Smart Steps to Start Off 2025 on the Right Foot

As the year draws to a close, holiday parties and celebrations mark the end of another year. While it’s important to take time to recognize those milestones, preparing your nonprofit from a legal standpoint can help position your organization for a great start in the new year.

Verify Corporate Compliance

A quick review of your organization’s bylaws to make sure they reflect the current state of your nonprofit can be a good way to get started.  Think about whether new initiatives may be stretching your bylaws in unintended ways.  If so, consider working with your board of directors to adjust the bylaws to better address your nonprofit’s evolving mission.

Prepare For Tax Reporting

The IRS has stepped up audits with the incorporation of new rules surrounding full-time, part-time and overtime employees.  Recent changes have adjusted the salary threshold for employees who are eligible for overtime payments.

Starting on January 1, 2025, the threshold salary for exempt employees to avoid overtime requirements will be $58,656.  This increase in the salary threshold may mean more of your organization’s employees qualify for overtime – which can significantly impact your nonprofit’s budget.

It’s important to take note of employees who may be reaching this salary limit and to think creatively about how to manage their compensation in a way that values their contributions to your organization but still helps your nonprofit avoid overtime costs.

Another way to avoid running afoul of these changing regulations is to consider revising employee contracts to specifically state that overtime hours must be approved in advance.  This can help your organization proactively manage overtime situations and encourage managers to be more mindful of circumstances that may lead to excessive overtime for key workers.

In addition, programs like UST Trust allow you to opt out of the state unemployment tax system and instead reimburse the state for your actual unemployment claims, dollar-for-dollar. UST assists you through the enrollment process, provides expert claims management, and helps you save money for anticipated unemployment costs in a reserve account owned by your organization as a financial asset.

UST can evaluate your unemployment claims history, number of employees, and tax rate information (if not yet reimbursing). Simply complete UST’s Free, no-obligation Savings Evaluation Form.

Contract Reviews and Renewals

One of the most common situations faced by nonprofit organizations is misclassifying a person as a contract worker rather than an employee. This can be especially fluid as you work with someone over multiple years on long-term projects.  A person’s status as a contract worker could morph over to that of an employee without your organization necessarily noticing the change.

As a result, it would make sense to take a second look at the people your nonprofit categorizes as contract workers to ensure they still fit that definition according to the IRS.  The six areas to consider are:

• Opportunity for profit or loss depending on managerial skill – Think of this as an evaluation of whether the worker has the ability to determine their hours, to hire others to assist in the project, whether they can accept or decline jobs or determine the priority of projects.  If the answer to these situations is “no”, they’re most likely classified as an employee.

•  Investments by the worker and the potential employer – Is the person making investments in their business that solely benefit your nonprofit?  Or are they acting as an independent business where their investments in items such as computers and education benefit multiple clients?

• Degree of permanence of the work relationship – If a person works for your organization on an ongoing basis and to the exclusivity of other employers, they may very well fit the definition of an employee.  Defining the work relationship on a periodic basis that’s centered on a certain project can help confirm an independent contractor arrangement.

• Nature and degree of control – This consideration covers whether your nonprofit sets an employee’s hours, supervises the person’s performance or limits their ability to work for others.  If your organization’s answer to these situations is “yes”, then it’s likely that they would be considered an employee.

• Extent to which the work performed is an integral part of the potential employer’s business – This factor highlights whether the work a person does is an integral part of your nonprofit.  If it is, this consideration would weigh in favor of them being an employee.  If it isn’t, then it would weigh more in favor of the person being a contractor.

• Skill and initiative – Is the individual utilizing the skills you’ve trained them to perform, or are they contributing skills that are outside the current capabilities of your nonprofit?  Individuals utilizing skills you’ve trained them to perform are typically considered employees. Those contributing skills that are outside the current capabilities of your nonprofit may be considered contractors.

Performance Evaluations

The end of the year is an opportune time to conduct employee performance evaluations. Even if your organization’s fiscal year concludes mid-year, December offers a valuable chance to check in with employees, provide feedback on their performance, and address any challenges proactively.

SHRM (Society for Human Resource Management) recommends doing mid-year reviews to help build employee engagement and to also help avoid end-of-year “surprises.”

Bringing it all Together

Positioning your nonprofit for success in the new year can be easy when you take a few extra steps in Q4.  Whether it’s thinking about corporate compliance or reviewing your employee tax issues, time spent now can pay big dividends when it comes to getting ready for 2025.

If you’re looking for specific tax guidance when it comes to employee classifications or want more details on how taxes apply in your state, sign up for a free 60-day trial of UST HR Workplace!

SOURCES:

https://independentsector.org/blog/what-does-the-new-dol-overtime-eligibility-rule-mean-for-nonprofits/#:~:text=Nonprofit%20employers%20already%20face%20the,the%20new%20overtime%20eligibility%20rule.

https://nonprofitresources.us/2023/12/07/navigating-year-end-checklist

www.shrm.org