The Nonprofit Minimum Wage Conundrum

When I started working in the nonprofit sector after college, I worked as an assistant preschool teacher in daycare center.  I was paid above minimum wage, but not a lot above minimum wage.  I got semiannual raises, but they weren’t big raises.  The majority of the parents who enrolled their kids had low wage jobs and were single, so even with the sliding scale tuition that the center used, they had difficulty paying the tuition.  The parents who could pay more did, but they were lower in number than those who paid a deeply discounted price.  Government grants helped, but the aid could only be stretched so far.

Many nonprofits operate this way when it comes to paying their employees.  Most pay above minimum wage, but not a whole lot above minimum wage.  Their annual budgets are generally tight, so unless they have a balanced development program that collects income from a variety of sources, not just fees for services, then those they employ must expect lower wages so they can serve a greater number of clients.

This year, voters in five states and several municipalities chose to raise the minimum wages in their locations, some as high as $15 an hour.

These choices by voters have caused a real problem for nonprofit agencies.  Many of their employees, even while being paid above their current minimum wages, do not currently make that much an hour.  This will create some difficult choices for nonprofits.  Will they raise the pay of some employees and let others go?  What programs will they need to cut and which ones will they keep?  If they continue to keep all the programs, where will they get the money?

Nonprofit leaders have spoken out before the votes were cast. Sylvia Fuerstenberg, director of The Arc of King County, wrote a thoughtful piece describing some of the very real issues that her organization faces after Seattle chose to raise its minimum wage to $15 over the next couple of years.  She provides some real food for thought that can be tough to digest.

One of the biggest issues to consider is that many of the organizations affected by these new  wage laws get the greatest amount of their budgets from state governments that may not be able to cover the shortfalls created.  In California, there are laws prohibiting increased spending by the legislature when a municipality like Oakland or San Francisco raise the local minimum wage, according to an article in the San Jose Mercury News.  “However, a 2008 state law precludes nonprofits that provide around-the-clock-care to disabled adults from seeking increased funding to cover a local minimum wage increase, according to department spokeswoman Nancy Lundgren.

In Illinois, my home state, voters passed a nonbinding vote to raise the minimum wage.  An article in the Chicago Tribune points out that the problem here is similar because many nonprofits get the lion’s share of their budgets from contracts to provide services for the state, but because the state has not handled its financial responsibilities responsibly for a number of years, and it is already billions of dollars behind in its payments to those nonprofit contractors(see my previous post, Charities or Government Agencies), and a temporary tax hike will soon expire.  The Governor elect ran his campaign on repealing that tax increase, so it is very unlikely that there will be any money to supplement that given to the nonprofit contractors.  Another issue is that a state judge has overturned a legislated fix for a hundred billion shortfall for the state employee retirement fund, so any extra money will likely be directed to that issue, unless the state Supreme Court overturns the lower court’s ruling.  Something will have to give.

Now that voters have spoken, what will nonprofits do?  Nonprofit leaders will have some very difficult decisions to make.  I don’t envy them.

 

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About greatergoodfundraising

Richard Freedlund has been active in the nonprofit sector in a number of ways, both professionally and as a volunteer. He is the founder of Greater Good Fundraising, a business that helps schools and organizations raise money for their programs while accomplishing something positive for the community. After living in Oregon for 27 years, he has returned to his hometown of Rockford, Illinois and hopes to make his mark on the nonprofit sector there. He is the father of a talented jazz musician and the son of philanthropic parents that continue to support multiple causes. To contact Richard for consulting, fundraising, or speaking opportunities, email greatergoodfundraising@gmail.com or reach him on Twitter.com @ggfundraise
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5 Responses to The Nonprofit Minimum Wage Conundrum

  1. Richard, you’ve chosen to address a complex issue with significant implications for the nonprofit sector and society at-large. Unfortunately, I fear that many voters and politicians have only a shallow understanding of the likely unintended consequences of a hike in the minimum wage. Now, regardless of how we might personally feel about raising the minimum wage, we as a sector must brace for the consequences, at least in those jurisdictions that have approved the increase.

    In your poll, you suggest a number of things nonprofits might consider doing to deal with a hike in the minimum wage. Sadly, none of the solutions is problem-free or easy:

    Seek government assistance: As you’ve already observed, governments have mismanaged their own finances and, therefore, will have great difficulty with increasing assistance to charities. In fact, some jurisdictions are actually going after some nonprofits for payments in-lieu of taxes. Now, having said all that, it might be worth a roll of the dice to go after more government funding; you never know what might happen.

    Cut programs: No one wants to cut programs, particularly if it could hurt those being served. However, this might be a good time to re-evaluate existing programs. Are they really necessary? Are they really operating as efficiently as they could? Could services be better delivered at a lower cost through collaboration with another organization?

    Cut staff positions or hours: As with programs, the current situation presents an opportunity to re-evaluate staff. Are all positions necessary? Are all staff members effective?

    Seek support from businesses and foundations: Charities should already be doing this. However, the wage situation might encourage some to think more creatively about how to approach businesses and foundations.

    Increase fundraising efforts: Many nonprofits have anemic fundraising efforts and/or one-dimensional fundraising efforts. Perhaps, the latest situation will encourage charities to be more creative and more assertive. In addition, perhaps more charities will better diversify their fundraising marketing channels and potential funding sources.

    Hold a really big event. While events can raise money, they are usually not great fundraisers. Events serve many purposes (i.e.: public awareness, cultivation, etc.). Even when the focus is on raising money, it often taking years for an event to catch its stride.

    All of the above solutions will take time to implement. However, charities should look at all potential courses of action recognizing that some actions will involve pain. Exercising creativity is essential.

    In areas where there is no minimum wage hike, I still encourage organizations to act like there is for two reasons: 1) There might be a minimum wage increase in their future. 2) If charities can be more effective at generating more revenue, they can voluntarily pay their employees a better wage and, perhaps, attract and retain more talented employees.

  2. Here’s the problem: this obsession with cutting government and cutting taxes puts more and more pressure on the nonprofit sector to pick up the slack. Great deal for government; they wash their hands of the whole problem, throw a few bucks at it via some nonprofits and consider it no longer their problem.

    But it IS their problem – which is to say, it’s OUR problem, collectively. And those of us who see this need to get much louder and elect people to government positions who actually believe government is US and has an important role to play in our society.

    I don’t think the answer is allowing nonprofits to continue to pay staff members below the minimum. The increases we’re talking about often STILL don’t provide a living wage. We need to change the whole picture, not cut around the edges. Social programs are necessary because we as a people have not done what is necessary to ensure that everyone is cared for. Asking nonprofit workers to carry even more of the burden by accepting terrible wages is a short-term fix that will be disastrous in the long-term. Do we want a continuing underclass of people who are able to take these jobs? Do we want only those with the means to do it? Only those who can’t find any other work? That doesn’t do our organizations and causes much good in the long term.

    Nonprofits who work in the social service sector should be hoping to someday put themselves right out of business. Wouldn’t it be marvelous if no one every went hungry or had no home?

    We won’t get there with just our sector. It takes something bigger – it takes all of us. And in the meantime? We fundraise. We make a strong case for support. And we organize. We work with other nonprofits to make the case to governments that they’re not off the hook.

    • Mary, I agree with much of what you’ve said. I particularly agree with you that nonprofits should pay market wages rather than below market rates which, shamefully, is often the case. Dan Pallotta has written extensively about this. Pallotta also gave a TED Talk presentation that included the issue of appropriate compensation: “The Way We Think about Charity is Dead Wrong” (http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong).

      I also agree with you that government does have a role to play when it comes to providing a social safety net. However, I suspect we disagree about how big a role government should play versus the private sector. If we take an historical perspective, we see that when government is most active, private philanthropy and volunteerism declines; when government pulls back, philanthropy and volunteerism increase. Furthermore, the private charitable sector usually does a far better job of delivering services and results than government does. I encourage you and others to read the book “The Tragedy of American Compassion” for an historical look at the relationship between government and the charity sector: http://astore.amazon.com/mlinn-20/detail/1433501104 .

  3. You both bring up some good points.

    In my experience, while the wages I received as an employee in nonprofit programs were lower, yet above minimum wage, the benefits usually were above what my friends who were starting out got in the private sector. Things like health and dental insurance and paid time off were usually pretty generous. That was often the case for those who worked for organizations whose boards I served too. Unfortunately, things have changed dramatically over the years, and now we do see less benefits and wages for program staff.

    I also must say that I have noticed that the more an organization depends on government support and contracts, donations tend to drop from private sources. I do believe that the government should provide temporary assistance to those in need, but it should not be long term. Having recently read Robert Lupton’s “Toxic Charity”, I will agree with the author that nonprofits should not create dependency, but should instead help those they serve by giving them the support they need to better care for themselves.

  4. Nice Blog, thanks for sharing this kind of information.

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