Marcus Aurelius once wrote in his Meditations that, “Man is born for deeds of kindness.” All throughout history we have always wanted to help others who are struggling, and we have managed to do that in so many ways. Of course, in our contemporary time, a lot of the heavy lifting is done by nonprofits, and our society would not be where it is at without the millions of organizations helping people today across the United States.
While nonprofits and the people who work and volunteer with them love helping others, there is probably one thing they do not necessarily love doing – human resources, especially HR compliance. Despite the noble actions and deeds of various nonprofits, these organizations are subject to the same rules (and sometimes more) as other for-profit businesses in the country. We are going to help you understand it better by breaking down HR compliance and what you need to look for in your organization.
The Laws
First, we will list a few laws and regulations that you will see across your HR systems. If you have been handling HR for a while, you will likely recognize these. However, if this is your first time managing human resources, you may want to become a little familiar with each term/law.
Fair Labor Standards Act (FLSA). This act establishes rules for hours worked, overtime, minimum wage, child labor, etc.
Payroll & Taxes. These must be followed at the federal, state, and local level.
Title VII of the Civil Rights Act of 1964. Prevents employment discrimination on the basis of race, color, religion, sex, and national origin.
Americans with Disabilities Act (ADA). Prevents discrimination against people with disabilities.
Family Medical Leave Act (FMLA). Provides job-protected leave in the event of an emergency.
Heath Insurance Portability and Accountability Act (HIPAA). Sets standards to protect sensitive medical patient information.
Affordable Care Act (ACA). Requires employers to offer health benefits above a certain standard.
Occupational Health and Safety Administration (OSHA). Governs working conditions and ensures employees are working in safe environments.
501(c)(3). Clarifies the organization’s tax-exempt status.
Navigating Key HR Compliance Areas
Human Capital
The people are who drive nonprofit success. This is the way it has always been, and this is the way it will always go, even as technology grows and becomes more intuitive. An individual touch, whether figurative or literal, is what accomplishes the mission. Managing human capital within the nonprofit is one of the primary missions of the HR department. Here are a few key compliance areas to consider:
Wage & Employee Classification. Full-time employees are classified in one of two ways – either exempt or non-exempt. This classification will dictate which further rules are applied, such as overtime, salary, hours worked, etc. The FLSA provides the majority of the guidance when considering worker classification.
Recruiting & Hiring. Nonprofits constantly face the challenge of ensuring the operations are properly funded. This almost always affects hiring strategies and compensation. Just like a for-profit business, your organization needs to find the talent who will advance your mission forward. However, discrimination and equal opportunity are still laws that you need to consider when advancing and selecting potential candidates.
Volunteers. For most nonprofits, volunteers will make up at least some amount of the manpower for the operation. These individuals must be managed just like paid staff, and clear written guidelines must be set to differentiate roles.
Workforce Management. Your employees must know where to go if they need anything. Keeping quarterly and annual reviews is extremely helpful (though not required) at touching base, and reminding staff where they can access benefits, payroll, or even how to report incidences like workplace safety violations or harassment.
Training & Development
Nonprofit employees, especially managers and directors, wear many different hats within the organization. While it is great to have generalists on the team, this can lead to many shortcomings. Training and development becomes crucial among staff members to enhance skills and better focus on the mission. While this may not necessarily be compliance-focused, some employees may hold certifications for certain skills, and if they lose these certifications, they could be in violation. For example, many individuals working at nonprofits are CPR certified. If they lose that certification, and perform CPR on an individual in need, there is a risk they could be sued. Of course, the risk is extremely small that may happen (given Good Samaritan laws in most states), but is this a lawsuit your organization wants, or could afford, to face?
Payroll & Taxes
Paid employees at nonprofits get paid the same way as employees at other institutions and businesses. This means they have the same taxes deducted from their pay at all levels – federal, state, and local, and must file an annual tax return. This should come as no surprise, as the government will always want their cut, and most payroll systems make it relatively easy to input rules for tax deductions.
What becomes most difficult, especially for nonprofits, is collecting accurate punches and timecards, monitoring calculation errors, and putting together proper reporting. Without a dedicated payroll specialist, these issues can compound quickly and lead to further compliance issues down the road.
Benefits Administration
Managing benefits packages and providing attractive options for potential candidates tends to be a top strategy for attracting talent at nonprofits. Invariably, staff will likely be paid less when compared to similar roles at for-profit businesses, so a robust benefits package can help sweeten the deal. However, there are a number of compliance checks surrounding benefits administration for nonprofits that will need your attention:
Bill Reconciliation. Administering an accurate benefits package is the #1 profit leakage area for nonprofits. Without proper bill reconciliation, things like matching records, catching billing errors, and ensuring accurate financial data are all at risk.
Health Insurance. The Affordable Care Act (ACA) sets out certain standards in your healthcare plan, based on your organization’s size and number of employees. This could change each year, which is why the act requires annual reporting.
Health Insurance Portability and Accountability Act (HIPAA). The federal government mandates that certain medical information for individuals remains private and protected in a number of situations – including employment. On top of this, if your nonprofit works as a function of or with healthcare in any way, your everyday staff must also follow HIPAA requirements in their day-to-day duties.
Emergency Leave. Life is going to happen. Workers are going to have emergencies that will take them away from the job. The intent of the Family Medical Leave Act (FMLA) is to ensure that a worker will still have a job when they resolve their issues. The act does not allow time away indefinitely or unconditionally, but it does grant extended time away in the event of a medical emergency.
Workplace Safety
Work at a nonprofit may take employees and volunteers into odd places doing odd jobs. It’s not like a manufacturing facility where certain tools and processes remain relatively routine and unchanged, so it is vital for nonprofits to recognize workplace safety. This means being prudent around new or unfamiliar work and listening to your staff members and volunteers when they voice concerns. Your responsibility is to create new safety standards and provide training where necessary. Like all organizations, the Occupational Health and Safety Administration (OSHA) rules will apply.
501(c)(3) Status
While you may not recognize the 501(c)(3) status as being the responsibility of the human resources department, HR still has a small role to play in maintaining and keeping that status. A requirement to obtain a 501(c)(3) dictates that excess earnings are not paid out to certain individuals i.e. as a form of excessive compensation, and the organization must focus its spending on its charitable mission. This can lead to a bit of a gray area, but the IRS will scrutinize every dollar spent on non-mission related expenses. Keep this general role in mind when awarding compensation – if it feels excessive, then it probably is.
Strategies for HR Compliance
Now that we have identified the most common HR compliance issues for nonprofits, we will focus on constructive methods to remain compliant and avoid any headaches for your organization. None of these following strategies are mandatory but serve as options to help you align your HR department goals with your organization’s mission.
Employee Handbook
The single greatest strategy of any HR department is to keep a paper trail. This doesn’t have to carry a negative connotation or be used as a form of “I told you so”, but rather a strong written strategy builds a vision for your employees and carries an authority they can trust. Strongly formed HR policies and an employee handbook provide clear-cut rules on what employees can and cannot do, separates the responsibilities of employees and volunteers, and provides guidance on discrimination and equal opportunity, safety, training, and a whole host of other areas. Additionally, handbooks can be updated periodically to include items that are new or previously overlooked.
Training
As mentioned earlier, by continuously monitoring training, you are helping your employees stay up to date on required certifications. Nevertheless, training contributes to your overall HR compliance strategy in a bulk of other ways. Safety training helps avoid workplace accidents, whereas workplace harassment training can help your staff better understand proper etiquette towards one another and how to treat each other in the workplace. Training also enriches skills which will ultimately lead to better results in accomplishing the organization’s overall mission.
Recordkeeping & Audits
If you are taking over HR responsibilities for your organization for the first time, you probably understand that each employee will have some sort of file on record. This will include personal identifiable information like address, compensation, and I-9s. However, you should consider keeping records on many things that will come up during the employment lifecycle. These include reviews, certifications and training, tax filings, signed paperwork of any kind, and adverse actions (yes, unfortunately these do happen, and it’s vital that it be well documented).
Taking this one step further, performing audits on records will help you identify shortcomings and missing documents. You can explore hiring an outside firm or partnering with an HR Outsourcer to have an extra set of eyes on your records.
Technology
There are many different resources for HR technology supporting many different functions within the HR department. From payroll to HR analytics, you can find numerous technology solutions that will help keep you organized and give you a better and more convenient way of staying compliant.
HR Outsourcing
The final strategy is partnering with an external HR Outsourcing firm. These companies are comprised of entire teams who manage not just HR compliance, but also payroll and benefit administration solutions as well. Because of both the volume and experience, it’s like having not just a second set of eyes, but a third and fourth on your records as well. Many HR outsourcing (HRO) companies will work with your current benefits broker and payroll software providers, making the transition easier but still giving you the independence you need to reach your goals.
Top HROs typically offer a specific service that manages your HR compliance. This means they will help implement strategies that greatly reduce your risk, including helping with employee handbooks, tracking training and certificates, reporting ACA requirements yearly, and even breaking down the state and local laws that govern your organization. Many times, the HRO service is not only affordable, but it can also provide cost savings for your department in the long run. Because an HRO is going to take over the bulk of the tedious tasks of your HR department, this will also free up more time for you to focus on your nonprofit’s mission.
At Corban OneSource, our HR Services provide this blanket of security for you and your organization. We track everything through the employment lifecycle, from the initial personal information profile and I-9 to the employee’s termination, separation, or retirement. We help with your record keeping, employee handbooks, and labor posters, while offering periodic audits to ensure your records are consistent and compliant.
Our Managed Payroll and Benefits Management services also include service-related compliance features built in. Examples include payroll taxes and ACA reporting, among other features. The best part is that you can subscribe to our services a la carte or partner with us across every service. Feel free to explore how our HR Outsourcing services can help your nonprofit organization and contact us if you would like a free consultation.
Connect with us to learn more about HR Outsourcing!
