Labor Laws: Nonprofit Organizations' Rights And Responsibilities

Non-profit organisations are generally not exempt from labour laws. Federal labour laws that apply to for-profit companies also apply to non-profit charities. Non-profit organisations are subject to the Fair Labor Standards Act (FLSA), which sets minimum wage, overtime, record-keeping, and child labour standards. However, there are certain criteria that must be met for the FLSA to apply to a non-profit organisation. For example, the non-profit must engage in ordinary commercial activities that generate at least $500,000 in annual gross sales or revenue. Additionally, state labour laws may also apply to non-profit organisations, and these laws often provide more generous protections for employees than federal laws. Therefore, it is important for non-profits to be aware of both federal and state labour laws to ensure compliance.

Non-profits and minimum wage

Non-profit organisations are generally subject to the Fair Labor Standards Act (FLSA) in the same way as for-profit companies. The FLSA is the federal law which sets out minimum wage, overtime, recordkeeping, and child labour standards.

The FLSA applies to employees of businesses with an annual gross volume of sales or business done of at least $500,000. Non-profit charitable organisations are not covered by the FLSA unless they engage in commercial activities that result in sales or business being done, such as operating a gift shop or providing veterinary services for a fee. In these cases, if the revenue generated from commercial activities is at least $500,000 in a year, the employees engaged in these commercial activities are protected by the FLSA.

Employees of non-profit organisations that are not covered by the FLSA on an enterprise basis may still be entitled to its protections if they are individually engaged in interstate commerce or in the production of goods for interstate commerce. Activities that may result in individual employee coverage include making or receiving interstate phone calls, shipping materials to another state, and transporting people or property to another state.

The FLSA also allows individuals to volunteer in many circumstances for charitable and public purposes. Volunteers are generally not considered employees for FLSA purposes if they are volunteering freely for public service, religious or humanitarian objectives, and without the contemplation or receipt of compensation. Volunteers typically serve on a part-time basis and do not displace regular employees or perform work that would otherwise be done by regular employees. Paid employees of a non-profit organisation cannot volunteer to provide the same type of services they are employed to provide.

In addition to federal laws, employers in the U.S. are also subject to state laws and regulations that apply in the workplace. These federal and state regulations often overlap and interconnect, but where they vary, compliance with the more stringent standards of each is generally required.

Volunteers vs. employees

Volunteers and employees have distinct roles in nonprofit organizations, each with their own set of rights, protections, and considerations.

Volunteers are individuals who freely offer their time and services without any expectation of compensation. They are typically driven by a passion for the nonprofit's cause and a desire to make a positive impact. Volunteers may serve on the board of directors, assist with fundraising campaigns, or work directly with customers or clients. Nonprofits often rely on volunteers to deliver their programs and services effectively. According to the Fair Labor Standards Act (FLSA), volunteers are generally not considered employees if they offer their services voluntarily for public service, religious, or humanitarian objectives without expecting or receiving compensation.

On the other hand, employees in nonprofit organizations are covered by federal labor laws, just like in for-profit companies. These laws safeguard employees from unfair labor practices and ensure that nonprofits do not exploit their workforce. The FLSA, for example, mandates that nonprofits pay their employees at least the federal minimum wage. Additionally, the FLSA sets standards for overtime, record-keeping, and child labor. It is crucial for nonprofits to differentiate between their unpaid volunteers and interns and their paid employees.

To ensure compliance with labor laws and maintain a clear distinction between volunteers and employees, nonprofits should adhere to specific guidelines. Firstly, it is essential to verify that employees are genuinely volunteering without any direct or indirect pressure from the organization. Secondly, the volunteer work should not resemble an employee's regular duties to prevent any overlap between volunteer and paid work. Thirdly, volunteer work should not displace regular employee positions or be a substitute for full-time employment. Fourthly, volunteer work should be conducted outside of an employee's regular work hours to maintain a clear separation between work and volunteer time. Fifth, compensation for volunteer work should be avoided, as it may jeopardize the volunteer's legal status and protections. Finally, the nature of the volunteer work should align with typical volunteer activities and not involve commercial activities run by the nonprofit.

In summary, volunteers and employees in nonprofit organizations have distinct roles, rights, and considerations. Volunteers freely offer their time and services without compensation, driven by a passion for the cause, while employees are covered by federal labor laws that safeguard their rights and ensure fair labor practices. By following specific guidelines, nonprofits can ensure compliance with labor laws and maintain a clear distinction between volunteers and employees, benefiting from the contributions of both groups to achieve their mission effectively.

Non-profits and tax exemption

Non-profit organisations are generally exempt from paying income taxes on their revenues. However, this exemption does not relieve them of the responsibility to pay payroll taxes or Social Security payments for their employees. Non-profit agencies are also required to pay their employees at least the federal minimum wage as per the Fair Labor Standards Act (FLSA) of 1938.

To qualify for tax exemption under Section 501(c)(3) of the Internal Revenue Code, an organisation must be formed and run only for the purposes outlined in the code. These exempt purposes include religious, charitable, scientific, literary, and educational activities. Additionally, none of the organisation's earnings may benefit any private individual or shareholder. The organisation must also refrain from engaging in political campaigning or attempting to influence legislation as a substantial part of its activities.

It is important to note that tax exemption for non-profits is not a blanket exemption from all taxes. For instance, nonprofit organisations are subject to Unemployment Insurance (UI), Employment Training Tax, State Disability Insurance, and state Personal Income Tax withholding. Furthermore, sales and purchases made by non-profits are not always exempt from sales and use taxes. While certain food products, sales to the US government, and sales of prescription medicines are exempt, other purchases may not be.

In terms of labour laws, non-profits are generally subject to the same federal labour laws as for-profit companies. These laws protect workers from unfair labour practices and ensure that non-profits do not exploit their workforce. The Occupational Safety and Health Administration (OSHA) develops and enforces worker safety procedures in both for-profit and non-profit organisations.

Non-profit employee contracts

Non-profit organisations are subject to many of the same labour laws as for-profit companies. These laws prevent non-profits from taking advantage of their workforce and protect workers from unfair labour practices. In the US, the Fair Labor Standards Act (FLSA) is the federal law that sets minimum wage, overtime, record-keeping and child labour standards. The FLSA applies to non-profit organisations that engage in ordinary commercial activities, such as operating a gift shop, and meet a certain dollar threshold.

Non-profit employment contracts are legally binding documents that outline the terms of the working relationship between an employee and a non-profit organisation. While most non-profit employment relationships are "at-will", some workers, particularly those in high-level positions, are hired under an employment contract. The existence of a contract can benefit both parties, providing a minimum time commitment from the employee and assurance that they will not be let go without cause.

• Position and Responsibilities: This includes the employee's job title, the work they will be performing, and to whom they will report.
• Duration of Contract: The contract should state the start and end date of the employment relationship and indicate whether the contract can be renewed and under what circumstances.
• Termination: The contract should define the conditions under which the employer may terminate the relationship, usually for failure to perform satisfactorily. It should also outline any requirements for notice periods before termination.
• Compensation: The contract should set the base salary and indicate whether any bonuses or incentives will be paid, along with the triggers for discretionary bonuses.
• Benefits: Details of any employer-sponsored benefits, including eligibility requirements and enrollment windows, should be outlined in the contract.
• Severance: The contract should state whether the employer will offer severance pay in the event of termination, the circumstances under which it will be provided, and the amount.
• Intellectual Property: Contracts often include a clause stating that any materials created by the employee in the course of their work are "works for hire" and the property of the employer.
• Confidentiality: Employees may be prohibited from disclosing certain private and sensitive information about the employer and its business that they may have access to during their employment.
• Dispute Resolution: Some contracts may require that any disputes be resolved through arbitration rather than litigation.
• Leave Policy: The contract should outline the organisation's leave policies, including sick leave, general leave, holidays, and maternity leave.
• Work Schedule and Employment Period: The contract should specify the employee's work schedule and whether they are employed on a temporary or permanent basis.

It is important to note that the specific provisions of non-profit employee contracts can vary depending on the organisation, the position, and applicable laws. It is always advisable to seek legal counsel when drafting or reviewing employment contracts to ensure compliance with relevant laws and to protect the interests of both parties.

Non-profit employee termination

Non-profit organisations make up the third-largest workforce in the US, so it's important to understand the legal requirements for terminating an employee in this sector.

Types of Termination

There are two types of termination: voluntary and involuntary. In the former, the employee chooses to resign, whether that's for a new job, retirement, or other reasons. In the latter, the employer initiates the termination, usually due to organisational changes, unsatisfactory performance, misconduct, or unlawful conduct.

Legal Requirements

Federal labor laws that apply to for-profit companies also apply to non-profits. These laws are in place to prevent non-profits from taking advantage of their workforce. The Fair Labor Standards Act of 1938 requires non-profits to pay employees at least the federal minimum wage, so it's important to differentiate between unpaid volunteers/interns and paid employees.

Employment Contracts

If there is an employment contract in place, an analysis should be done to ensure the criteria for termination are met. If the employee is at-will (not covered by an employment agreement), the employee manual should be checked to ensure there are no steps that need to be taken before termination. Many employee manuals provide for internal dispute resolution or progressive discipline, which may include probation or suspension before termination.

Protected Characteristics

At-will employees may be terminated with or without cause, but they cannot be terminated based on protected characteristics such as race, gender, religion, or disability. Employers should be sure there is no improper motive in terminating an employee before moving forward.

Final Pay and Information

Most states have rules about when final pay must be delivered to terminated employees, and internal policies and state laws may dictate whether accrued, unused sick days, and vacation time must be paid out with the final paycheck. Employers should also distribute information about applying for unemployment insurance benefits, and federal or state laws may require notification of a terminated employee's entitlement to continue health benefits.

Property and References

Employers should require terminated employees to return all tangible property, including keys, laptops, and documents, and take steps to eliminate the employee's access to intangible items such as trade secrets and intellectual property. Passwords should be reset, and employers may consider having employees sign an NDA upon hire.

The safest course for employers is to have a blanket policy of not giving references to prospective employers of former employees, as references could expose the former employer to potential liability for torts such as defamation.

Severance Pay

Non-profit organisations may legally provide severance pay, but there are many factors to consider, including risk management, fairness, and practical business decisions. Severance pay may be an appropriate risk management tool to avoid potential litigation, adverse publicity, and other claims against the non-profit employer. It should not be presented as a "bribe" and employers should be careful to maintain consistency among employees to avoid claims of unlawful discrimination.

Termination Procedures

To ensure terminations are handled legally and professionally, it is wise to consult an employment attorney when establishing termination procedures and before initiating the termination process. Best practices include scheduling a meeting with the employee in a private setting, including two organisation representatives, and explaining honestly and clearly why the employee is being fired. Provide relevant paperwork, such as a copy of the separation notice and details about unemployment benefits and the final paycheck, and get the employee's signature on the termination documentation.

Make a plan for the employee to collect their personal effects, allow them to have an exit interview, and disconnect all electronic and physical access to the workplace before the employee leaves for the last time. Escort the employee to the building exit and do not allow them to walk out alone.

Frequently asked questions