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Nonprofit Compliance: Good Practices To Stay Protected

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Nonprofit compliance is a hassle

Is nonprofit compliance a hassle in your organization?

Remaining compliant with government regulations is challenging for most businesses. It’s even more laborious when it comes to nonprofit compliance since a lack of staffing means that the organizations typically have smaller or non-existent HR departments.

Below are good practices to adopt today to ensure your organization maintains compliance.

1. Keep Up-to-date on Regulations

It’s no doubt you’re familiar with the new Department of Labor overtime rule: On May 18, 2016, the DOL announced a new rule that raises the salary threshold in which employees must receive additional pay for time worked over 40 hours to $47,476 a year from $23,660 a year. With just five months to go until the rule takes effect (December 1, 2016), nonprofit and for-profit businesses are planning for the impact it will have on their organization.

This is just one of the regulations keeping nonprofits on their toes. IRS regulations can change from year to year, and keeping up with them can be daunting. To keep current with relevant regulations, make sure you have the most recent state guidelines from the IRS. Don’t rely on your accountant alone, its best to seek advice from a knowledgeable attorney. Failure to comply with these regulations can lead to penalties or automatic revocation of a nonprofit’s tax exempt statue.

2. Maintain Good Records

Record-keeping is crucial for nonprofits. A nonprofit must faithfully comply with all the rules and restrictions that come with their tax exempt status and that organization must be able to prove compliance with these laws.

Unfortunately there is no regulation or guideline for document retention that covers all nonprofits. Not only do state laws differ as to what must be retained, but nonprofits vary in the types of documents they generate. Some documents should be saved for a certain length of time while others should be retained permanently. Records that should be kept permanently include: articles of incorporation, audit reports, corporate resolutions, checks, determination letter from the IRS, year-end financial statement, insurance policies, board meeting minutes, real estate deeds, mortgages, bills of sales, and tax returns.

Nonprofits are also expected to retain certain employee records—from job applications through exit interviews. Having one online system to store all employee information and records can be enormously helpful in the necessary task of record retention.

3. Prevent Conflicts of Interest

A policy governing conflicts of interest is one of the most important policies a nonprofit can have. The IRS recommends implementing these policies as a strategy to protect nonprofits against impropriety involving officers, directors or trustees. The policy should be in writing for officers and directors to sign, and it should be reviewed regularly.

A conflict of interest occurs when an individuals’ obligation to further the organization’s charitable purposes is at odds with their own financial interests. For example: a paid officer may not be allowed to be a director. A director voting on his or her compensation is in clear violation. If a paid officer must also be a director, that officer should not participate in any vote involving him or her. For the same reason, you should not pay a director who is also an officer or member. 

Good Practices = Easier Nonprofit Compliance

While nonprofits have to comply with the same laws as for-profits enterprises, nonprofits have a disadvantage because they have to find a way to do more with less. In some cases nonprofits are scrutinized more than for-profits because of their tax benefits and privileges. Some regulations are simple, while others are complex. That’s why having good practices in place can go a long way in keeping your nonprofit compliant.

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