The New Overtime Rules Spotlight a Systemic Problem for Nonprofits

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overtime-spotlight

August 24, 2016; Atlantic

Once the Department of Labor issued its new rules raising the threshold for overtime eligibility for exempt staff, many nonprofits faced the challenge of determining their organizational response. At the simplest level, this was just another budget challenge to be answered. But below the surface, the Department of Labor’s act forced the nonprofit community to confront the ethics and wisdom of organizational models and cultures that expect staff to work long hours and make personal sacrifices with little economic reward in return.

Moving the threshold from $23,600 to $47,476 will make at least 4.2 million workers eligible for overtime when the change becomes effective on December 1st. Employers have many ways they can respond, each with a cost. Some will make no changes to their workforce or work schedules, project the number of overtime hours they will face, and prepare to write larger payroll checks. Others will decide it is easier to raise the salaries of some of their exempt employees above the new threshold and make no changes in assignments or schedules. Still others will impose tighter controls on their staff schedules to eliminate the potential for overtime and accept they may have to get less work accomplished each week. Lastly, some may choose to add part-time employees so that output remains the same rather than pay their current staff for overtime. The cost of each path is a combination of new personnel expenses, changes in how the work is actually done, and alterations to organizational culture.

At this basic, balance-the-budget level, nonprofit organizations have seen the new rules as uniquely challenging. U.S. Public Interest Research Group’s executive director, Andre Delattre, spoke for many nonprofit leaders when he said:

Organizations like ours rely on small donations from individuals to pay the bills. We can’t expect those individuals to double the amount they donate. Rather, to cover higher staffing costs forced upon us under the rule, we will be forced to hire fewer staff and limit the hours those staff can work—all while the well-funded special interests that we’re up against will simply spend more.

Unlike for-profit organizations, nonprofits often don’t have the option of raising prices to offset new costs. Government-funded services are governed by tightly drawn contracts that cannot typically be reopened to adjust for new costs from new requirements. Private funders, too, may be unwilling to increase their gifts to accommodate the new cost of accomplishing the nonprofit’s mission. Painfully, for many purpose-driven organizations, the only option may be to reduce service and cut programming.

The new rules have also exposed a more fundamental problem with nonprofit labor practices. Jonathan Timm recently observed in the Atlantic that the responses from many of those speaking for the nonprofit sector reveal “a gap between the values that many nonprofits hold and the way they treat their own staffs.”

There’s no doubt that nonprofits today face serious financial difficulties and constraints, but do they have no choice but to demand long, unpaid hours of their employees? Putting questions of fairness aside, is their treatment of their workers limiting their effectiveness?

Andy Schmidt, in a recent NPQ article, put the question even more directly: “Is Exploiting Workers Key to Your Nonprofit Enterprise Model?

An organization’s mission is a powerful motivator for the people, paid and volunteer alike, who embrace the work. It is why many undertake demanding challenges such as serving people at great personal risk. But should we build organizations by taking advantage of this desire to do good? Blogger Mary Beth Hastings observes, “Too often…the passion for social change turned into a weapon against the very people who do much—if not most—of the hard work, and put in most of the hours. Because they are highly motivated by passion, the reasoning goes, they don’t need to be motivated by decent salaries or sustainable work hours or overtime pay.”

Long hours for low pay may seem the best way for an organization to stretch a tight budget to provide needed service. Should we be worried when some surveys show nonprofit turnover hits almost one in five staff? Should we be worried when we see that more than 40 percent of nonprofit staff in New England earn less than $30,000 annually, well below the median income for all households? The costs of a constantly changing staff may not show on a balance sheet, but they do have an impact on organizational effectiveness and the health of the nonprofit sector.

If the new overtime rules spark a more intense look at how to balance our commitment to those we serve with our commitment to those who serve, these new rules will benefit more than the 4 million individuals who may see larger checks this December. It is a dialogue that nonprofit leaders, along with public and private funders, need to have.—Martin Levine

  • Michael Chamberlain

    And yet, we continue to restrict the ability of organizations to use donations and grant funds to support “overhead” which often funds staff salaries, professional development and training, as well as other activities to assist in reducing staff turnover.

  • Longagoleftnpos

    Perhaps it’s time that many nonprofit organizations examine their mission, their effectiveness, and whether or not they duplicate services. There are over 1,600 nonprofit organizations in the Greater Cleveland area. Many have existed for 40 years and have budgets under $1million. They don’t have sound business models and they don’t want to change. This creates a problem attracting and keeping qualified staff. If many o these organizations merged, some problems could be averted.