Going back to the beginning of 2021, nonprofit unemployment levels were still higher than pre-pandemic. And the situation has only gotten worse with increased vacancies and fewer people looking to fill those openings. The labor shortage plaguing most sectors has hit nonprofits even harder. Employment is down, but demand for services is up. Raising wages isn’t a possibility for most organizations, so what can nonprofits do?

In the first few months of COVID-19, nonprofits lost about 13 percent of their total workforce, or 1.6 million jobs. Unlike the Great Recession, the industry is facing a different kind of uphill battle.

Impending Crisis – Already Here?

Forbes found that upwards of 45 percent of current nonprofit employees want to leave their jobs in the next few years. Almost a quarter want to leave the nonprofit sector entirely.

The reasons why are complicated.

Unsurprisingly, low pay is the top issue driving people away from careers in nonprofits. A recent Council of Nonprofits survey found that 80 percent of organizations are having trouble hiring because of salary.

Burnout is another factor, compounded by a spike in service demand that isn’t letting up.

Yet many nonprofit employees reported a lack of long-term career opportunities and overall mismanagement.

The nonprofit industry is the third largest in the U.S. after retail and manufacturing. When almost half of that workforce plans to look for another job, the impact is more noticeable than waiting a few extra minutes at a restaurant. Entire communities lose access to critical lifelines.

In Virginia, nonprofit share of employment is nine percent, but other parts of PBMares’ service area encompass more: 12.9 percent in Maryland, 25.6 percent in Washington, D.C., and then 8.5 percent in North Carolina. An industry is a major sector in a state’s economy if it has more than five percent relative employment, so even in states where nonprofit employment seems small by comparison – 8 or 9 percent, for example – that still represents millions of jobs, and countless affected communities.

For some nonprofits, they may be able to rely on funding reserves or increased fundraising to meet a short-term stopgap for labor needs. But that’s not enough, and it’s not even an option for many organizations. The situation largely comes down to funding: the government contracts must be there for wages to increase.

Strategies to Address the Nonprofit Labor Shortage

Absent any renegotiated government contracts or new funding sources, there are still steps nonprofits can take to address the labor shortage.

The first area to address is culture. Employees want to be in an organization that is well-managed, supportive, and where they can clearly see where the organization is going and how they fit in. Take the time to work on the organization’s mission and vision. Focus on keeping top talent. Uncover and resolve any issues preventing current employees from performing at their best.

Hiring and recruiting strategies also may need to change. How is the organization presenting itself to potential job candidates? Is the process easy, straightforward, and candidate-focused? Streamline the process where possible. Also know that remote hiring is a permanent change, so organizations that aren’t fully equipped to do virtual interviews will fare worse.

It’s also worthwhile (and less expensive) to promote from within for higher-level roles instead of looking at outside talent to fill open positions. This solves two issues: it gives employees a career path and fills a leadership position quicker.

Offer flexibility. If wages can’t be increased, what other areas can benefit employees? A flexible schedule, permanent work-from-home options, additional time off, tuition and/or daycare reimbursement, and other perks are just some of the options nonprofits have to keep employees happy.

Consider using contract workers to fill specialized or non-essential roles. Not only is this an effective tool for budgeting and using only what services you need, but it also allows the nonprofit to focus its payroll on core positions. Often, outsourced contractors that know their line of work well can do the same project quicker than someone internally who’s spread too thin or just doesn’t understand the specifics.

Functions like bookkeeping, finance, payroll administration, marketing, and IT are all prime examples of roles that work well in a contract position.

Other Considerations

Pay is the top reason people say they’re leaving the nonprofit sector. But remember there are other factors too, and money isn’t always the best motivator.

Nonprofits can and should be focusing on these other areas to attract and keep talent:

  • Increase diversity in employees, volunteers, and interns.
  • Look outside the industry to recruit new employees.
  • Partner with universities for access to volunteers and roles that rely on field experiences. University partnerships can also work well for a co-op situation; in exchange for a sizable scholarship, the student would work a set number of hours over a specified timeframe.
  • Combine back-office resources. Some nonprofits have combined functions like administration, HR, and marketing to merge costs and staff.
    • Though this takes considerably more work in the short term, it could be an attractive option for similar organizations. Consolidating works especially well when two or more organizations serve the same constituency but in different ways; by combining, the larger organization can more effectively serve the community and run more efficiently.

Tax Credits

The Employee Retention Tax Credit (ERTC) is still available up to and including the third quarter of 2021. Recall that the ERTC in 2021 is worth up to $7,000 per employee, per quarter, up to September 30, 2021.

It’s also worth reminding past donors that in 2021 (and extended for 2022), individuals can make a $300 cash donation ($600 for married filing jointly) for an above-the-line deduction, regardless of filing status. Especially before year-end, something as simple as a reminder can boost fundraising – and available funds for payroll.

Navigating the challenges of a labor shortage on the heels of a global pandemic is hard, but not impossible. Look for partners who can help your nonprofit operate smoothly and thrive. To talk about strategies your organization can use to attract and retain talent, contact Bo Garner, CPA, MBA, Partner and leader of PBMares’ Not-for-Profit practice.