Is it time for an HR tune-up?

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Here are 3 common missteps in the human resource area:

  1. Misclassifying workers is one of the most common mistakes made by nonprofits that results in IRS penalties (plus interest and back taxes). To help nonprofits distinguish between employees and independent contractors the IRS recently updated its website. Learn more about classifying workers correctly and the tax forms that need to be filed for employees versus those for independent contractors/consultants. (We continue to hear that the IRS and Department of Labor are actively enforcing classification regulations, and recently the DOL issued new guidance on independent contractors that will continue to bring attention to this important area.)
  2. Compensation is perennially a hot issue. Most boards understand that it’s their role to review the compensation of the executive director/CEO annually and approve compensation that is at once “reasonable and not excessive” (those are the magic words contained in IRS regulations) but also attractive enough to retain talented staff. However, it’s a mistake not to document the process used by the board to review compensation – whether in the minutes of a board meeting, or in a separate memo. The IRS specifies that the documentation should describe the compensation approved and the comparable data relied on by the board; include the date of approval and names of board members present, as well as a description of how any conflicts of interest were managed. The IRS Form 990 asks nonprofits to report this process on Schedule O, so it’s important to have back-up documentation to support the responses on the nonprofit's annual return. Learn more about the common sense of compensation.
  3. Grantwriters are among the most commonly hired consultants by nonprofits, yet many nonprofits don’t use written agreements to define whether a grantwriter is considered an employee or an independent contractor; others don’t check to make sure the grantwriter/fundraising consultant is registered (if required by state law). Resources for working with fundraising consultants and grantwriters.

Take advantage of resources at hand to periodically tune-up your nonprofit’s HR practices. Just give your nonprofit’s insurance broker/agent a call, and ask what assistance the carrier or broker/agent can provide in connection with employment practices. (Another common mistake is under-utilizing the nonprofit’s insurance broker/agent and underwriter responsible for Directors & Officers insurance.) Often, to reduce the likelihood of a future claim, insurance professionals and their representatives are very willing to conduct a legal audit, flagging human resource issues that could give rise to liability. Many will even provide training to your nonprofit’s staff. For in-depth risk-awareness and internal audits, or insurance reviews, contact the Nonprofit Risk Management Center.

Read more about managing nonprofit employees. State associations of nonprofits are local resources that offer professional development programs for staff leaders as well as best practices for charitable nonprofits recognized in the state. Connect with your state association also for updates on trends and important developments, including state-specific employment issues.

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