In the ever-changing world of human resources, for-profit businesses and nonprofit organizations alike face a variety of concerns related to workforce performance and legal compliance. However, due to the inherent nature and structure of nonprofits, they contend with certain unique HR challenges that, if not managed effectively, threaten to interfere with the fulfillment of their missions.
As nonprofit organizations strive to focus their efforts on the important causes that are their raisons d’être, here are five common HR issues they are likely to encounter:
1. Limited funding.
Since nonprofits largely sustain themselves on grants, donations, and government funding, they contend with more stringent budgetary constraints than for-profit businesses. In the realm of HR, these constraints may affect the ability to pay employees competitive salaries, which in turn may have a detrimental impact on the recruitment and retention of talented individuals who will power the organization’s success. Fortunately, salary is not always the most important factor motivating a person to accept a job offer or remain with an organization. Nonprofits can overcome the challenge of limited budgets by devising alternative ways to appeal to employees. For example, many employees would be willing to accept a lower salary for a position that offers excellent training and development opportunities or an emphasis on work-life balance, which may include flexible work schedules or telecommuting options.
2. The use of volunteers.
While the ability to use volunteers to perform certain functions is an advantage that nonprofits have over for-profit businesses, volunteers raise their own set of HR concerns. For instance, organizations must ensure that volunteers do not receive compensation and have no expectation of receiving it. Otherwise, they may be legally considered employees and thus entitled to the rights that attend that designation. It is also important for organizations to manage the performance of volunteers, just as they would with employees. A volunteer who is a poor performer or is not committed to advancing the organization’s mission may harm workforce morale and create more problems than they solve. Therefore, nonprofits should implement a screening process designed to recruit volunteers who have the ability and genuine desire to make a positive contribution to the organization. Other aspects of performance management, such as training, feedback, and clear communication of expectations, are important for volunteers and employees alike.
3. Compliance with state and federal laws.
Even though nonprofit organizations generally operate with limited resources, laws governing employers—which may impose costly demands—often apply equally to both nonprofits and businesses. Examples of such laws include the Affordable Care Act (ACA), which requires organizations with 50 or more full-time employees to offer health insurance, and the Fair Labor Standards Act (FLSA), which sets the federal minimum wage and stipulates that certain employees who work over 40 hours in a week must receive overtime pay.
A broad new FLSA rule that would have extended overtime protections to millions of additional workers was scheduled to go into effect on December 1, 2016. However, ten days before the implementation deadline, a federal judge issued a nationwide, preliminary injunction that temporarily blocked the rule. While it is currently unclear whether this rule will be upheld, employers should be prepared for an expansion of overtime protections in the near future because the existing regulations have not been updated since 2004. Only nonprofits that generate $500,000 or more in annual revenue through ordinary commercial activities are subject to the FLSA through enterprise coverage, which means that all employees of the organization are covered by the law’s protections unless they meet the requirements to be considered exempt. However, organizations that are not subject to enterprise coverage may have some employees who qualify for individual coverage.
In addition to federal laws like the ACA and FLSA, nonprofits must also familiarize themselves with state and local laws regulating the treatment of employees and volunteers, as these laws may be stricter than those at the federal level. In order to avoid hefty fines or lawsuits stemming from legal violations, organizations should invoke the help of HR compliance experts.
4. Centrality of the organization’s mission.
Unlike businesses, which are primarily motivated by the goal of generating a profit, nonprofits exist for the main purpose of advancing a cause with beneficiaries outside the organization. The nonprofit’s mission should be at the heart of all of its efforts, uniting and motivating employees and volunteers. In order to nurture employee engagement and ensure that the entire workforce remains on track to advance the organization’s cause, managers should clearly and frequently communicate the central mission, goals, and values. Individual goals should also be linked to the organization’s broader mission so that each employee understands the importance of his or her role. Many employees are drawn to nonprofit organizations because they want to “make a difference,” so reminding them of the beneficial impact of their efforts will help to keep them engaged.
5. Accurate management of the payroll tax burden.
As tax-exempt entities, nonprofit organizations face slightly different responsibilities as employers than for-profit businesses. For example, when withholding payroll taxes from employees’ wages, nonprofits must withhold FICA taxes, but they are generally exempt from the FUTA payroll tax for unemployment compensation. If a nonprofit’s volunteers received any form of compensation, including an offering that was intended as a gift, the organization must verify whether it constitutes taxable wages. These general rules may vary based upon an organization’s unique circumstances, so consulting a payroll expert is the best way to ensure compliance.
By outsourcing HR functions to a PEO like Creative Business Resources, nonprofit organizations can overcome the workforce management obstacles that may detract from their missions. Offering payroll services, human capital management, and more, CBR helps organizations lower costs while improving accuracy and efficiency. Contact CBR today!
(Sources: https://smallbusiness.chron.com/addressing-nonprofit-organizational-human-resource-challenges-56092.html, https://www.inc.com/encyclopedia/nonprofit-organizations-and-human-resources-management.html, https://www.councilofnonprofits.org/tools-resources/volunteers, https://www.irs.gov/charities-non-profits/exempt-organizations-what-are-employment-taxes).