How Are You Treating Your Staff? Some Thoughts on the Ethics of Nonprofit Compensation

Nonprofits are specifically formed to provide charitable benefit - to do good in this world, to work for positive change. So it's troubling to discover in my consulting practice how poorly employees are often treated, usually under the guise of economic constraints:

• Minimum wage: In the midst of the recent push to increase the minimum wage, numerous instances have surfaced where nonprofits have insisted they cannot afford to do so and asked for special dispensations. There is a deep disconnect between a charitable mission of making this world a better place and nonprofit staff who are paid wages that leave them at near-poverty level.
• Exempt vs. non-exempt: Non-exempt employees are entitled to overtime pay; exempt employees are not. With few exceptions, to be exempt an employee must be paid on a salary basis (under federal law as little as $23,600; for California $37,440), and perform exempt job duties (administrative, executive professional.) Do your exempt employees meet all of these standards? Does your nonprofit have exempt workers at low salary levels? Here's what President Obama had to say about this: "It doesn't make sense that in some cases this rule actually makes it possible for salaried workers to be paid less than the minimum wage. If you're working hard, you're barely making ends meet, you should be paid overtime. Period."
• Independent contractor vs. employee: You are required to withhold and/or pay income tax, Social Security and Medicare tax, and unemployment tax for employees but not for independent contractors. Here are some basic guidelines for determining status: Employees provide services that are a key aspect of the organization, which has the right to direct and control the worker. Independent contractors usually have their own offices, work for other organizations as well, and are paid a flat fee for a specific project. Note that the IRS does not consider a contract defining status to be a sufficient determinant. It's not ethical to label a key employee as an independent contractor just so you don't have to pay the cost of basic benefits - and it's also not legal.
• Part-time vs. full-time: You all know what "part-time" means in the real nonprofit world - it means dedicated, overworked program and administrative staff (usually defined as exempt) who put in many more hours than they paid for just to be able to get their work done.
• Income inequality: It's not only for-profit organizations that boast big disparities between salaries for executives and staff. Many nonprofits, particularly in the education and health care fields, have executives making thousands of dollars more than basic program and administrative employees. And I've seen this even in community nonprofits with budgets of $500,000 or less. Labeling employees as exempt, part-time, and/or independent contractors contributes to this gap.

Here's my plea - take the time to evaluate your compensation policies. Pay all your employees reasonable salaries, define staff hours that reflect how much time is needed to get the work done, and provide basic benefits. Along with doing your good work, consider doing the right thing by your staff.