BOARDS / GOVERNANCE   EMPLOYMENT LAW / VOLUNTEERS

Nonprofit Laws for Human Resources Managers to Be Aware Of

Human Resources

It may not be the responsibility of an HR manager in the nonprofit sector to be aware of all of the laws that apply to nonprofits.  However, there are some laws that have impact specifically on matters within the purview of the HR department that are worth being aware of.  Here, we will briefly discuss a few of the laws that might most frequently apply to the work of an HR manager at a Section 501(c)(3) public charity.

Prohibitions Against Private Inurement, Private Benefit, and Excess Benefit Transactions

Private Benefit Doctrine

To qualify as exempt under Internal Revenue Code (“IRC”) Section 501(c)(3), an organization must be operated for the benefit of the public and cannot serve a private interest—a requirement referred to as the private benefit doctrine.  The concern behind the doctrine is that, by providing more than an incidental private benefit to an individual or entity, the organization may not be operated primarily for an exempt purpose, as Section 501(c)(3) requires.

The private benefit doctrine does not entirely prohibit an organization from conferring benefits on individuals; rather, it requires that such benefits to individuals must be incidental, both quantitatively (i.e., the private benefit is not excessive in amount) and qualitatively (i.e., the private benefit is a mere byproduct of the public benefit), to furthering of the organization’s exempt purposes.  The doctrine is the broadest of the private benefit rules that apply to IRC Section 501(c)(3) organizations in that it covers any individual on whom the organization may confer a benefit and includes both monetary payments and other benefits.

Facts and circumstances that may raise a concern regarding the provision of a prohibited private benefit include entering into transactions or providing payments on unreasonable or unfavorable terms to the nonprofit; conferring benefits on private parties beyond what is necessary to further the nonprofit’s exempt purposes; establishing exclusive business dealings with a particular for-profit business; failing to consider alternative sources or comparable prices when purchasing goods or services; and serving too small of a class of beneficiaries.

Private Inurement

A 501(c)(3) exempt organization is similarly prohibited from allowing any part of its net earnings to inure to the benefit of any private shareholder or individual, a rule known as the private inurement doctrine.  The private inurement doctrine generally prohibits a nonprofit from using its assets to provide an unjust enrichment to a person having a personal and private interest in the organization’s activities.

The private inurement doctrine is narrower than the private benefit doctrine in that it applies only to insiders of the organization (i.e., a director, officer, or key employee or other person in a position to influence or control use of the organization’s assets), rather than any individual receiving an impermissible benefit.  However, the restriction on private inurement is absolute, meaning there is no such thing as incidental private inurement, and the penalty for an organization that engages in a private inurement transaction is much stiffer: the potential revocation of its exempt status.

The private inurement doctrine does not bar a nonprofit from entering into any and all transactions with insiders.  Rather, it requires the nonprofit to ensure that it is not providing such insiders with a disproportionate share of benefits based on what the organization is receiving in return.

From an HR perspective, concerns regarding the private benefit and private inurement doctrines are most likely to arise around issues involving compensation.  Some examples of situations in which private inurement violations may be found include:

  • Compensation arrangements with an insider that do not include an upper limit or cap;
  • Compensation arrangements based on factors extrinsic to performance at and benefit provided to the organization; and
  • Payment of more than fair market value for goods or services provided by an insider.

Nonprofits should also be careful when considering entering into transactions that, due to their complexity or uniqueness, may be more difficult to analyze for potential private inurement violations, such as:

  • Compensation arrangements that include considerations such as deferred compensation, bonuses, fringe benefits, or retirement or severance packages;
  • Arrangements that involve assigning rights to intellectual property developed by insiders and funded, in whole or in part, with organizational assets; or
  • Use of organizational assets to support, fund, or otherwise invest in an insider’s business.

Nonprofits may be able to help mitigate against the risk of providing a prohibited private benefit or entering into a transaction involving private inurement by having and using a well-drafted conflict of interest policy and obtaining the assistance of experienced counsel. (more…)

ADVOCACY & LOBBYING   EMPLOYMENT LAW / VOLUNTEERS   IRS & FEDERAL TAX ISSUES   SOCIAL ENTERPRISE   SOCIAL MEDIA   STARTING A NONPROFIT

Popular Posts from 2013

EMPLOYMENT LAW / VOLUNTEERS   EVENTS   RISK MANAGEMENT

Alliance for Community Media National Conference (Part One)

 


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I have the great pleasure of speaking with Syvia Strobel (ACM) and Deborah Vinsel (Thurston Community Television) at the 2013 Alliance for Community Media National Conference on Wednesday, May 29. Our session description follows:: 

Nuts and Bolts of Nonprofits and Their People

Nonprofit organizations provide critical services, but often do so with limited resources and little time to assess legal risks and obligations. Nonprofit executive must balance their day with managing a board of directors and overseeing staff and volunteers. This workshop will provide an overview of key issues in people management, board governance, UBIT and other timely nonprofit issues. Come hear from seasoned professionals on best practices and areas of risk for our organization.

This post includes resources I'll refer to during our session.

Key Issues in People Management

Independent Contractor vs. Employee: Don't Want to Get This Wrong

Organizations must recognize how to tell whether a worker is an independent contractor or employee. And it's not just a matter of how an organization chooses to classify the worker. There are federal and state laws that inform how a worker must be classified. See Independent Contractor (Self-Employed) or Employee? and IRS Publication 1779: Independent Contractor or Employee; and in California, Independent Contractor or Employee).

Too often I hear that an uninformed employer is hiring independent contractors instead of employees because it can't afford employees. Yet, the hired workers are working full-time, indefinitely, and exclusively for the employer; they are managed on what must be done and how to do it; and they work without negotiated written contracts. In other words, they are legally employees, and the employer may be fined for failing to withhold employment taxes, breaching wage and hour laws (e.g., minimum wage, overtime, breaks), and failing to implement and/or enforce anti-discrimination and retaliation laws that may apply only to employees. In addition, the employer may find themselves unprotected by what might be very expensive workers' compensation claims. See New Crackdown on Using Independent Contractors (and the Ten Consequences of Reclassifying Independent Contractors as Employees hyperlink within the article) by Robert W. Wood (Forbes).

Organizations that may have gotten the classification wrong in the past but want to correctly classify certain independent contractors as employees going forward may be eligible to do so through the IRS Voluntary Classification Settlement Program. Forbes provides a summary of the program in this article about the amnesty program available through June 30, 2013.

 

Exempt vs. Non-exempt Employee: Why is This Important?

Exempt employees are those exempt from overtime pay. Non-exempt employees must be paid overtime, subject to applicable federal and state laws. Again, it's not up to the employer to classify a particular employee as exempt or non-exempt simply based on what the employer wants. There are federal and state laws that inform how an employee must be classified. See Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA).

See also Classifying Employees Correctly (National Council of Nonprofits)

 

Volunteer, Intern or Employee?

At first blush, it might seem simple to distinguish between a volunteer and an employee. But such distinction gets much more difficult to make when an organization pays a "stipend" to the volunteer. If the stipend is compensation for services, the paid individual may not be a volunteer and, if the payment is for regularly rendered services, may be an employee. Improper classification can raise many of the same issues described above for improperly classifying an employee as an independent contractor.

It is possible that the payment of a stipend to a volunteer may not convert the volunteer to an employee if the stipend is considered a reimbursement of certain types of expenses, a de minimis fringe benefit, or a nominal fee for service. Note that a Wage and Hour Opinion Letter (FLSA2006-28) expressed that the Department of Labor will presume that a fee paid to a volunteer is nominal as long as the fee does not exceed twenty percent of what an organization would otherwise pay to hire a full-time employee for the same services. However, organizations paying stipends to volunteers should confer with an employment/tax attorney for counsel regarding these issues.

A person receiving payment from a nonprofit may also fall under the classification of intern. Interns are also not employees and not subject to minimum wage and overtime laws under the FLSA if they meet the 6-factor test. See Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act and Legalities of Nonprofit Internships (Blue Avocado), which discusses the practical difficulties of meeting factor 4 ("The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded"). A nonprofit may seek to recognize a person receiving a stipend as only an intern as opposed to a volunteer (or volunteer intern) when such person is working in a commercial (unrelated business) activity run by the nonprofit.

 

Additional Resources:

  • Nonprofit Interns (National Council of Nonprofits)
  • Volunteers and Interns (Law For Change)
  • Employee or Volunteer: What’s the Difference? (Nonprofit Risk Management Center) – includes a discussion of the issues created by having an employee also volunteer for his or her employer. Note that if the employee ever says he or she was coerced to volunteer (a possibly very significant risk if the employee is ever terminated or disgruntled), the organization may face serious legal troubles.

Also see Part Two and Part Three of this series of posts.

EMPLOYMENT LAW / VOLUNTEERS   SOCIAL MEDIA

Can Nonprofits Terminate Employees for Their Social Media Posts?

Emily's article, "I Thought We Were Friends!" Can Nonprofits Terminate Employees for Their Social Media Posts? was published in the current issue of The Nonprofit Quarterly.  Here are some excerpts:

  • Terminations due to actions on social media sites, commonly referred to as “Facebook firings,” have been gaining widespread attention over the past year, including from the National Labor Relations Board (NLRB), the federal agency charged with enforcing the National Labor Relations Act (NLRA).
  • Section 7 of the NLRA is the provision generally implicated by Facebook firing cases, and states, in relevant part:  Employees shall have the right to self-organization … and to engage in other concerted activities for the purpose of ,,, mutual aid or protection ….
  • Nonprofit leaders are typically unaware that the NLRA applies to their organization.
  • Starting next year, the NLRB will require employers to post a copy of a notice advising employees of their NLRA rights and provide information pertaining to the enforcement of those rights. This new requirement may also be a sign that the NLRB will be increasingly unsympathetic to employer policies that fail to reference NLRA rights or provide a Section 7 disclaimer.

 

Terminate

EMPLOYMENT LAW / VOLUNTEERS

Hiring a Foreign National for your Non-Profit: A World of Possibilities

At first glance, the U.S. immigration system may seem too incomprehensible to an overworked non-profit executive or human resources professional to justify even considering the hiring of a foreign national for a position within his or her organization.  As with any other area of law, though, with the right legal advice, hiring a foreign national does not have to be daunting.  In fact, many non-profits can benefit from more favorable rules under the immigration regulations than those that apply to for-profit entities.

Here is a brief summary of some of the visa categories commonly utilized by non-profits to hire foreign nationals.

H-1B Visa for Professionals:  The H-1B visa can be used to hire professionals ranging from Program Managers to Web Programmers and any position in between that requires the attainment of at least a bachelor’s degree or higher.  The visa is valid for an initial three-year period, and is renewable for an additional three-years, for a total of six years.  The H-1B is frequently used to hire recent graduates of U.S. colleges and universities who studied in the U.S. pursuant to a student visa.

Many non-profits benefit greatly in the H-1B context, because certain non-profit organizations are not subject to the annual numerical cap that renders H-1B visas hard-to-obtain in the private sector.  Similarly, those same non-profits enjoy government filing fee reductions (i.e., a waiver of $750 to $1500 in fees, depending on the size of the organization.)  The organizations that can benefit from these perks include institutions of higher education, non-profit entities related to or affiliated with institutions of higher education, non-profit research organizations, and governmental research organizations.

My non-profit clients have used the H-1B visa to hire, among other occupations, teachers, composers, program directors, exhibits preparators, database programmers, and scientific researchers.  So long as a bachelor’s degree is required for the position, the possibilities are endless.

TN Visa for Professionals from Mexico and Canada:  The TN visa is a visa category limited to professionals from Mexico and Canada.  It is available for an initial period of three-years and is renewable indefinitely.

Although there are no special rules or exemptions for non-profits under the TN visa category, it is a very useful category for non-profits, because there are no numerical caps, meaning that the visa is available year-round.  It also carries much lower government filing fees than the H-1B visa, which can make a big difference to a non-profit entity with a limited budget.

TN visas are limited to certain enumerated professionals set forth in the NAFTA.  These professionals include, among others, social workers, medical and allied professionals, vocational counselors, university-level professors, management consultants, scientists, research assistants, and scientific technicians and technologists.

R-1 Visa for Religious Workers:  The R-1 visa program allows religious organizations to hire foreign-national ministers, as well as individuals working in a professional capacity in a religious vocation, such as cantors, liturgical workers, religious broadcasters, and members of the religious vocation, such as nuns and monks.  The initial visa validity period is three years (with a total period of stay of five years.)

Other visa categories of interest:  The O Visa can be used to hire individuals with “extraordinary ability” in the sciences, arts, or educational arenas.  The P-3 Visa can be used to bring artists and entertainers to the U.S. to perform, teach, or coach a culturally-unique program.  The L Visa can be utilized by trans-national non-profits to transfer executives and managers to the U.S. from abroad.  The I Visa is used by representatives of the foreign press.

– Ginger Jacobs

This week’s post is written by Ginger Jacobs, a San Diego-based immigration attorney.  You can reach Ginger at (619) 230-0012 or ginger@jsoslaw.com.

EMPLOYMENT LAW / VOLUNTEERS

Pro Bono Partnership’s Employment Law Guide for Nonprofits

While searching for employment law resources with a nonprofit perspective, I discovered the site of the Pro Bono Partnership, a leading provider of free business legal services, educational workshops and other legal resources to nonprofits in Connecticut, New York, and New Jersey.  The site includes what appears to be a fairly comprehensive "Employment Law Guide for Non-Profit Organizations" which acknowledges a number of highly reputable big law firms for their contributions.  I must warn you that much of employment law is state-specific, but even if you’re not in the states addressed by the Guide, you may find some valuable information within on issues such as interviews, privacy issues, the employee-independent contractor distinction, federal wage and hour laws, harassment, discrimination, and ending the employment relationship.

You can access the Employment Law Guide for Non-Profit Organizations here.

EMPLOYMENT LAW / VOLUNTEERS

Volunteers and Liability

Does your organization have a volunteer selection policy in place?  PND News, in the January 4, 2006 article, Nonprofits Need to Do More to Vet Volunteers, citing an earlier article in the San Diego Union-Tribune, discusses some typical problems faced by nonprofits, including very large and established organizations, that fail to run background checks on their volunteers.  The article addresses the potential problem of theft, but other potential problems associated with the indiscriminate selection of a volunteer include some harm caused by the volunteer (resulting in a claim of negligent "hiring"), drop in team chemistry and morale, reduction in service quality, and claims of discrimination resulting from the termination of a problem volunteer.

There are many other considerations that should be recognized and addressed with respect to volunteer management.  For organizations without much structure to their volunteer management policies, the following resources may be helpful:

Nonprofit Management Risk Center:  No Surprises Volunteer Risk Management Tutorial

Energize, Inc.:  Step 2:  Screening

ServiceLeader.org:  For Volunteer Managers

MAP for Nonprofits:  Developing and Managing Volunteer Programs