Nonprofits are entering a more stringent realm of compliance than ever before. New rules mean new complexities and more time scrutinizing funding allocations to guard against fraud. Not only do you need to consider your funding sources and accounting, but you also have new concerns about classifying your employees as exempt or nonexempt—and the overtime impact.
As a result, you may be rethinking your HCM system, because the demands on your organization are too great for your current solution.
As a nonprofit, you have several unique challenges that other industries don’t face. Make sure you know what to look for in purchasing the right HCM solution for your organization. You’ll also need a vendor who can help you navigate the options that make sense—and execute on it so you can pay your people correctly.
Here are a few considerations you should keep in mind in your HCM purchasing process.
Only speak with HCM vendors who understand and work with nonprofit organizations. You’ll need someone who understands the unique challenges that nonprofits face.
Distributing Overtime and Non-Worked Time
If you already have nonexempt employees, or expect to have more of them with the December 1st FLSA changes, you’ll need to distribute any overtime and non-worked time, proportionate to the grants worked—or be able to allocate non-worked time to an internal account.
You don’t want the burden of the overtime pay to go entirely to the last grant worked during the pay period once an employee exceeds 40 hours. Further, setting an employee’s profile to a fixed distribution in the payroll system sets a red flag for auditing. If a funding source sees a clean distribution line over several weeks or months, like 25% or 50% allocation, it’s a clear sign that you’re providing estimates rather than reporting actual hours. You’ll surely be audited.
Can the HCM software handle distributing pay proportionately across funding sources? Does it have the capability, and flexibility, to distribute certain kinds of hours but not others (e.g., training)?
You’ll need a robust reporting capability to satisfy reporting to funding sources and for internal analysis. The system should be able to not only provide reports by different labor types (e.g., grants) on a regular basis, but should also easily create ad hoc reports in the event of an audit.
Over one-third of nonprofits get audited more than once per year. Most of them spend two to four weeks preparing for each audit, because they don’t have the justification at the ready. The right HCM solution can dramatically cut that time.
Integration with Accounting
Can the HCM software work with your accounting system? Can it supply labor and non-labor costs to the right level of detail, down to the grant? If you don’t have sufficient detail on the front end, then the software will send over-summarized or incorrect data to the accounting system. Garbage in = garbage out.
Ease of Use
Make sure you’re comfortable with the user-friendliness of the application, so someone new can step in if your payroll or HR resources are suddenly unavailable.
Don’t be impressed by demos using very basic data. Challenge the vendor to make sure they can demonstrate your scenarios in their solution. Provide the vendor your must-have scenarios ahead of time so they can tailor the demo to show how their software is able to meet your needs and goals.