring a smooth transition that preserved the firm’s ethos and prioritized the well-being of its employees.

This ESOP was initiated in 2009, and by 2015, the company had bought the remainder of the founder’s shares, officially transitioning from a C-Corporation to an S-Corporation. Since then, the ESOP structure has played a pivotal role in shaping the company’s growth trajectory.

The Empowering Effects of ESOP Structure on Company Culture

“Being an ESOP makes a huge difference in the day-to-day, where our employees understand that they’re really owners and feel empowered to give input,” Stemm says, noting the fact that 501(c) Services’ internal dynamic really fosters a sense of vitality among employees.

Unlike shareholder-owned companies, the employees are both the primary workers and beneficiaries of the operation.  Therefore, employee-owners are especially enthusiastic about shaping the company’s strategic vision and decision-making processes.

Thanks to this, transparency is a guiding principle at 501(c) Services, and its culture encourages open communication, innovative thinking, and a shared responsibility for the company.

More importantly, the company’s ESOP structure allows it to differentiate itself from its competitors. According to Stemm, 501(c) Services works in a “high touch” industry full of passionate, mission-focused individuals, so interacting with customers in a way that is both credible and personal is essential.

“Being an ESOP makes [us] more compelling to them. When our customers are talking to one of our staff members, they’re talking to one of the owners… I think that makes a difference,” Stemm says, explaining that the company’s genuine approach helps it feel not so cold and corporate to its customers.

However, it’s not just customers that the company appeals to, as 501(c) Services’ ESOP structure significantly influences recruitment efforts, as prospective employees are drawn to the prospect of being part owners.

“We’re very intentional about our culture here, [we] make sure people feel valued and appreciated… and this makes our retention really above average,” Stemm says.

Retention rates soar as the ESOP, coupled with nurturing company culture, creates a workplace where employees feel respected. This familial atmosphere has produced an overwhelmingly clear reflection of how employees feel about the company, with a turnover rate consistently below 5%.

According to Stemm, financially, the ESOP structure has also been a game-changer. “The financial benefits of being a 100% owned S-Corp ESOP have been really significant… we’re certainly stronger and more financially successful as an ESOP than we would have been without one,” Stemm says, pointing out that S-Corp status has been immensely helpful in allowing the company to reinvest in its business, ensuring continuous growth.

Long-Standing Partnerships and Collaborations

Of course, continuous growth requires support, and like many other companies, 501(c) Services collaborates with key partners who help them efficiently execute their operations.

While the company handles mostly unemployment services, it also supports about 200 nonprofit organizations in the State of Washington that self-insure their worker’s compensation.

To accomplish this, 501(c) Services partners with a firm called Integrated Claims Management that works directly with these companies on things like safety training and injury mitigation.

However, to handle the bulk of its work, the company has established a firm partnership with a firm in Nashville called Thomas & Company, which, according to Stemm, is 501(c) Service’s biggest partner, as it plays a frontline role in processing the unemployment claims coming from the states.

“They have a very similar approach to us,” Stemm begins, “They’re a small firm and are all about people… and it comes through in the attitude of their employees and the way they care for our customers.”

Additionally, 501(c) Services has made sure to remain in consistent contact with the National Center for Employee Ownership (NCEO), as the organization acts as an incredible source of support.

“They do great work helping those of us who are ESOPs… they provide great resources and [host] conferences where we can meet our peers. The NCEO has just been one of those places we’ve gotten really good information from,” Stemm says.

And with the types of companies that 501(c) Services serves, having a strong network to leverage is incredibly important.

Companies like The YMCA of USA, Boys and Girls Clubs of America, The Boy Scouts of America, and Habitat for Humanity all rely on 501(c) Services to facilitate their unemployment services.

In fact, the companies above were among the names that relied on 501(c) Services the most during the COVID-19 pandemic, as the impact had forced many of those companies to lay off a large number of employees.

As a company deeply involved in unemployment services, the resulting surge in claims presented both an operational challenge and a poignant reminder of the human impact of the crisis. “In the spring of 2020, our claims rose 20 times what they had been the month before,” Stemm explains. However, the 501(c) team rose to the occasion, processing claims diligently while witnessing the profound effects of the pandemic on the nonprofit sector.

Future Outlook and Commitment to Mission-Driven Service

Looking ahead, 501(c) Services envisions steady growth, leveraging its strengths and expertise to continue serving the nonprofit community.  The focus remains on providing unparalleled service to clients while fostering a workplace that remains a great environment for its employees.

Success is defined not just in financial terms but in maintaining a reputation for excellence, both as a mission-driven service provider and as an exemplary employer. “I’d say we would define success looking forward as having the same reputation 40 years from now,” Stemm says.

In summary, 501(c) Services epitomizes a harmonious blend of service, employee empowerment, and strategic business acumen.

The ESOP model, with its transformative impact on culture, retention, and financial success, stands as a testament to the company’s commitment to a future where every employee-owner contributes to and shares in the prosperity of the organization.

According to Stemm, the model has been a “really powerful vehicle” and nothing but a “blessing” to 501(c) Services. Considering the company’s healthy development, it’s clear that it’s in the right space with all of the resources and partnerships it needs to help maintain its image as an industry staple.

AT A GLANCE

501(c) Services

What: A mission-driven S-Corp ESOP dedicated to supporting nonprofits in navigating unemployment processes.

Website: https://www.501c.com/