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4 Key Challenges for Nonprofit Human Resources

Posted In: Nonprofit Management News

Equal group of three male and three female professionals discussing a project with excitement.

Nonprofit human resources departments can have a tough time competing with for-profit companies. Generally, funding for nonprofit organizations is more limited than in for-profit organizations. From compensation and benefits to other limited resources, nonprofit human resources needs to overcome challenges to meet organizational goals.

1. Mission Attachment

Mission attachment refers to how strongly employees value an organization’s mission. How does a nonprofit organization’s mission relate to working conditions such as pay and career advancement? Due to the limited resources that many nonprofit human resources departments have, this question has become important in the attraction and retention of nonprofit employees.

Numerous studies have confirmed dissatisfaction with pay and opportunities for career advancement as probable reasons why nonprofits lose qualified workers,” says Seok-Eun Kim, professor at Hanyang University in Seoul, South Korea. An article in Nonprofit Management & Leadership adds that “it is stupid, unfair, and unrealistic to expect nonprofit salaries to be noncompetitive, not only because it is necessary to attract top-flight people but also because there is a justice issue in the treatment of employees.”

Although pay and career advancement are important, they may simply disguise the real causes of turnover. Nonprofit employees do not often leave because of low salaries or lack of opportunities for career advancement. “Rather, employees leave when they are overwhelmed by paperwork, get burned out by accountability requirements, and feel that their work is not adequately valued by supervisors,” Kim says. Creating a positive work culture can be a factor in developing mission attachment for nonprofit employees.

In a study of human services employees, Kim found “a positive attitude toward the agency’s mission, but dissatisfaction with working conditions … override the role of mission attachment in employee retention. However, employees’ qualitative responses and strong correlations between nonprofit working conditions and mission attachment suggest that mission can still play a significant role in retaining nonprofit employees by reducing dissatisfaction with pay and career advancement.”

Nonprofit human resources departments should enhance mission enhancement in employees without neglecting pay, career advancement and work culture.

2. Managing Volunteer Labor

Another topic related to limited resources is the prevalence of volunteer labor and unpaid internships. Nonprofit human resources departments need to be careful with how individuals are classified.

“Volunteers are workers who voluntarily choose to provide services to a nonprofit without any expectation of compensation,” according to the National Council of Nonprofits. Interns can be classified as volunteers or employees. That choice is up to employers, although nonprofit human resources departments need to be aware of state laws governing wages and hours of work, which can dictate whether interns fall under the definition of “volunteer” or “employee” in the state.

Paying volunteers a stipend can lead to negative consequences, the National Council of Nonprofits says. This may lead to the Department of Labor classifying them as employees, resulting in paying at least minimum wage and back taxes. Nonprofit human resources departments should carefully review guidelines for stipends, reimbursements for expenses incurred while volunteering and volunteer recognition gifts.

3. Distinguishing Between Employees and Independent Contractors

Classifying someone who is an employee as an independent contractor is a common and potentially costly mistake. Misclassifying a worker can result in significant penalties and back taxes.

State and federal laws can help nonprofit human resources departments determine whether an individual should be classified as an employee or an independent contractor. “The correct classification is determined by two layers of definitions: federal and state, so both state and federal Department of Labor (DOL) regulations may apply,” according to the National Council of Nonprofits. “Twenty-eight states follow the federal Fair Labor Standards Act (FLSA) definitions but in others, different definitions and wage/hour rules may apply, just as different states have different minimum wage rules.”

The IRS has a publication that contrasts employees with independent contractors.

4. Benefits and Compensation Restrictions

Human resources managers at 501(c)(3) organizations should be aware of laws that apply to nonprofits. Private benefit doctrine and private inurement are two concepts that can impact these types of organizations.

  • Private benefit doctrine is defined as nonincidental benefits “conferred on disinterested persons that serve private interests,” based on the case of American Campaign Academy v. Commissioner, according to attorney Jeramie Fortenberry. He explains that “even if a nonprofit has activities that further exempt purposes, it will not qualify for tax exemption if it ultimately serves private interests.”
  • Private inurement is a separate concept. “Private benefit is broad enough to encompass anything that would constitute inurement, but extends beyond the organization’s insiders to restrict the provision of inordinate benefits to any private persons, including those who are not related in any way to the organization,” Fortenberry says. “In other words, the private benefit prohibition is broader than and subsumes the inurement prohibition.”

Pursuing Your Career in Nonprofit Management

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