What does it mean to shut down an entire economy? It is a question that the United States—and indeed much of the world—is finding out in real time, as country after country implements measures that effectively limit economic activities to remote work and essential services. As we noted only a little while ago, the scale of the challenge is almost unimaginable.
As one of us wrote then:
Let’s say, for instance, that, because of the pandemic, you shut down three sectors of the economy—schools, retail, and hospitality. Well, it turns out that, as of February 2020, out of 159 million workers (or 155.7 million nonagricultural workers), there are about 16.1 million who work in retail, 14.6 million in education, and 14.3 million in hospitality. Combined, that is 45 million people, or nearly three in ten workers nationwide, just from those three large sectors.
According to the US Department of Labor, a staggering 3,283,000 people filed for unemployment last week. The previous record level over the past half-century was 695,000. And more unemployment is undoubtedly on its way. Writing in the New York Times, Quoctrung Bui and Justin Wolfers cite one forecast suggesting that 4.7 million could file unemployment this week. It should be noted that total unemployment as of the end of February 2020 totaled 5.79 million people. In other words, unemployment is on track to more than double in two weeks.
Moreover, as Heather Long and Alyssa Fowers indicate in the Washington Post, the official unemployment figures are actually an underestimate. As Long and Fowers write, “A lot of workers are not allowed to apply for unemployment benefits, meaning the true number of layoffs so far due to the coronavirus is likely far higher than 3.3 million. Self-employed workers, gig workers, undocumented workers, students, and people who worked fewer than six months last year are typically not eligible to apply for unemployment insurance in most states.” The stimulus bill does create a temporary exception for gig workers and the self-employed, but millions of undocumented immigrants will get nothing.
Although full of flaws, the stimulus bill does help some. Still, if we continue the way we are going, we are not on track for another recession—we are on track for a depression. For example, the investment firm Goldman Sachs has projected an annualized 24 percent decline (!) in gross domestic product (GDP) in the second quarter of 2020. This compares to the 6.3 percent drop in the final quarter of 2008.
Nonprofit Layoffs: The Mounting Challenge
Each day, we get word of the dramatic impact that the economic shutdown is having on nonprofit employment. All programming that requires close personal contact, from childcare to live theater, has felt it. In a pulse-taking survey that NPQ did among participants in last Tuesday’s “Responding to COVID-19” webinar, 284 respondents provided sobering data: 86 percent had already made changes to their programming; 52 percent were “worried” or “very worried” about their near-term financial health (which, of course, directly impacts staffing decisions); 20 percent had already limited hours, furloughed, or laid off staff; and 24 percent had not yet limited hours, furloughed, or laid off staff, but thought it was likely.
This jibes with recent data out of San Diego, reported upon by NPQ, that found “just over half of leaders reported they are ‘very likely’ to make payroll in the next four weeks and that percentage declines to 35 percent eight weeks from now.”
Hard Decisions for Nonprofit Leaders
The Coronavirus Aid, Relief, and Economic Security Act (CARES) stimulus bill provides employee cost-related relief to nonprofits. Specifically, the bill includes a $350 billion Small Business Administration (SBA) loan program for which 501c3 nonprofits with less than 500 employees are eligible.
An eligible nonprofit can receive up to 2.5 times its monthly payroll costs, but not more than $10 million. In applying for the loans from an SBA-approved lender, nonprofits will have to verify, among other things, that the funds will be used to retain workers and/or make mortgage, lease, or utility payments. Importantly, nonprofits can have up to eight weeks of expenses forgiven—converting the loan into a de-facto grant.
Even so, as the economic shutdown continues, many nonprofit executives will face wrenching decisions about their staffing. The choices made will depend on a range of factors, including their programming, revenue model, and financial reserves. They will also depend in no small part on organizational identity, culture, and values, which shape how staff and board frame and respond to crises.
If programming changes and revenue losses are forcing an organization to consider reductions in staff, there are three options: furlough, layoff, or reduction in force.
- A furlough is an alternative to layoffs. With a furlough, workers are mandated to work fewer hours or take unpaid leave but keep their jobs.
- A layoff is a temporary separation from payroll. An employee is laid off because there is not enough work to perform but can be recalled when work again becomes available.
- A reduction in force (RIF) occurs when a position is eliminated without the intention of replacing it and involves a permanent cut in headcount. A layoff may turn into a reduction in force if work does not again become available.
It is essential that nonprofit leaders make use of legal guidance. For instance, with respect to furloughs, the national audit and consulting firm Armanino advises that employees must receive reasonable notice of the furlough and that who gets furloughed must be carefully considered.
Strategic Considerations in Staff Reduction Decisions
In addition to matters of employment law and risk management, there are also a host of strategic considerations with respect to staff reduction. Again, a nonprofit’s programming mix and revenue model will often determine what is necessary and possible. That said, we invite you to consider the factors below.
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1. Sharpen Your Frame
At least two frames are paramount:
- First, does your nonprofit view paid staff as central stakeholders of the work that you do, or more like traditional employees hired to a do a job in service of others? In the former case, your nonprofit may decide to make extra effort to keep your people on payroll.
- The second operating assumption concerns the use of cash reserves. If you have a rainy-day fund, how will you use it now that it is pouring? If executive staff and board are not on the same page about this, this can be an area of intense internal struggle.
2. Think Beyond Funding Silos
Nonprofits often think of individual staff positions as being “covered by” specific grants, contracts, or earned revenue sources. So, if a revenue stream is compromised, an obvious choice might be to reduce staff budgeted against that stream. But human beings are not positions. Think twice before letting star performers go. Consider “covering” their expense through other revenue streams, through general operating funds, or even through the spend-down of reserves if they are vital to your organization.
3. Protect Staff Diversity
The old adage “last hired, first fired” could have a big effect on nonprofit diversity among white-led organizations where most staff of color have less seniority. Evaluate the impact on diversity of proposed staff reductions. If your plan leaves the organization considerably whiter, or less diverse along other key dimensions, ask if there are different choices that you can make.
4. Prioritize Technology
Given that the pandemic makes us more dependent on technology than ever, now is not the time to economize. In fact, if you have the financial resources, consider that this may be an excellent time to ramp up your technology and/or staffing thereof. Possibly, too, donors may find discrete, timely asks like the one for “improved technology” an appealing way to help during this crisis.
5. Accelerate Brewing Business Decisions
Last week, Steve Zimmerman advised that in this time of crisis, nonprofits should “consider the impact of each program and fund the highest impact programs first.” Building on that, consider that this may be a time to accelerate business decisions that have been brewing. Frankly, the combination of COVID-19 and the economic slowdown can, in some cases, provide permission to act boldly.
The timeline for containing the virus and jump-starting the economy will keep shifting in the weeks and months ahead. This means that you may have to revisit staffing decisions many times. If this is true for your organization, put together a “kitchen cabinet” of people who can think strategically, take advice from legal counsel, and work together productively to make the best possible decisions for your employees and for your organization.
Remembering Our Communities
Strategy is essential, but we would be remiss if we failed to notice that this mass unemployment, which not only nonprofits but our country as whole is experiencing, is highly unnecessary.
As the New York Times editorial board recently observed, many other countries have chosen to “prioritize employment by paying companies to keep workers on the job during the period of lockdown.” For example, the Danish government has promised to cover 75 to 90 percent of payroll for companies that keep workers on payroll. Holland and Great Britain have similar provisions. According to the British chancellor of the Exchequer (treasury secretary), Rishi Sunak, the government will pay about $2,900 a month to workers who have lost hours but are not laid off.
What distinguishes the United States from other countries “is not the nature of the bailouts. It’s the underlying structure,” Carol Graham, a senior fellow at the Brookings Institution who studies safety nets, tells the New York Times.
Even the small business program for covering eight weeks of wages for employers of 500 workers or less that we highlighted above is, as the Times editorial board observes, “less than a third of the amount that experts estimate would be required to provide comprehensive support for small businesses.”
The US approach, in short, is cheaper—in the short run. But it is vastly more expensive to restart the economy afterward if workers are severed from employers, and indeed, if many of the businesses and nonprofits they once worked for don’t survive the downturn. As University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman astutely point out, “The battle for the speediest recovery starts today.”
Put differently, provided that we flatten the curve, the European approach avoids throwing the economy into a long-term depression. The US approach, by contrast, almost guarantees this outcome because if businesses and nonprofits are not held together now, it could take years to rebuild our shattered civic economic infrastructure.
At NPQ, we have often noted that for nonprofits advocacy must be a core competency. That was never truer than today. While we must not ignore the current financial storm—and the forces that we face in this global pandemic are daunting—neither can we sit and wait for wave upon wave of layoffs, and then simply devise the most strategic responses—particularly when international data make it so abundantly clear that better, more humane alternatives that align with our values exist.
Tim Cynova, chief operating officer at Fractured Atlas, which provides fiscal sponsorship and other kinds of critical support to 75,000 arts organizations and artists across the country, puts our moment this way: “None of us signed up for this when we joined our organizations. That being said, it’s important that leaders center our most vulnerable colleagues and community members because those are the people who will disproportionately feel the negative impact of what’s happening in the world today.”
And Joann Lee Wegner, Vice President of People Operations at Common Future, reminds us of the need to focus on root cases and long-term solutions even as we meet the immediate crisis head on: “The coronavirus pandemic continues to exacerbate the effects of our inequitable systems. In addition to immediate relief, we must continue to build our capacity to work toward viable solutions that reimagine our broken systems now and into the future.”
Continue the conversation about staffing decisions on NPQ’s upcoming special coronavirus-focused webinar, Balancing Urgency & Equity.