Earlier this year, at the encouragement of President Obama, the Department of Labor finalized the most significant update to the federal rules on overtime in decades. The new rules will more than double the salary threshold for guaranteed overtime pay, from about $23,000 to $47,476. Once the rules go into effect this December, millions of employees who make less than that will be guaranteed overtime pay under the law when they work more than 40 hours a week.
Unsurprisingly, some business lobbies and conservatives disparaged the rule as unduly burdensome. But pushback also came from what might have been an unexpected source: a progressive nonprofit called the U.S. Public Interest Research Group (PIRG). “Doubling the minimum salary to $47,476 is especially unrealistic for non-profit, cause-oriented organizations,” U.S. PIRG said in a statement. “[T]o cover higher staffing costs forced upon us under the rule, we will be forced to hire fewer staff and limit the hours those staff can work—all while the well-funded special interests that we're up against will simply spend more.”
Though many nonprofits supported the new overtime rules, PIRG was not alone. (U.S. PIRG declined multiple interview requests for this article.) Over 290,000 comments were posted to Regulations.gov, many of them from nonprofits taking issue with the rule, including Habitat for Humanity, the College and University Professional Association for Human Resources, and the YMCA of the USA.
These responses expose a gap between the values that many nonprofits hold and the way they treat their own staffs. There’s no doubt that nonprofits today face serious financial difficulties and constraints, but do they have no choice but to demand long, unpaid hours of their employees? Putting questions of fairness aside, is their treatment of their workers limiting their effectiveness?
The answers have a lot to do with how nonprofits survive in an economy that’s geared primarily toward profit. Many nonprofit organizations stare down a shared set of challenges: In a 2013 report, the Urban Institute surveyed over 4,000 nonprofits of a wide range of types and sizes across the continental U.S. It found that all kinds of nonprofits struggled with delays in payment for contracts, difficulty securing funding for the full cost of their services, and other financial issues.
Recent years have been especially hard for many nonprofits. Most have annual budgets of less than $1 million, and those budgets took a big hit from the recession, when federal, municipal, and philanthropic funding dried up. On top of that, because so many nonprofits depend on government money, policy changes can cause funding priorities to change, which in turn can put nonprofits in a bind.
Heather Iliff, the president and CEO of an association called Maryland Nonprofits, says that she has seen a number of funders suddenly shift the requirements of their funding in response to a new trend, leaving organizations scrambling to adapt. “On the one hand it’s positive that the government is trying to look at what works and fund what works, but they tend to be categorical and abrupt in their shifts, without providing the necessary transitional supports,” Iliff says.
Iliff has seen that scramble to meet funding demands lead to bizarre and unproductive decisions. An employee of one agency that serves adults with significant developmental disabilities told her that its funders recently ordered it to provide clients with a number of hours “in the community,” as opposed to time spent on the in-house services it normally would have administered. But the funders did not provide guidance on how to do that, and the agency’s best option was to bus disabled adults to a mall’s food court just to satisfy the new requirement.
All of this is particularly difficult for human-services nonprofits that survive mostly on Medicaid funding. Homeless shelters, for example, don’t charge for their services, and thus can’t raise prices when their funding is cut. (These types of agencies have a longer period to adjust to the new overtime rules.) And when faced with funding cuts, many nonprofits have no place to turn but their own payrolls.
The pressure from funders to tighten budgets and cut costs can produce what researchers call the “nonprofit starvation cycle.” The cycle starts with funders’ unrealistic expectations about the costs of running a nonprofit. In response, nonprofits try to spend less on overhead (like salaries) and under-report expenses to try to meet those unrealistic expectations. That response then reinforces the unrealistic expectations that began the cycle. In this light, it’s no surprise that so many nonprofits have come to rely on unpaid work.
Strangely, though nonprofits are increasingly expected to perform like businesses, they do not get the same leeway in funding that government-contracted businesses do. They don’t have nearly the bargaining power of big corporations, or the ability to raise costs for their products and services, because of tight controls on grant funding. “D.C. is full of millionaires who contract with government in the defense field, and they make a killing, and yet if you’re a nonprofit, chances are you aren’t getting the full amount of funding to cover the cost of the services required,” Iliff said. “Can you imagine Lockheed Martin or Boeing putting up with a government contract that didn’t allow for overhead?”
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When faced with dwindling funding, one response would be to cut a program or reduce the number of people an organization serves. But nonprofit leaders have shown themselves very reluctant to do that. Instead, many meet financial challenges by squeezing more work out of their staffs without a proportional increase in their pay: The Urban Institute report found that most nonprofits choose to cut salaries, benefits, and other costs long before scaling back their operations. “There is this feeling that the mission is so important that nothing should get in the way of it,” Elizabeth Boris, one of the Urban Institute report’s authors, says.
The nonprofits that opposed the new rules expressed as much in the comments they submitted on Regulations.gov. One nonprofit’s human-resources director said the rule would result in “fewer services being effectively delivered to the population we serve, not to mention the deep financial impact that it will have on our agency to try to fund overtime at that level.” Said another, “Any increase in funds that have to go to salaries will cause a decrease in funds available to assist the elderly, which will result in causing them additional hardships.” “As a manager of a non-profit organization, this proposed rule would make it very clear in deciding whether it would be financially possible to find a way to stay in business,” one comment on the rule read. “The answer is no.”
These nonprofit employees are saying that their operations depend on large numbers of their lowest-paid staff working unpaid overtime hours. One way to get to that point would be to face a series of choices between increased productivity on the one hand and reduced hours, increased pay, or more hiring on the other, and to choose more productivity every time. That some nonprofits have done this speaks to a culture that can put the needs of staff behind mission-driven ambitions.
A number of forces much larger than any single nonprofit have allowed the present situation to take shape. In the 1970s, 62 percent of full-time, salaried workers qualified for mandatory overtime pay when they worked more than 40 hours in a week. Today, because the overtime rules have not had a major update since then (until this one), only 7 percent of workers are covered, whether they work in the nonprofit sector or elsewhere. In other words, U.S. organizations—nonprofit or otherwise—have been given the gift of a large pool of laborers who, as long as they clear a relatively low earnings threshold and do tasks that meet certain criteria, do not have to be paid overtime.
Unsurprisingly, many nonprofits have taken advantage of that pool of free work. (For-profit companies have too, but they also have the benefit of being more in control of their revenue streams.) Boris says that nonprofits like PIRG, for example, have a tradition of forcing employees to work long, unpaid hours—especially their youngest staff. “There’s a culture that says, ‘Young people are paying their dues. It’s okay for them to be paid for fewer hours than they’re actually working because it’s in the effort of helping them grow up and contribute to something greater than they are,’” Boris says.
Mary Beth Hastings, who has more than 20 years of experience working in the world of global-health organizations, has witnessed this in a variety of workplaces throughout her career. “Too often, I have seen the passion for social change turned into a weapon against the very people who do much—if not most—of the hard work, and put in most of the hours,” Hastings recently wrote on her blog. “Because they are highly motivated by passion, the reasoning goes, they don’t need to be motivated by decent salaries or sustainable work hours or overtime pay.”
But they probably do. A 2011 survey of more than 2,000 nonprofit employees by Opportunity Knocks, a human-resources organization that specializes in nonprofits, in partnership with Jessica Word, an associate professor of public administration at the University of Nevada, Las Vegas, found that half of employees in the nonprofit sector may be burned out or in danger of burnout. The survey had some methodological limitations—its sample wasn’t as representative as the researchers would’ve hoped—but Word told me that she believes employees at nonprofits are uniquely stretched. “These are highly emotional and difficult jobs,” she said, adding, “These organizations often have very high rates of employee turnover, which results from a combination of burnout and low compensation.” Despite the dearth of research, Word’s findings don’t appear to be unusual: A more recent study of nonprofits in the U.S. and Canada found that turnover, one possible indicator of burnout, is higher in nonprofits than in the overall labor market.
Yet for all their hours and emotional labor, nonprofit employees generally don’t make much money. A 2014 study by Third Sector New England, a resource center for nonprofits, found that 43 percent of nonprofit employees in New England were making less than $28,000 per year—far less than a living wage for families with children in most cities in the United States, and well below the national median income of between $40,000 and $50,000 per year. (For comparison, about a quarter of American workers earn less than $28,000 per year.) Until the new overtime rules kick in, many of those workers could be working extra hours without any extra pay.
Why would nonprofit workers be willing to stay in jobs where they are underpaid, or, in some cases, accept working conditions that violate the spirit of the labor laws that protect them? One plausible reason is that they are just as committed to the cause as their superiors, whose decision-making can prioritize an organization’s values above all else. Another possible explanation is that because the job market is so difficult, they have no better options.
But it also might be that some nonprofits exploit gray areas in the law to cut costs. For instance, only workers who are labelled as managers are supposed to be exempt from overtime, but many employers stretch the definition of “manager” far beyond its original intent. Low-paid workers who do not have executive decision-making power and do not manage a staff, according to the Department of Labor’s criteria, shouldn’t be classified as exempt, but some employers put them in positions that are nominally managerial to escape overtime regulations.
And even regardless of these designations, the emotionally demanding work at many nonprofits is sometimes difficult to shoehorn into a tidy 40-hours-a-week schedule. Consider Elle Roberts, who was considered exempt from overtime restrictions and was told not to work more than 40 hours a week when, as a young college grad, she worked at a domestic-violence shelter in northwest Indiana. Doing everything from home visits to intake at the shelter, Roberts still ignored her employer’s dictates and regularly worked well more than 40 hours a week providing relief for women in crisis. Yet she was not paid for that extra time.
Roberts once responded to a call from a woman who needed help escaping her apartment while her attacker was out. When Roberts arrived, the battered woman clung to her and asked her to listen to a recording of the sounds of fighting and of the woman screaming and crying. Roberts joined her in prayer, helped her move her things to a new apartment, went back to the agency, locked herself in the bathroom, and sobbed. On days like that, Roberts wanted to get therapy, but knew that she couldn’t afford it. “If I had gotten paid for all the hours I was working, even at my base rate, I would have jumped at the opportunity to seek care to make sense of what I’ve experienced on the job,” Roberts says. “But I wasn’t making enough to pay for anything more than my basic needs.”
When reached by phone, Roberts’s former employer said that staff are not allowed to work overtime, but that they do work extra hours voluntarily without recording the time, such as for self-directed study on how to better serve clients. When hours run long due to travel or other circumstances, the employer said, staff can adjust their hours for the rest of the week to make up the difference. But according to Roberts, this would have meant asking for schedule changes almost every week, which would not have been acceptable in the organization's culture. “The unspoken expectation is that you do whatever it takes to get whatever it is done for the people that you’re serving,” she says. “And anything less than that, you’re not quite doing enough.”
It isn’t clear how common Roberts’s experience is. The Department of Labor bases its enforcement actions on complaints, which makes it hard to track violations, says Catherine Ruckelshaus, the general counsel of the National Employment Law Project, an advocacy organization. With the difficulty of the job market, the decline of unions, and the culture of self-sacrifice in nonprofit work, very few employees are willing to come forward to file a complaint against their employer. This means that there’s no way to know how many nonprofit employees are working long, unpaid overtime hours when they shouldn’t be. Still, Ruckelshaus says, “Nonprofit workers have more protection than they think or than even perhaps their employers think. But because the law isn’t crystal clear … there’s a gray area and that’s been exploited by some of these nonprofits and that’s created a culture where workers don’t think they’re covered.”
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It’s certainly the case that nonprofits face considerable challenges, but it doesn’t seem like every organization is making a good-faith effort to do right by their employees when they decide how to respond to those challenges. And, setting aside the issue of fair pay, many wonder whether getting the most work out of staff for the least possible cost is efficient or sustainable. Work-life balance is particularly relevant when employees’ work is emotionally taxing and poorly rewarded, and turnover for any organization is notoriously costly. Nonprofits that don’t take this seriously may be shooting themselves in the foot.
Mary Beth Hastings suggests that if nonprofits truly care about the well-being of their staffs, one easy place to start is simply to write higher salaries into budget proposals. Likewise, government and philanthropic funders could be a lot wiser in how they dole out money: Scarce public-service dollars can impose a state of financial stress on the people who put them to use.
Indeed, many nonprofits have come out in support of the new overtime rules, even while acknowledging the challenges of following them. Stuart Mitchell, the CEO of a human-services nonprofit called PathStone, wrote in an op-ed that “paying a livable wage is the right thing to do not only for our deeply committed employees, but also for the participants that rely on our services.” And representatives of 150 social-justice organizations signed a letter stating their support for the new rules, writing, “It is time to revisit the idea that working for the public good should somehow mean requiring the lowest-paid among us to support these efforts by working long hours, many of which are unpaid.” More broadly, the Human Services Council of New York argues that the sector should call on the government to expand funding for nonprofits to maintain their level of services with increased pay. However they do that, nonprofits would be better off if they could act with efficiency as a goal, but not the only one.