Charitable nonprofits are essential to our community’s health, culture, and to democracy itself. These private corporations exist to benefit the public. They serve their missions, not owners and shareholders profits. Sadly, over the decades many nonprofits, especially those locked in by restrictive grants and contracts, are serving their mission at the expense of their employees. For too long the “charitable sector” has been providing subpar wages and anemic benefits that have seen many of the best and brightest seek work in other fields and has caused stagnation in or the failure of many important programs and organizations that communities rely upon.

Over time, greater and greater requirements are being placed on these organizations and nonprofit leaders are too often getting bogged down by the administrative side of running a business. Those increasing compliance and business responsibilities makes the role of running a nonprofit more and more complicated and even impossible. The result is a lack of work-life balance, staff turnover, reduced impact in the community, and even business failure. In the most recent installment of the Building Movements Project’s Race to Lead series of studies, they found that increasing numbers of BIPoC leaders are either leaving or not seeking roles as Executive Directors. Here is what they say:

When respondents were asked “why they don’t aspire to top leadership roles,” they responded that:

  • the work of an executive director does not interest them
  • there’s a lack of work-life balance that comes with leading a nonprofit
  • they’re happy in their current role
  • they do not have the skills to perform in the role of executive director
  • they plan to pursue opportunities outside the nonprofit sector

Their report goes on to connect these data to age, relationships with boards, mentorship, burnout, and more. Under “normal circumstances” this would be a concern. But this is particularly concerning as the nonprofit sector is experiencing a major transition of leadership.

Beyond leadership transitions, one of the top reasons nonprofits fail and are forced to dissolve is due to lack of capacity and poor organizational development. Common mistakes include poor planning and record keeping, poor accounting and money management, and lack of process structures, especially, technology infrastructure.  The burden to run these corporations is often one that the most talented want no part of and so seek greener fields elsewhere in the private sector, government, or philanthropy.

 

One Solution   

Instead of nonprofits addressing the compliance hurdles, pay and benefit gaps, and insurance individually, what if collectively, nonprofits could be combined to more efficiently and effectively run the business side of the equation? This would free up the minds (and time) of talented leaders to do the good work they care most about: serving their communities.

For the last year, NAO has been contributing resources towards exploring ways to help our membership, and more broadly the nonprofit sector, by providing a solution to help nonprofits serve their missions more efficiently and bring equity for employees working in the sector through the creation of a Professional Employment Organization (PEO).

PEOs are companies that provide human resources (HR) and benefits solutions for small to midsize businesses and nonprofits. A PEO acts as a “co-employer” of workers and directly provides human resource and administrative services for organizations and their workers. Co-employment is a contractual relationship, in which a nonprofit and a PEO share or subcontract certain employment responsibilities. These responsibilities are clearly laid-out upon in agreements and can be tailored to the needs of the organizations.

We envision a PEO providing services to nonprofits would:

  • Take on the challenges of payroll and time/recordkeeping.
  • Pool employee size with other nonprofit through co-employment, allowing the PEO to negotiatite more competitive rates on health and other benefits for the nonprofits and their workers.
  • Reduce the burden, or even eliminate the need for, HR staff members and fill that need for nonprofits that are not large enough to support an HR staff function.
  • Relieve leadership of some specific compliance and operational burdens, allowing more time and focus on serving the mission. This is especially important in the post-COVID era as more workers are employed virtually or even live out of state (and need to abide by the employment laws of those states).
  • Relieve the member nonprofit of professional liability relating to specific employment and finance issues.

The PEO takes on these challenges while the nonprofit still maintains the direct management of the employees and programs of the organization. According to the National Association of Professional Employer Organizations, small businesses that work with a PEO grow seven to nine percent faster, have employee turnover that is 10 to 14 percent lower, and are 50 percent less likely to go out of business. Through economies of scale businesses using a PEO can save up to 30% on benefits and services.

We were surprised to find out in our research that there are no nonprofit PEOs existing in America. Additionally, no for-profit PEO is currently exclusively focused on serving the nonprofit sector. Our vision is for a PEO that exclusively serves nonprofits and provides additional services tailored for nonprofits, like financial services, compliance, and fiscal sponsorship. This organization would take on the stuff nobody wants to take on.

Bringing this vision to life is no small feat. It will require persistence, patience, and strong partnerships. We are excited to be working on this initiative and the next phase of this project is to inform our members and gauge interest in this concept. NAO will be hosting a webinar on March 22 to provide more information on PEOs to the membership. We are excited to hear your ideas on what we are planning. You can register for the webinar here.