8 Vital Reasons Why Your Nonprofit Should Work with a Professional Employer Organization

Jessica Perkins is a writer and SaaS marketing consultant who helps businesses scale up their marketing efforts. She is obsessed with learning and also is passionate about sculpting.

Human resources (HR) is an essential aspect of any organization, as they are instrumental in recruiting, screening, hiring, training, and paying employees. HR professionals keep track of benefits, wages, and help manage employee complaints; their importance is far-reaching. 

Many smaller nonprofits don’t have the resources needed to set up an effective and efficient HR department, but if you want to scale your charity, you’ll need one. In this post, we’ll provide 8 reasons why your nonprofit needs some form of HR functionality and how a Professional Employer Organization (PEO) can benefit you from beginning to end. You don’t have to stop using a PEO once your company expands.

In fact, you may like the flexibility, professionality, and culpability a Professional Employer Organization provides!

Why are PEOs Important for Businesses? 

Professional Employer Organizations are stand-ins or replacements for an in-house HR department. An HR department has three main objectives in an organization: hire employees, train new hires, and maintain worker happiness. If these duties are performed optimally, and to the satisfaction of your employees, you’ll have a workforce that’s productive and efficient.

Without a way to professionally screen, interview, or hire employees, you could onboard staff that aren’t fit for the job. Problems don’t stop there: What if you hire using an unlawful process? What if you consistently miss paychecks? What if you only have one HR professional and they take a vacation or catch a cold? Then, you might have a lawsuit on your hands. 

On top of that, unhappy or poorly trained employees could lead to an increase in customer complaints. While some mistakes won’t cause legal issues, disgruntled employees will affect your bottom line. Disgruntled employees cost the U.S. up to $550 billion a year, and adding an HR representative, PEO or otherwise, will prevent your non-profit from hemorrhaging money.

8 Reasons Why Nonprofits Should Hire a Professional Employer Organization Immediately 

Let’s take a more in-depth look at how a Professional Employer Organization can benefit your small-large non-profit. 

1. Gives Employees Access to Cost-Effective Comprehensive Benefits

Nonprofits that entirely staff employees will need a PEO to provide them access to a benefits plan. Employers will have typical benefits, like medical, dental, or vision coverage, a flexible spending account, or disability and life benefits, but volunteers won’t typically receive a benefits plan. Volunteers usually earn taxable compensation from stipends, not benefits.

Regardless, PEOs will explain to your employees how to use enrollment tools and choose between a plan that suits their needs. An outsourced HR department is able to negotiate with carriers, handle COBRA administration, and enroll employees into their benefits packages.

2. Streamlines and Automates the Payroll-Process

As your non-profit grows, the payroll process will become more complicated, which will force your HR employees to work longer hours on the same task. PEOs can decrease your accounting costs and payroll processing by automating and streamlining workflow. To save big on this feature, find a PEO that provides a total fee and doesn’t separate based on services.

3. Costs Less Than Administering HR In-House

Some businesses will avoid hiring a PEO agency due to the hefty charge that comes with the service, but the cost of a PEO varies by the number of employees you have and not based on work scope. Typical PEOs will cost 2-12% of wages, which is much more inexpensive than the revenue loss you may incur from legal issues. On average, you’ll save 35% on HR costs.

4. Provides Access to Retirement Savings Plans

Non-profit employees have access to incredible retirement savings programs and 401k plans, but without an HR department, they won’t have access to their best options. Small businesses would benefit from a PEO that sponsors a 401k, allowing employees to defer compensation for employment. PEOs can set up other contributions, like employer matching.

Similar to the help a PEO can provide with other benefits, an agency can provide educational information and an online portal to ensure employees are taking advantage of their options. 

PEOs are capable of managing regulatory requirements, like the distribution process and compliance testing, and administrative responsibilities related to retirement savings plans.

5. HR Compliance Will Avoid Employment Legal Issues

Employment and volunteer laws can change at a moment’s notice, and it’s difficult for businesses to keep track of legal compliance while doing everything else. While a simple payroll process would be ideal, federal and state agencies must change to ensure equality and equity.

Unfortunately, ignorance can’t be used as an excuse, and the government will fine you regardless of your reason for breaking the law. If you’re not current or want to keep researching each rule and regulation that pertains to employment law, PEOs will keep you compliant.

Even if you’re positive your business is up-to-date, you’ll still need to consider other laws.

• Do you know how your state handles sick leaves or vacations?
• At what point does a volunteer legally become an employee?
• What are the current hiring regulations? 
• Can you ask a volunteer or an employee about their criminal background?
• Are you paying your staff enough for their position?

A PEO will have answers to all of these questions and more, and hiring one can put your company at an advantage. You’ll have access to advisors that are always aware of regulatory updates, which can help your business adjust when those changes occur.

6. Minimizes Legal Expenses, Lawsuits, and PR Fallout

At any point, a practice, phrase, or appearance can get a non-profit into trouble, and no one is exempt from PR fallout, even charities or community helpers. One lawsuit could damage your reputation, and it’s important for you to keep your liabilities in check. A PEO can help ease the tension or bad press related to employee claims or rumors, regardless of if they’re true.

HR employees have the skills necessary to ensure release agreements are lawful, but you’ll need a lawyer for defense. If your PEO suggests getting a lawyer, do so immediately.

7. PEO’s Can Provide Workers Compensation Coverage

Workers compensation, claims management, and calculating insurance premiums is time-consuming and expensive, but a PEO can provide coverage as a co-employer. A good PEO agency will handle audits, compliance, and the paperwork needed to run these programs. Plus, they can mitigate the risks by speaking to employees about how the process works.

8. Recruitment Process is Quick, Easy, and Accurate

Hiring the right employees or volunteers is an uphill battle, and onboarding people who aren’t right for the job can affect your bottom line and reputation. However, a PEO can nail the job description, prescreen, and interview effectively, so you’ll hire the right employee the first time. PEOs can also develop a concrete training program that gives employees the right skills for the job.

Final Thoughts

Hiring a Professional Employer Organization is the best option for your non-profit because they will help you stay legally compliant with all of your payroll processing. Once your non-profit is able to staff more employees, you can choose to hire in-house, but you may want to keep your PEO team around for the long-term, especially if you plan on volunteering out of state or internationally.

To help your non-profit afford a PEO, you could try virtual fundraising, tweaking your online donation raising method, or running a fundraising store.

You can also use our Interactive Donation Form Template to improve donor conversation rates by adding impact images, personalization, and more!