True or false? “Employment laws are different for nonprofits.” False: It’s a myth that nonprofits are “exempt” from state and federal employment laws!
The National Council of Nonprofits encourages all nonprofits to be familiar with the employment laws that apply to employees in states where the nonprofit operates. State associations of nonprofits frequently offer educational programs and highlight best practices in their newsletters about managing employees and volunteers. Additionally, workplaces with over 15 workers are generally covered by federal employment laws.
- This video provides an overview of important employment issues for nonprofits to be aware of (Washington Nonprofits)
- Hot issue: Preventing workplace harassment (NonprofitHR)
- This IRS video explains the employment tax issues that nonprofit employers need to be aware of.
- People providing service to nonprofits are classified as either: employees, independent contractors, (compensated workers) or volunteers (who are not compensated). The nonprofit has various legal obligations depending on the worker’s classification so it’s important always to recognize, and help the worker also recognize, what the appropriate classification is, and manage the worker’s expectations about compensation, tax withholdings, workers’ compensation insurance coverage, and other fringe benefits that may (or may not) apply to that worker.
Because employment laws are complicated and subject to change, it is helpful for every charitable nonprofit to have a resource on hand to consult when questions arise about employment issues. Access to expertise on employment laws and human resource management practices is much more prudent than trying to “go it alone” in this highly regulated area.
- Ask your insurance broker/agent for employment law guidance and/or resources. Why? Insurance companies want to limit their exposure for legal claims made against their insureds. Your nonprofit’s provider of Director and Officer liability insurance should be willing to serve as a resource on employment practices, and may even offer educational materials or programs about managing employees and drafting prudent personnel policies. Similarly, if your nonprofit outsources its payroll administration, that provider should be able to provide resources/guidance on many employment-related laws affecting your nonprofit’s workplace, and potentially also provide copies of workplace posters that your nonprofit is most likely required to display.
- Be aware that just as you would not ask your dentist to take out your appendix, your well-meaning board member who is a real estate attorney may not be familiar with all the details you need to know about employment law issues!
- Distinctions between employees and independent contractors are critical issues to be aware of because of the potential exposure for mis-classification. This is an area that the IRS and state departments of labor enforce, potentially resulting in serious penalties and back-tax payments. A typical misclassification scenario is that a nonprofit classifies a worker as an independent contractor when in fact the IRS or state law would define that same worker as an employee. Learn more about classifying workers correctly.
- If your nonprofit hires a consultant or independent contractor and pays him or her more than $600 in a fiscal year, the nonprofit should issue a IRS Form 1099–Msc. to the worker. IRS guidance, Reporting Payments to Independent Contractors, offers information on what your responsibilities are when paying independent contractors/consultants.
- The work product that employees and independent contractors create while employed is generally considered to be owned by the employer/nonprofit under the theory of “work for hire.” However, it is wise to address ownership by documenting who owns the work product created by workers – otherwise a consultant may end up “owning” the work product instead of the nonprofit that paid for it.
- The hiring process is fraught with potential legal pitfalls (for instance, here are 10 things not to do in the hiring process), so it’s useful to familiarize yourself with what NOT to do and to always use consistent procedures with every applicant.
- The Department of Labor for your state can be an important resource for information on wage and hour regulations, mandatory postings, the process for reporting new hires, and other important information governing the employment relationship.
- Checklist of Human Resource Management Indicators for Nonprofit Organizations
- Creating an Effective Employee Handbook
- Compensation and benefits for nonprofit employees (National Council of Nonprofits)
- What’s a flexible spending account? (National Council of Nonprofits)
- Taking the High Road – A Guide to Effective and Legal Employment Practices for Nonprofits (Nonprofit Risk Management Center)
- State laws about employment (DOL)
- The Nonprofit’s Guide to Human Resources – Managing your employees and volunteers(Nolo)
- Nonprofit Employee Handbook Template (Nonprofit HR)
- Background checks: What employers need to know (Department of Labor, Equal Employment Opportunity Commission)
- Nonprofit Risk Management Center is a natoinal nonprofit that is a resource for managing risks associated with employees and volunteers, and for information about insurance policies that address employment practices (known as “Employment Practices Liability” insurance, or “EPL”)
- Conducting Performance Evaluations and Annual Performance Evaluations (Minnesota Council of Nonprofits)
- GuideStar Online Tool to Gauge Nonprofits’ Diversity
- Alternatives to unemployment taxes for nonprofits (GuideStar)
- Conducting an employee termination meeting (Probono Partnership)
- Interns: Employees or volunteers? (National Council of Nonprofits)
How Could an HR Assessment Help Your Organization?
In the last few years, U.S. Department of Labor (DOL) audits have been on the rise. Even the most cautious employer can be surprised with an onsite visit by a DOL auditor.
Would your non profit be ready? It’s a common concern – and one we can help with.
Your organization is unique, and so are your HR challenges. The best way to become audit-ready is to take a proactive approach to uncovering your compliance gaps and developing a plan that solves your most pressing HR issues. Scheduling an HR Assessment with NFP is an easy first step. We’ll look at your specific processes, procedures, and documentation to determine areas of HR improvement, and how your organization would perform in a DOL audit.
Typical trouble spots we review:
- Wage and hour recordkeeping
- Proper classification of exempt employees
- Independent contractor status verification
- Staff working “off the clock”
- Overtime compliance
- Child labor compliance
- ACA, FMLA, ERISA, and COBRA compliance
After a thorough review, we’ll provide a report of our findings and prioritized recommendations.
Interested in learning more?
Contact Maria Trapenasso at [email protected] to discuss your organization’s needs, and next steps.