Nonprofit Human Resources Best Practices

From having limited resources and budgets to navigating a unique compliance environment, human resources for nonprofits has always been complex. But as we recover from the COVID-19 pandemic, nonprofit organizations are still dealing with these challenges, even as they face brand new ones.

To help you tackle all of them head on this year, we’ve compiled a list of the top nonprofit human resources best practices:

Defining Nonprofit Staff Needs

As we entered 2022, more and more nonprofits started to lift their hiring freezes. But as the Great Resignation lingers, these organizations will have to reevaluate their strategies to attract top talent.

Before you even think about your hiring process, you should start at the very beginning and define your nonprofit staff needs. What core skills are you looking for? Is it crucial for your nonprofit employees to be team players, problem solvers, or organized planners? How much experience do they need to have? 

On top of these requirements, nonprofit human resources teams should also be looking for candidates who will align with their culture and values. Hiring the “right” nonprofit staff means searching for candidates who will be a “culture add” to your organization, not a “culture fit”. These kinds of employees not only share your nonprofit’s mission and goals, but add to your company’s diversity by offering different backgrounds, perspectives, and experiences.

Nonprofit Recruitment and Hiring

After determining what you’re looking for in your nonprofit employees, you should reevaluate your recruitment strategies. With so many entities out there that have larger budgets, hiring employees for a nonprofit organization can be challenging. Although the decision to work at a nonprofit isn’t typically made with a big payday in mind, compensation still matters to candidates. 

This means that nonprofit human resources teams will have to make sure they are staying as competitive as possible when it comes to merit and benefits. By researching industry averages and using benchmarking, you can see how your salary offerings compare to other organizations and reevaluate accordingly. As for nonprofit HR benefits, the key is to figure out how to build a plan that attracts talent, while also saving money. From flexible work and wellness programs to volunteering time off and Health Savings Accounts, there are several cost-efficient options you can offer that will help you hire top nonprofit employees, yet not break the bank.

Nonprofit Performance Management

Once you hire your nonprofit employees, you need to have strategies in place to retain them. Whether your organization conducts reviews quarterly or annually, evaluating your employees’ performance and giving them feedback has a significant impact on how long they stay at your company. From measuring quality of work to productivity, performance reviews recognize your nonprofit staff for their accomplishments and identify their areas of improvement. 

Since 94 percent of employees say they would stay at an organization longer if it invested in their career growth, offering frequent professional development opportunities also empowers nonprofit employees and ultimately, retains them.

Nonprofit Payroll and Taxes

Making sense of payroll taxes is difficult for any industry, but it can be particularly challenging for nonprofit human resources teams. While many nonprofits are entitled to tax breaks, the IRS only extends these benefits to certain companies—making it a challenge to figure out what’s actually owed at the end of the day.

To help you calculate this, here’s what you need to know about nonprofit payroll taxes:

Nonprofits whose work can be described as any of the below can apply for something called section 501(c)(3) status, a tax designation that signals that their mission is tied to the public good:

• Charitable
• Religious
• Educational
• Scientific
• Literary
• Testing for public safety 
• Fostering national or international amateur sports competition
• Preventing cruelty to children or animals

While most nonprofit payroll taxes remain in effect for these companies, there’s one key difference. 501(c3) organizations do not have to pay federal unemployment taxes. Commonly referred to as “FUTA” (an abbreviation for the Federal Unemployment Tax Act), these employer-paid taxes are calculated at 6 percent of the first $7,000 in wages each nonprofit employee receives. Depending on your location, you may also be eligible for a similar exemption from state unemployment taxes.

While charitable nonprofits get a free pass for FUTA, their payroll administrators will still need to withhold several other taxes—including Social Security and Medicare (FICA), Federal Income Tax Withholding (FITW), and others. HR teams should work closely with a third-party provider well versed in the subtleties of nonprofit payroll rules.

Nonprofit Compliance

From managing volunteers to tracking overtime properly, there are also several complexities when it comes to nonprofit HR compliance. To help you stay compliant this year as you hire more nonprofit staff, here are some refreshers:

According to the Fair Labor Standards Act (FLSA), a volunteer is “an individual who performs hours of service for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered.” While volunteers can be reimbursed for things like travel, giving them “a little something” for their time can pose compliance issues. Compensating a volunteer anything more than $500 per year puts them in paid nonprofit employee or independent contractor territory, opening a pandora’s box of regulations including the Affordable Care Act, the Family Medical Leave Act, minimum wage rules, and others.

As for determining overtime, the eligibility of a nonprofit employee depends on two factors: job responsibilities and wages. While the so-called duties test warrants its own discussion, the latter criteria can be described more succinctly: if a nonprofit employee earns less than $35,568 per year, he or she must earn overtime regardless of job responsibilities. That number, commonly referred to as the overtime threshold, used to be $23,660 until the Department of Labor (DOL) raised it in 2019.

Find Out More About HR for Nonprofits

In addition to following these best practices, there’s one more thing that is key to setting you up for success this year: a streamlined HR platform. Find out why Namely is the go-to HR software for nonprofits.