Developing HR Policies for Nonprofit Organizations

Colby Haverkamp
March 11, 2022

Human resource management in 501(c)3 nonprofit organizations can be challenging. HR policies for nonprofit organizations have to navigate legal compliance while supporting a positive work environment for staff and volunteers. And because nonprofits are funded by external donations, it is important to develop processes that can withstand scrutiny from the public.

This is a lot for nonprofit HR departments to juggle when developing people policies. You must commit to defining principles to guide your policymaking process. Start by mitigating risk, but take your policies further to promote positive actions and transparent communication.

Here are some steps for how to develop effective nonprofit HR policies for your organization.

Minimize Risks From Misclassifications and Conflicts of Interest

Nonprofit organizations deal with many types of workers, from full-time employees to unpaid volunteers and interns. To remain in compliance with applicable laws, you need to be careful when classifying the people who work or volunteer for your nonprofit.

This includes the people who sit on your board, too. Any potential conflicts of interest between a board member and your nonprofit organization could put your 501(c)3 status at risk.

Here are some common people risks faced by nonprofits, as well as steps your HR team can take to overcome them.

Classify Workers Appropriately

Nonprofits may lean more toward contract labor to minimize employment costs. However, it is important not to misclassify employees as contract workers. A misclassification could result in the need to cover backpay and taxes, and can also be damaging to your reputation.

According to the IRS, when working with an independent contractor, a nonprofit only has the right to direct the outcomes or result of work, not the means or method of accomplishing that result. When it comes to employees, however, nonprofit organizations have more control over how outcomes are produced.

Many nonprofits develop partnerships with local schools to bring in interns. But you must ensure that any workers classified as interns meet the criteria laid out by the Department of Labor. If interns are unpaid, you need to be able to demonstrate that they are deriving educational value from the experience.

Unpaid internships can only last for a period within which the intern receives beneficial learning experiences. You should be able to specify learning outcomes and directly connect them to their classroom learning outcomes.

Employees Can’t Also Volunteer

Employees and volunteers have to be classified in a specific way to remain in compliance with United States employment laws.

Employees are not legally permitted to volunteer for the nonprofit where they work. Any work that employees do for your organization must be paid. Keep this in mind when scheduling events outside of regular hours. If you need employees to work a weekend fundraiser, for example, consider giving them time off during the week leading up to that event, or plan on paying them overtime (if they are hourly).

On the flip side, volunteers can’t be paid or offered reimbursement for their time or services, which could prompt the need to classify them as employees. Develop clear policies for when to engage with volunteers. Is the entire organization operated by volunteers, or do you only bring them in for special events? With a transparent volunteer policy in place, you can plan for the number of volunteers you will need at any given time.

Disclose Any Potential Conflicts of Interest

Nonprofits can quickly become embroiled in scandal and lose donor trust if anyone associated with the organization has a conflict of interest with its goals. Beyond the reputational damage, a conflict of interest can cost your organization its tax-exempt status.

Clearly define any potential conflicts, and collect signatures on the document to clear the organization’s name from any potential fallout. Board members who may have a conflict of interest should abstain from voting on matters that could affect their business or professional life.

Work with the board of directors to develop policies and suggested actions to take when a conflict of interest arises. In the interest of accountability, share these policies (and any incidents) with the public.

Develop Policies Promoting Positive Actions

Your people policies should mitigate risk, but they should also go a step further to drive positive actions. Many nonprofit organizations rely on good press and positive messaging to promote their brand and draw in donations in order to sustain their mission. Policies promoting positive, ethical actions will aid in this effort.

Develop Specific Executive Compensation Policies

How nonprofit organizations compensate executives can be a delicate matter, because large amounts of donor money are involved.

Lay out clearly written policies for how you will arrive at the amount of compensation an executive director or CEO will receive. This is usually based on data from comparable nonprofit organizations. Workshop your executive compensation policy with board members. It is best practice to receive written approval from the board regarding salary and benefits for executives.

Publish your executive compensation policies so donors can see that you are using available funds responsibly and not lining the pockets ofyour CEO.

Engage your board in the executive director or CEO’s performance appraisal process. Develop clear job descriptions so that everyone is aligned on what to expect from the executives that occupy these roles.  Lastly, ensure you draw a clear connection between performance and compensation or other financial incentives.

Codify Your Ethics in Your Policies

Many nonprofit organizations strive to hold themselves to a higher ethical standard than organizations in other sectors. To do this, write your ethics into your policies. Spell them out clearly — don’t leave staff, volunteers or board members in a position where they have to interpret how to live out your values.

If you publicly commit to a certain ethical standard, you need to mitigate any risk of those standards not being carried out in your organization. For example, if you commit to hiring candidates from historically excluded groups, then your policies must define what this means and the actions recruiters must take to fulfill this goal.

The clearer your policies are, the easier it is to measure your progress — and then further share that progress with the public.

Make People Policies Transparent and Accessible

Every nonprofit’s success hinges on three groups of people: Staff, volunteers, and donors. Transparent people policies help staff and volunteers understand what is expected of them. That same transparency also provides donors with a greater sense of how the organization is operating and its chances for success.

Commit to Transparent People Practices

Nonprofit organizations are under greater pressure to commit to transparency than organizations in other sectors. Because nonprofits are funded by public donations, it is best practice for nonprofit HR departments to be overly transparent with their people policies and practices, especially when it comes to hiring, paying and retaining staff.

Post your commitment to diversity, equity and inclusion(including policies around equal opportunity employment) to your website. By publishing this information, candidates and donors alike can review how you are closing gaps in opportunities and experiences for employees from historically excluded groups.

Consider sharing your compensation philosophy as a public document so donors can see how your pay and benefits practices align with the organization’s mission, vision and values. Sharing such information also shows donors the steps you are taking toward better pay equity.

Be sure to share the results of your policies, too. Publish statistics and personal stories from employees regarding diversity, equity and inclusion, for example, or share compensation data aggregated by group to demonstrate pay equity.

Revisit Your Employee Handbook

The trends shaping work in other sectors are likely to influence nonprofit organizations, too. Your employee handbook makes your people policies more accessible to staff, volunteers and donors. But for your handbook to be the reliable source it needs to be, you must keep it updated as polices evolve.

In many cases, practices and processes evolve organically in the course of work. But it is important to codify these changes in your written handbook so that everyone’s expectations are aligned.

Upon reviewing updates to the handbook, top-tier donors and board members can raise questions or concerns in leadership meetings. Make certain that the new employee handbook can be accessed easily by everyone throughout the organization.

Communicate Policy Changes Promptly

It is important to ensure everyone is informed of policy changes. As your policies for managing employees evolve, take care to communicate those changes clearly and effectively to staff and volunteers (while making the policy changes accessible to donors as well). Policies that require changes in behavior will need to be reinforced with a targeted communication plan.

New performance management policies may dictate more frequent contact between managers and staff members in the form of daily check-ins and feedback, for example. To adhere to that policy, affected parties need to make behavioral changes and modify their daily workflows.

These types of changes will take time to implement and, in the short term, may cost money in lost productivity and training resources. However, to remain accountable to your donors, be transparent about why you are implementing these changes and the impact they will ultimately have on achieving your mission.

Design Your Nonprofit HR Policies to Achieve Your Mission

Effective HR policies for nonprofit organizations have an enormous impact on your ability to achieve your mission. Good policies build habits that mitigate risk and promote a positive reputation for your brand. Effective policies also improve productivity and efficiency, helping your board, staff, and volunteers do more with the resources they have.

Colby Haverkamp
Enterprise Sales Executive
Senior Sales Professional with 5+ years experience in providing software solutions across public, private, and nonprofit sectors. Colby also has a background in public policy, global governance, and organizational management both at the international and domestic levels. He thoroughly enjoys opportunities to learn more about the missions of organizations and what makes them effective, so individuals are more than welcome to contact him for a virtual coffee if you'd like.

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