ACA Compliance Guide for Employers

Learn how to comply with the Affordable Care Act’s employer mandate, including plan requirements, notification rules, and reporting obligations.

For many employers, researching and applying the Affordable Care Act’s (ACA) complicated provisions can feel like reading a medical textbook … in Latin. There’s enough technical terminology, dense calculations, and precise exemptions to redefine the notion of bureaucratic red tape.

ACA compliance goes beyond the basic characteristics of an organization’s group healthcare plan. It also includes how employers communicate the plan to both their workers and the Internal Revenue Service (IRS). Worst of all, if an employer doesn’t correctly meet the ACA’s conditions, they could face costly penalties until everything is remedied.

To help you decipher the ACA’s intricacies, think of the following guide as your personal cheat sheet. It’ll explain the basic ACA requirements for employers, elaborate on whom those requirements apply to, explore how to adhere to them, and examine how costly non compliance can be.

Key Takeaways

  • The ACA established the Employer Mandate, which requires Applicable Large Employers (ALEs) to either provide affordable healthcare insurance to full-time employees or face potential tax penalties.
  • To be an ALE, an employer has to have had at least 50 full-time employees, full-time equivalent (FTE) employees, or some combination of the two over the prior calendar year.
  • An ALE’s healthcare plan must be affordable, provide employees with at least a minimum value, and have minimal essential coverage (i.e., applies to at least 95% of the ALE’s full-time employees).
  • ALEs must also provide employees with information about the plan and submit annual reports to the IRS via forms 1094-C and 1095-C or face steep penalties for noncompliance.

What is ACA?

The Affordable Care Act (ACA) was a significant turning point for the U.S. healthcare industry. Passed in 2010, the ACA aimed to increase access to health insurance, improve patient protections, and lower healthcare costs overall. While its pros and cons continue to be debated, the law has undeniably had an impact on the U.S. healthcare landscape.

One of the ACA’s central provisions is the creation of a health insurance marketplace that allows individuals and families without employer-provided plans to purchase coverage that meets their needs and budgets. Along with this marketplace came premium tax credits and cost-sharing reductions to help make health coverage affordable for households of all income levels.

ACA Employer Requirements

One of the other seismic shifts the ACA implemented was a new “pay or play” Employer Mandate. Also known as the Employer Shared Responsibility Provision (ESRP), the ACA requires all Applicable Large Employers (ALEs) to either offer their full-time employees affordable healthcare coverage of at least a minimum value or potentially face employer shared responsibility payments(opens in a new tab) to the IRS.

Regardless of whether an employer chooses to “pay or play,” it’s still important to comply with the Employer Mandate by picking one of those options. The ACA is, after all, still a federal law, and refusing to adhere to its provisions can bring about even more costly penalties. Moreover, there are potential benefits to offering a group health plan, like improving an organization’s employer brand and helping to keep employee turnover low.

Determining Employer ACA Eligibility

Every year, the IRS determines how an organization must comply with the ACA by classifying each employer’s status based on the average size of that employer’s workforce from the prior year.

If an employer has at least 50 full-time employees, full-time equivalent (FTE) employees, or some combination of the two, they’re considered an ALE and must adhere to the corresponding requirements. This includes the quality and affordability of any plans they offer, as well as the plan information they must annually submit to the IRS.  

Full-Time Equivalent (FTE) Employees

An FTE is a unit of measurement that compares the workload of different employee types, such as full-time and part-time workers, to assess the size of an organization’s workforce.

Under the ACA, one FTE employee is a combination of employees who aren’t full time, but whose joint hours are the same as a full-time employee. Specifically, the IRS states the workload of one full-time employee is equal to working 130 hours a month or at least 30 hours a week. So, if an organization has three part-time employees who each work 10 hours a week, their combined hours would be the equivalent of a full-time employee.

To calculate how many FTE employees an organization has, divide the total number of hours part-time staff worked by the number of hours a full-time employee would work (i.e., 130 a month or at least 30 a week).

Want to see a few examples? Check out the FTE calculations in our HR & Payroll Glossary.

The ACA’s main employer requirements center around an offered plan’s characteristics, how the employer informs their workers about the plan, and how the employer reports plan information to the IRS.

ACA Plan Requirements

The Employer Mandate’s core plan requirements deal with the affordability and value of an employer-sponsored plan, as well as the quantity of full-time employees it covers.

  • Affordable: As of 2024, the relative cost of the plan’s least expensive offering(s) can’t exceed 8.39% of an employee’s total household income. In other words, if an employee has to spend more than 8.39% of their household’s total income on the plan’s benefits, the plan isn’t affordable.
  • Valuable: The minimum value a plan must provide to employees is at least 60% of the employee’s expected medical costs for that year.
  • Widely Offered: Employers must offer the plan to at least 95% of their full-time staff (and their dependents) for that plan to provide the minimum essential coverage the ACA requires.

ACA Safe Harbors

Even the most meticulous organizations can’t know exactly how much income an entire household earns in a single year. To help employers guarantee they meet ACA requirements, the law allows for the use of specific safe harbors when calculating a plan’s affordability.

Safe HarborDetails
Form W-2 WagesThe plan’s premiums can’t exceed 8.39% of the wages reported in Box 1 of the employee’s Form W-2.
Federal Poverty Level (FPL)The plan’s premiums can’t exceed 8.39% of the FPL(opens in a new tab) for the employee’s household size and geographic area.
Rate of PayThe plan’s premiums can’t exceed 8.39% of either the employee’s monthly salary or their lowest hourly pay rate multiplied by 130 hours.

ACA Notification Requirements

After piecing together an ACA-compliant plan, ALEs must next inform their employees about that plan, including its availability, benefits, and modifications. Generally, ALEs must provide this information to all employees within 14 days of their hiring, during annual Open Enrollment periods, and whenever an employee asks for it.   

  • Summary of Benefits Coverage (SBC): This is a general explanation of the plan’s costs and benefits that must be provided to eligible employees and dependents during Open Enrollment.
  • Notice of Plan Change(s): Employers must give at least 60 days notice before making substantial changes (e.g., increases to monthly premiums or new network providers) to a plan’s offerings.
  • Notice of Healthcare Marketplace: Employers also must give information about available health insurance marketplace(s) and any corresponding premium tax credits.

ACA Reporting Requirements

To both prove their compliance and meet ACA filing obligations, ALEs must annually report information about their workforces and offered plans by submitting Forms 1094-C and 1095-C. ALEs can choose to file these forms in print or electronically, though if they have 10 or more returns, they must file them electronically. The IRS also instructs ALEs to keep a copy of the forms (or be able to recreate them) for at least three years(opens in a new tab).

  • Form 1094-C: Summarizes all Form 1095-C information an employer provides, as well as an employer’s workforce data, whether the employer is eligible for any financial relief, etc. ALEs must submit this form to the IRS and file it via mail by February 28, 2024, or electronically by March 31, 2024.
  • Form 1095-C: Reports any employer-offered health insurance benefits an employee received each month of the prior year. ALEs must provide each employee with a copy of the form containing that employee’s information by March 1, 2024. A second copy must also be submitted to the IRS along with the organization’s Form 1094-C.

Take the Complex out of Compliance

Navigating HR compliance can feel like sailing through turbulent waters without a compass. Download our toolkit to stay on track and keep your organization covered.

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ACA Noncompliance Penalties

Aside from failing to meet the IRS’ reporting deadlines, ALEs can also face penalties if their plans don’t meet the other Employer Mandate standards. This is most noticeable if a full-time employee who’s offered their ALE’s plan applies for and receives a healthcare marketplace premium tax credit.

Theoretically, an ACA-compliant plan should prevent enrolled employees from qualifying for such credits. So, if a full-time employee applies for marketplace coverage and receives a credit, it could trigger scrutiny into whether the ALE’s plan meets the ACA’s affordability requirements.

ViolationDetailsCalculation
4980H(a)Failing to offer coverage or doesn’t offer coverage to at least 95% of their full-time staff$2,970* × Total # of full-time employees (minus the first 30 employees)
4980H(b)Failing to provide affordable coverage or successfully providing those forms but with incorrect informationThe lesser of the following amounts**:$2,970 × Total # of full-time employees (minus the first 30 employees)
($4,460 ÷ 12) × # of full-time employees who received a premium tax credit that month
ReportingFailing to provide Forms 1094-C and 1095-C by their due dates or providing those forms with incorrect informationVaries based on how long it takes to submit or correct the form after the deadline:0-30 Days: $60 per form
31 Days-Aug. 1: $120 per form
After Aug. 1: $310 per form

*For 2024 violations; this is an increase from the 2023 amount ($2,880).
**Calculated each month for which there’s a violation.

ACA Compliance Assistance

ACA compliance is both complex and potentially costly. So why take the risk of accidentally reporting the wrong data or forgetting to share plan information with your employees? Yes, healthcare compliance is a dry, daunting subject, but with the right tools, anyone can navigate the ACA’s twists and turns.

Paylocity’s Compliance Dashboard can help eliminate ACA-induced stress by keeping you up to date on the ever-changing legal landscape while giving you a bird’s eye view of what you need to do to avoid penalties. In other words, that intimidating medical textbook becomes a simple, user-friendly instruction manual.

Request a demo today to see firsthand how these tools can empower you to efficiently monitor your ACA status and ensure you’re always on the right track. 

Learn how to comply with the Affordable Care Act’s employer mandate, including plan requirements, notification rules, and reporting obligations.

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Keep Up With Compliance

Between constantly changing employment laws and updates to the Affordable Care Act (ACA), keeping your workplace compliant can be a time-consuming and costly challenge. Eliminate the stress and stay up to date with our Compliance Dashboard. View compliance alerts and get a bird’s eye view of what you need to do to avoid fines and penalties.

 Manage HR Compliance

2024 Nonprofit Trends

As we move deeper into 2024, we look at what we can expect for the nonprofit sector as the year progresses. In 2023, the sector grappled with multiple challenges… the end of the COVID era which meant an end of COVID funding, an increase in demand for services brought about by several years of high inflation, a tight labor market, continued increases in borrowing rates, the exponential growth of AI and cybercrimes, and an increase in regulations and government audits. 2023 did see an uptick in the stock market bringing with it an increase in donations, and an economy that was better than anticipated…

The headlines for 2024 will focus around some of the same themes… the economy, technology, and the labor market.

THE ECONOMY:

  • We anticipate a slow down in inflation, with inflation sitting between 2 and 3% for the year.
  • We also anticipate a slow down in growth, we growth at only 1.5% to 2% as high interest rates, geopolitical concerns (war in Ukraine, unrest in the Gaza, and the biggest election year in history with more than 60 countries holding regional, legislative, and presidential elections), and what is anticipated to be a hotly contested presidential election, all create uneasiness in the marketplace.
  • We expect growth in unemployment from the 3.7% we saw at the end of 2023 to 4.4% as the rise in AI, the cost of capital, and overall uncertainty in the marketplace take their toll on the workforce.
  • While we expect to see some pull-back on interest rates, we are not expecting to see them until the second half of the year, and they are not going to be deep … so don’t look for pre-pandemic rates anytime soon. Expect banks to be more conservative with lending, restricting credit to lower quality lenders and requiring higher levels of collateral.
  • The stock market is anticipated to see a rise, with an industry expectation of 10% for the S&P 500.

SO WHAT DOES THIS MEAN FOR THE NONPROFIT SECTOR?

  • NYC is anticipating budget shortfalls over the next 3 years of 6%, 8%, and 9%, respectively, while NY State is anticipated to have a $4.3 billion budget shortfall for fiscal 2025. Both NY City and NY State will need to balance these shortfalls, and that will most likely come in the form of cuts. You will need to consider this when developing budgets and strategizing your operations for the next year. We will have a clearer picture when the NY State budget is released in April. NY City has already made two cuts (one in December and another in January). It appears for now, that a third cut that was supposed to happen in April 2024 has been cancelled. Even so, contract signing and cash flow at the local level (counties and NY City) have been heavily delayed.
  • The loosening of the labor market should result in the ability to finally hire much needed staff, however organizations need to be cautious to see how their funding shapes up. Unfortunately, the loosening of the labor market could also result in an increased demand for services.
  • Fundraising tends to follow the stock market. With an anticipated bull market for 2024, we anticipate an uptick in donations during 2024. Unfortunately, with the polarized position on policies and issues during this year’s election (immigration, climate change, abortion, education/cultural wars, and crime) coupled with geopolitical issues, while donations may be up, they may not necessarily find their way to local charities.
  • Nonprofits will need to be more creative and targeted in their approach to fundraising.
  • Nonprofits need to be strategic in their thought process and re-assess their mission, their relevancy, their business models, etc. Everything should be on the table and open for discussion.

TECHNOLOGY:

  • AI continues to be the fastest growing sector in the marketplace. It is causing us to rethink the way we operate, deliver service, fundraise, and more. While 89% of nonprofits agree that AI will improve efficiency, only 28% say they use it in any meaningful way. A Goldman Sachs study said that AI tools could impact more than 300 million full-time jobs worldwide.
  • Cybercrimes are up… through the first half of January 2024, there was a cyber-attack every 39 seconds.
  • With the need for nonprofits to be more streamlined and nimble due to constricted funding, we are seeing an increase in data integration and workflow automation.

SO HOW DOES THIS IMPACT THE NONPROFIT SECTOR?

  • The sector needs to embrace AI as a tool in all aspects of their operations.
    • In fundraising, AI can be used to identify potential donors, create personalized marketing and social media campaigns and content, make next step recommendations, donor journey mapping and more.
    • From an operations perspective, AI can be used for business simulations to optimize your operations from a staffing, resource allocation, and performance perspective.
    • AI can automate simple tasks such as summarizing meeting notes, organizing and cleaning data, crating documents and policies, developing reusable templates and outlines. Organizing files, and more.
    • It is anticipated that by 2030, 30% of work hours across the US economy could be automated with AI and 50% of nonprofit activities (not jobs) can be automated using AI, leading to more efficient and productive organizations.
  • There is an increase in cyber-attacks within the nonprofit sector, as historically the sector has been behind the technology curve. Nonprofits need to implement stronger policies (for example AI usage policy), increased internal training, regular updates, and vigilance. This will require a greater investment by the sector.
  • Nonprofits need to find ways to better automate systems so that all systems are effectively communicating. This will save time, decrease errors, and provide for more timely information. This is essential, as nonprofits will need to make decisions quicker and will need information flow to make that happen.

THE LABOR MARKET:

  • Although we anticipate a softening of the labor market with increased lay-offs (according to a survey by ResumeBuilders, 40% of companies are considering layoffs by 2024), nonprofits will still need to reconsider their salaries, benefit packages, and leadership culture in order to attract and retain staff.
  • In PNP Staffing’s 2024 annual nonprofit salary study, 91% of nonprofits reported having to increase salaries in 2024 and 35% reported that they could not meet the expected salary demands for top talent and common staff positions.
  • The nonprofit turnover rate (19%) is 58.3% higher than for other companies (12%).

WHAT SHOULD NONPROFITS DO?

  • Nonprofits need to retool their leadership to align with their workforce. Leaders need to be better trainers, more empathetic, more transparent, provide more timely and relevant feedback, and offer greater level of accessibility.
  • Nonprofits need to work with their staff on career development and growth, laying out paths for advancement for staff members. Among workers who left nonprofit jobs during 2021, 44% said they left because nonprofits didn’t offer enough opportunities for career growth or professional development and 38% of young nonprofit professionals think they will need to move organizations to get a promotion.
  • Nonprofits need to benchmark their salaries and benefits to determine how they compare to not just industry standards but also those of industries that would look for staff with similar skillsets. This incudes providing staff with work flexibility, a greater work life balance, a healthy workplace, and more.

2024 needs to be the year that nonprofits think strategically about their business and operations. There are about 3,500 nonprofits on Long Island and about 35,000 in the NY City metropolitan area.
Are they all necessary?
What are they doing by way of
collaboration and consolidation?
Is their proper oversight and leadership?
How are they addressing DEIA
at all levels of the organization?
Are they impactful?
How can they become more efficient and effective?

THIS ARTICLE WAS ALSO FEATURED IN NFP ADVISOR VOL. 29. READ THE ARTICLE AND MUCH MORE RELATED CONTENT HERE!

Kenneth R. Cerini, CPA, CFP, FABFA

Kenneth R. Cerini, CPA, CFP, FABFA

Managing Partner

Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.

The Role of Data Analytics in Nonprofit Decision-Making

Nonprofit organizations, driven by their altruistic missions, often grapple with multifaceted challenges in achieving their goals. In today’s era of data abundance, the role of data analytics in nonprofit decision-making has surged in importance. Data analytics offers nonprofits a potent tool to move beyond intuition and anecdotal evidence, providing actionable insights to inform strategic decisions, optimize resource allocation, and ultimately enhance impact and sustainability.

HARNESSING DATA ANALYTICS FOR STRATEGIC DECISION-MAKING:

Data analytics empowers nonprofit leaders to gain deeper insights into their operations, beneficiaries, and stakeholders. Advanced analytics techniques such as predictive modeling, machine learning, and data visualization unveil hidden patterns, trends, and correlations within data sets. For instance, a youth empowerment organization could employ demographic analysis to identify underserved communities and tailor programs accordingly.

Moreover, data analytics facilitates real-time assessment of program effectiveness, enabling organizations to gauge impact and refine strategies promptly. A health-focused nonprofit, for example, might leverage data analytics to monitor initiative progress and identify avenues for improvement, resulting in better health outcomes for target populations.

OPTIMIZING RESOURCE ALLOCATION:

Nonprofits often operate within tight budgetary confines, necessitating efficient resource allocation. Data analytics enables organizations to optimize resource distribution by pinpointing areas of high impact and cost-effectiveness. Through historical data analysis and cost-benefit evaluations, nonprofits can strategically allocate resources to maximize value.

Consider a conservation organization utilizing data analytics to prioritize efforts based on factors like biodiversity, ecosystem services, and threat levels. By concentrating resources on areas of significant conservation value, the organization can amplify environmental impact within budget constraints.

ENHANCING PROGRAM EFFECTIVENESS:

Data analytics plays a pivotal role in enhancing program efficacy by offering insights into performance metrics, participant outcomes, and stakeholder feedback. Through data-driven evaluation and continuous monitoring, nonprofits can identify areas for improvement and implement evidence-based interventions.

For example, an educational nonprofit may analyze student performance data to assess teaching methodologies and identify at-risk students requiring additional support. By tailoring programs based on data insights and feedback, the organization can improve learning outcomes for students.

STRENGTHENING DONOR ENGAGEMENT:

Donors are vital to nonprofit sustainability, making donor engagement imperative for long-term success. Data analytics aids nonprofits in understanding donor preferences, behaviors, and motivations, enabling targeted fundraising efforts.

For instance, organizations could segment donors based on demographics, giving history, and communication preferences, then personalize fundraising appeals accordingly. By delivering tailored messages, nonprofits can foster deeper donor connections and increase support.

FOSTERING ORGANIZATIONAL SUSTAINABILITY:

Beyond program effectiveness and donor engagement, data analytics contributes to overall organizational sustainability. By enhancing operational efficiency, streamlining processes, and mitigating risks, nonprofits build stronger, more resilient entities.

Consider a nonprofit optimizing supply chain management through data analytics, reducing overhead costs and identifying areas of inefficiency. By reallocating resources towards mission-driven activities, the organization can increase its impact and sustainability.

BEST PRACTICES AND PRACTICAL EXAMPLES:

Several nonprofits exemplify successful data analytics integration into their operations:

1.) CHARITY: WATER:

This nonprofit employs data analytics to track water project impacts, ensuring transparency and accountability to donors. By providing real-time data on project outcomes, charity: water maintains donor trust and facilitates informed decision-making.

2.) FEEDING AMERICA:

Utilizing data analytics, this nationwide food bank network identifies food insecurity hotspots, optimizes distribution routes, and targets hunger relief efforts effectively. By leveraging data insights, Feeding America maximizes food distribution impact and serves vulnerable communities more efficiently.

3.) KIVA:

As a microfinance nonprofit, Kiva utilizes data analytics to assess borrower creditworthiness and predict loan repayment rates. By analyzing borrower data, Kiva minimizes default risks and maximizes loan impact, empowering entrepreneurs worldwide.

4.) DONORSCHOOSE:

This crowdfunding platform for education uses data analytics to match donor preferences with classroom needs, facilitating targeted giving. By personalizing donation opportunities, DonorsChoose enhances donor engagement and supports educational initiatives effectively.

CONCLUSION:

In today’s data-driven landscape, the role of data analytics in nonprofit decision-making is paramount. By leveraging data insights, nonprofits can make informed strategic decisions, optimize resource allocation, enhance program effectiveness, engage donors effectively, and foster organizational sustainability. As nonprofits continue to integrate data analytics into their operations, they will be better equipped to create lasting impact and effect positive change in the communities they serve.

THIS ARTICLE WAS ALSO FEATURED IN NFP ADVISOR VOL. 29. READ THE ARTICLE AND MUCH MORE RELATED CONTENT HERE!

Matthew Burke, CPA

Matthew Burke, CPA

Partner

Matt specializes in providing Cerini and Associates’ diverse array of midsized business clientele and nonprofit organizations with valuable consulting and assurance services. He prides himself on value-added, responsive, and innovative service to his clients; with a focus on forward-thinking and creative solutions. Matt joined the firm in 2002 and has years of experience with many types of complex accounting, auditing, compliance, and general business matters that impact entrepreneurial, established, and nonprofit businesses.

How to Account for Joint Costs in Nonprofit Organizations

A GUIDE TO APPLYING THE ACCOUNTING STANDARDS FOR ACTIVITIES THAT INCLUDE BOTH PROGRAM AND FUNDRAISING COMPONENTS.

WHAT ARE JOINT COSTS AND WHY ARE THEY IMPORTANT?

Joint costs are the costs of conducting activities that have more than one purpose or function, such as program, management and general, or fundraising. For nonprofit organizations (NFPs), joint costs can arise from events, publications, campaigns, or other activities that both serve their mission and provide fundraising opportunities. For example, a healthcare NFP may send a newsletter that educates the public about a disease and also solicits donations for research and treatment.

Joint costs are important because they affect how NFPs report their expenses by function in their financial statements. NFPs are required to present their expenses by function (such as program, management and general, and fundraising) and by natural classification (such as salaries, rent, and supplies). Functional expenses provide information about how NFPs use their resources to accomplish their missions and how efficiently they operate. NFPs are also subject to scrutiny from ratings agencies, donors, and the media, who use the percentage of expenses devoted to programming as a key indicator of NFP performance and accountability.

Therefore, NFPs need to ensure that they allocate joint costs appropriately and consistently, following the accounting standards and guidance that apply to this complex area. This article will explain the criteria, methods, and disclosures for accounting for joint costs in NFPs.

WHAT ARE THE CRITERIA FOR ALLOCATING JOINT COSTS?

Not all activities that include both program and fundraising components qualify for joint cost allocation. NFPs need to evaluate three criteria related to the purpose, audience, and content of the activity to determine if joint cost allocation is permitted. These criteria are based on the FASB Accounting Standards Codification (ASC) Subtopic 958-720, Not-for-Profit Entities–Other Expenses, which incorporates the guidance from the AICPA Statement of Position (SOP) 98-2, Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund Raising.

The purpose criterion is met if the purpose of the activity includes accomplishing program or management and general functions, and these functions meet the definitions in the ASC. Program functions should call for a specific action by the audience that benefits either the recipient individually or society as a whole. For example, a program function could be to educate the audience about a social issue, to advocate for a policy change, or to provide a service or assistance. Management and general functions are those that support the overall operations and governance of the NFP, such as administration, accounting, human resources, or board activities.

The purpose criterion can be assessed using three tests: the compensation-or-fees test, the separate-and-similar-activities test, and the other-evidence test. The compensation-or-fees test is a negative test that fails the purpose criterion if a majority of the compensation or fees for any party’s performance of any component of the activity is tied to contributions raised. For example, if a commission-based fundraiser is involved in any part of the activity, the purpose criterion is not met. The separate-and-similar-activities test can be used to meet the purpose criterion if a similar program or management and general activity is conducted separately and on a similar or greater scale. For example, if an NFP sends a newsletter that includes a fundraising appeal and also sends a similar newsletter without a fundraising appeal, the purpose criterion is met. The other-evidence test requires considering all available evidence, both positive and negative, to determine if the purpose criterion is met based on the weight of the evidence.

The audience criterion is met if the audience is selected based on its need to use or reasonable potential to use the action called for by the program or management and general component of the activity. For example, an NFP that provides legal services to low-income individuals may send a brochure that explains its services and also asks for donations to a list of potential clients who qualify for its assistance. The audience criterion is not met if the audience is selected based on its likelihood to contribute to the NFP, such as prior donors or wealthy individuals. The audience criterion may also not be met if the audience is too broad or general, such as the public at large, and does not have a specific need or potential for the program or management and general component.

The content criterion is met if the activity supports program or management and general functions by calling for a specific action by the audience that benefits either the recipient or society, and by explaining the need for and benefits of the action. For example, an NFP that promotes environmental conservation may send a video that shows the effects of climate change and also urges the audience to sign a petition and make a donation. The content criterion is not met if the activity only educates the audience about a cause or issue and does not call for a specific action. The content criterion may also not be met if the activity is incidental to the fundraising component, such as a thank-you note or a token gift.

HOW TO ALLOCATE JOINT COSTS?

Once an NFP determines that an activity meets the criteria for joint cost allocation, it needs to identify the joint costs and the allocation method. Joint costs are the costs of conducting the activity that are not identifiable with a particular component or function. For example, the cost of printing and mailing a brochure that includes both program and fundraising components is a joint cost. The cost of the staff time spent on preparing the program component of the brochure is not a joint cost and should be charged to program expenses.

The allocation method should be rational, systematic, and consistent, and should result in a reasonable allocation of joint costs. The ASC provides some examples of allocation methods, such as the physical-units method, the relative-direct-cost method, and the stand-alone joint-cost-allocation method. The physical-units method allocates joint costs based on the number of units of output, such as lines or square inches. The relative-direct-cost method allocates joint costs based on the relative direct costs of each component. The stand-alone method allocates joint costs based on what each component would cost if conducted separately. NFPs should choose the method that best reflects the benefits and costs of each component and apply it consistently to similar activities.

WHAT ARE THE DISCLOSURE REQUIREMENTS FOR JOINT COSTS?

NFPs that allocate joint costs are required to disclose the following information in their financial statements, according to ASC Paragraph 958-720-50-2:

  • The types of activities for which joint costs have been incurred, such as newsletters, events, or campaigns.
  • A statement that joint costs have been allocated among program, management and general, and fundraising functions.
  • The total amount of joint costs allocated during the period.
  • The amount of joint costs allocated to each functional expense category.

NFPs are also encouraged, but not required, to disclose the amount of joint costs for each kind of joint activity, if practical. For example, an NFP may disclose the joint costs allocated for each newsletter, event, or campaign that it conducted during the period.

IN SUMMARY

Joint cost accounting is a challenging and critical area for NFPs that conduct activities that include both program and fundraising components. NFPs need to follow the accounting standards and guidance that provide the criteria, methods, and disclosures for allocating joint costs. By doing so, NFPs can ensure that they report their functional expenses accurately and transparently, and that they demonstrate their efficiency and effectiveness in fulfilling their mission.

THIS ARTICLE WAS ALSO FEATURED IN NFP ADVISOR VOL. 29. READ THE ARTICLE AND MUCH MORE RELATED CONTENT HERE!

Mahnaz Cavalluzzi, CPA

Mahnaz Cavalluzzi, CPA

Director

Mahnaz has been a member of Cerini & Associates’ audit and consulting practice area for over 8 years where she focuses on serving nonprofit organizations, education, and healthcare clientele. Mahnaz has experience in financial statement audits, financial statement reviews, tax return preparation, cost report filing, and other consulting. Mahnaz brings her expertise, diversified background, and helpful approach to all of her engagements.

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Christine Deska

Co-founder at BellesBoard and Nonprofit Sector Strategies

Christine Deska is the President and Co-Founder of Nonprofit Sector Strategies, a public benefit corporation dedicated to helping nonprofits maximize mission impact through strategic planning and board management services. BellesBoard, its signature product, is a board management software solution and mobile app that grows nonprofit boards’ efficiency, engagement and fundraising.

Impact Redefined: Transforming Partnerships, Social Moments, and Personal Connections to Drive Change 

Impact Redefined

Create opportunities for your nonprofit or social enterprise with partnerships and social media

In Impact Redefined: Transforming Partnerships, Social Moments, and Personal Connections to Drive Change, social entrepreneur and advisor Nick Lynch delivers an insightful exploration of how to use a variety of social opportunities to your advantage. Easy-to-understand, this book is for folks who desire positive change and are looking for strategies to create long-lasting impact via partnerships, real-life opportunities, and social media. You’ll discover the importance of self-branding, nurturing healthy collaborations and connections, championing empathy, and multiplying impact through relationships.

In the book, you’ll find:

  • Methods for developing social moments to foster connection and build community
  • Tips for building and maintaining successful partnerships and collaborations with influencers and other people
  • Ways to nurture human connections to form a wider network that benefits your social organization

A can’t-miss roadmap to maximizing your impact on your community and the wider world around you, Impact Redefined is an essential resource for social entrepreneurs, nonprofit leaders, and other philanthropically minded professionals.

Preorder the Book here: https://www.amazon.com/Impact-Redefined-Transforming-Partnerships-Connections/dp/139423709X/ref=sr_1_2?crid=2XVNIXAFW1J2L&keywords=impact+redefined&qid=1701200160&sprefix=impact+redefined%2Caps%2C535&sr=8-2

Navigating Hiring, Compensation, Succession Planning, and Employee Retention Trends in Nonprofits: Insights for 2024

In the dynamic landscape of nonprofit organizations (NFPs), staying informed about hiring, compensation, succession planning, and employee retention trends is crucial for attracting, developing, and retaining top talent.

RECRUITMENT TRENDS IN NONPROFITS:

As nonprofits evolve, so do their approaches to recruitment. Several trends are shaping the hiring landscape for NFPs:

STRATEGIC TALENT ACQUISITION:

Nonprofits are adopting a strategic approach to talent acquisition, aligning recruitment efforts with organizational goals and culture to ensure that new hires contribute to the overall mission and objectives.

EMPHASIS ON DIVERSITY, EQUITY, AND INCLUSION (DEI):

DEI considerations are at the forefront of nonprofit hiring practices, with organizations actively working to create more diverse and inclusive teams, to foster broader perspectives and better represent the communities they serve.

REMOTE WORK AND FLEXIBILITY:

The COVID-19 pandemic has accelerated the acceptance of remote work. Nonprofits are embracing flexible work arrangements, enabling them to access a broader talent pool and provide employees with greater work-life balance.

SKILLS-BASED HIRING:

Nonprofits are focusing on skills-based hiring, looking beyond traditional qualifications to identify candidates for a particular role but also identifying skills that are transferrable to other positions.

TECHNOLOGY ADOPTION IN RECRUITMENT:

The use of technology, including applicant tracking systems and artificial intelligence, is becoming more prevalent in nonprofit recruitment processes, streamlining workflows and saving time and resources.

COMPENSATION TRENDS FOR 2024:

Compensation is a critical factor in attracting and retaining top talent in the nonprofit sector. Key trends in compensation for 2024 include:

COMPETITIVE SALARIES FOR MISSION-CRITICAL ROLES:

Nonprofits are recognizing the importance of offering competitive salaries for roles critical to the organization’s mission to attract and retain high-caliber professionals.

FOCUS ON TOTAL REWARDS:

Beyond base salaries, nonprofits are placing greater emphasis on total rewards packages, including benefits, professional development opportunities, and work-life balance initiatives. In recognizing the diverse needs of their workforce, they are being more creative and flexible with offerings.

VARIABLE COMPENSATION AND PERFORMANCE-BASED INCENTIVES:

To align employee performance with organizational objectives, nonprofits are incorporating variable compensation and performance-based incentives.

TRANSPARENT COMPENSATION PRACTICES:

Nonprofits are adopting pay transparent practices, driven by legislation related to job postings, and an internal shift to provide employees with a clear understanding of how their compensation is determined; this helps to foster trust and enhance overall employee satisfaction.

SUCCESSION PLANNING:

Succession planning is a critical aspect of organizational sustainability for nonprofits. Key considerations include:

IDENTIFYING KEY ROLES:

Nonprofits should identify key leadership and critical roles within the organization that are essential for its continued success.

DEVELOPING INTERNAL TALENT:

Fostering the development of internal talent ensures that there is a pool of skilled individuals ready to step into key roles when needed. This may involve mentorship programs, training, and leadership development initiatives. Research shows that an employer’s commitment to developing talent is one of the key reasons employees stay.

CREATING LEADERSHIP PIPELINES:

Establishing leadership pipelines ensures a smooth transition when key leaders or executives retire or move on. Developing a pipeline of talent minimizes disruptions and maintains organizational continuity.

KNOWLEDGE TRANSFER:

Facilitating the transfer of knowledge from senior staff to emerging leaders is crucial for preserving institutional wisdom. This can involve mentorship programs, documentation of processes, and collaborative projects.

ENGAGING THE BOARD:

The board of directors plays a vital role in succession planning. It is essential to communicate succession plans with the board, involving them in the process and seeking their input.

EMPLOYEE RETENTION STRATEGIES:

Employee retention is paramount for the long-term success of nonprofits. Effective strategies include:

UNDERSTANDING EMPLOYEE NEEDS:

Regularly assess employee needs, expectations, and job satisfaction to identify areas for improvement and implement targeted retention initiatives. Regular check-ins, employee surveys and stay interviews provide valuable insights.

PROFESSIONAL DEVELOPMENT OPPORTUNITIES:

Offer ongoing training and development opportunities to empower employees to grow vertically and horizontally within the organization, contributing to their job satisfaction and loyalty.

RECOGNITION AND REWARDS:

Implement recognition programs to acknowledge and appreciate employees’ contributions. This can include awards, public acknowledgment, and other forms of recognition.

FLEXIBLE WORK ARRANGEMENTS:

Provide flexible work arrangements to accommodate employees’ work-life balance needs, demonstrating a commitment to their well-being.

CLEAR COMMUNICATION:

Foster open and transparent communication to ensure employees feel informed, engaged, and part of the organization’s larger mission.

EMPLOYEE WELL-BEING INITIATIVES:

Prioritize employee well-being by offering wellness programs, mental health support, and initiatives that contribute to a positive and healthy work environment.

COMMUNICATION DIFFERENCES BETWEEN GENERATIONS:

Acknowledge and bridge communication differences between generations in the workplace to foster skill-building and knowledge-sharing.

The success of nonprofits in 2024 and beyond lies in their ability to adapt to changing workforce dynamics, prioritize talent acquisition and retention, and strategically plan for the future. By staying attuned to these trends and embracing a forward-thinking approach, nonprofits can position themselves for sustained impact and growth in fulfilling their missions.

THIS ARTICLE WAS ALSO FEATURED IN OUR 2024 NONPROFIT TRENDS GUIDE. READ THE ARTICLE AND MUCH MORE RELATED CONTENT HERE!

Jill Krumholz
RealHR Solutions

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Groove With Me (GWM) is looking for dedicated individuals interested in making a positive impact on the lives of young girls by serving on the GWM Board of Directors.

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How a Board Portal Can Improve Board Member Recruitment

Board Portal

Using a board portal can significantly improve the recruitment process for new nonprofit board members. This happens in two distinct ways. A board  portal: 

  • Increases the likelihood that an individual will want to join the board
  • Supports more efficiency in your recruitment process. 
“Professionalize the Perception of Your Board” 

Potential board members are typically busy people, with multiple responsibilities and obligations. Anything that can save these individuals time and increase their efficiency is going to be seen as a benefit. In fact, the absence of a board portal will be seen as an impediment when an individual is considering joining aboard. 

Ray Mohler, President of the Little Saint Nick Foundation, said having a board portal in place is a key factor in a new board member’s decision to join his  organization. 

Another way that a board portal can be useful in an organization’s recruitment efforts involves facilitating member engagement.  

Since members do not engage with board activity on a regular basis, it is important that when a board member needs to find information, they can do so quickly, without having to search through emails, files, and paper documents. Showing a potential recruit how easy it is to find information will be another attraction when considering joining the board. 

Also, as boards look to recruit new, and younger members, these individuals will typically expect that the organization is using technology to make their involvement as efficient as possible. 

Obviously, a new board member must relate to and embrace the organization’s mission. Demonstrating that the organization also operates efficiently and professionally will further increase the likelihood that an individual will want to join the board.

Here are some specific benefits that a board portal provides in the recruitment of new members. 

  1. Centralized Information: A board portal provides a centralized platform where all relevant information about the organization, including its mission, vision, strategic goals, financial reports, and governance  documents can be stored, and accessed. This makes it easier for potential board members to learn about the organization and its  activities, thereby facilitating the recruitment process. 
  2. Document Sharing and Collaboration: Board portals enable seamless document sharing and collaboration among board members and potential recruits. Organizations can share board meeting agendas, minutes, and other important documents with prospective board members, allowing them to get a better understanding of the organization’s operations and governance practices. 
  3. Secure Communication: Board portals offer secure communication channels for discussions and interactions between current board members and potential recruits. Organizations can use these channels to communicate with prospective board members, answer their questions, and provide them with additional information about the organization and its board structure. 
  4. Customized Access Levels: Board portals allow organizations to set customized access levels for different users, including potential board  members. This ensures that sensitive information is protected while still providing potential recruits with access to relevant documents and resources needed to make informed decisions about joining the board. 
  5. Virtual Meetings and Presentations: Board portals often include features for hosting virtual meetings and presentations. Organizations can use  these features to conduct virtual interviews with potential board members, showcase presentations about the organization’s mission and activities, and facilitate discussions about the role and expectations of board membership. 
  6. Tracking and Reporting: Board portals provide tools for tracking recruitment activities and generating reports on the status of board recruitment efforts. Organizations can use these tools to monitor the  progress of recruitment campaigns, track interactions with potential recruits, and evaluate the effectiveness of different recruitment strategies. 
Increase the Overall Efficiency of Your Recruitment Process

Here are some specific examples of how it does so:

  1. Enhanced Efficiency and Productivity: By streamlining the recruitment process and providing easy access to relevant information and resources, board portals can help nonprofit organizations save time and resources while improving its overall efficiency and productivity. 
  2. Define Board Member Profiles: A board portal enables the organization to outline the skills, expertise, and attributes needed in potential board members. This can help in targeting individuals who possess the specific qualities needed to support the organization’s mission and goals. 
  3. Offer Board Training and Orientation: A board portal will enable the organization to offer comprehensive training and orientation sessions to familiarize new board members. This can help onboard new members more effectively and ensure they are well-prepared to contribute to the board’s work. 
  4. Cultivate Relationships: A board portal can be used to build strong relationships with potential board members over time by involving them in volunteer opportunities, committee work, or other roles within the organization. This can help cultivate their interest in board service and  demonstrate the value of their involvement. 
  5. Provide Ongoing Support and Recognition: A board portal makes the experience of supporting the organization’s mission more rewarding and satisfying. A positive board culture and supportive environment can help attract and retain new members. 
Summary 

By implementing these strategies, nonprofit organizations can enhance their recruitment efforts and attract qualified individuals who are passionate about advancing the organization’s mission and making a positive impact in the community. For more information, schedule a BellesBoard demo or contact Frank Orzo, Co-founder of BellesBoard and Nonprofit Sector Strategies PBC, at 516-902-4638, or forzo@bellesboard.com.

Nonprofit Technology Trends to Watch in 2024: Navigating the Digital Frontier

In the fast-paced world of nonprofits, staying ahead of technology trends is essential for organizations striving to make a lasting impact. As we approach 2024, several key technology trends are set to shape the nonprofit sector, influencing everything from decision-making processes to cybersecurity measures and the adoption of automation. Let’s delve deeper into each of these trends to better understand their significance.

EMBRACING DATA-DRIVEN DECISION-MAKING:

Data has become a cornerstone for nonprofits looking to make informed and strategic decisions. In 2024, the emphasis on data-driven decision-making will continue to grow. Nonprofits are increasingly leveraging advanced analytics tools to collect, analyze, and derive actionable insights from vast datasets. This enables organizations to better understand donor behavior, optimize fundraising campaigns, and measure the impact of their programs.

The integration of artificial intelligence and machine learning further enhances the predictive capabilities of data analytics, allowing nonprofits to anticipate trends, personalize engagement strategies, and allocate resources more effectively. Ultimately, a data-driven approach empowers nonprofits to maximize their efficiency and impact in achieving their missions.

STRATEGIC NONPROFIT TECHNOLOGY ADOPTION:

Making confident technology choices is not just about adopting the latest tools; it’s about aligning technology with organizational goals and ensuring long-term sustainability. In 2024, nonprofits are recognizing the need for a strategic approach to technology adoption. This involves a careful assessment of the organization’s specific needs, scalability considerations, and the compatibility of new technologies with existing systems.

Strategic adoption also includes fostering a culture of digital literacy within the organization, ensuring that staff members are equipped to leverage technology effectively. By making thoughtful and strategic choices, nonprofits can harness technology as a powerful enabler of their mission, driving efficiency, collaboration, and innovation.

ADVANCEMENTS IN CYBERSECURITY:

With the increasing digitization of operations, nonprofits are acutely aware of the growing threats in the cyber landscape. The year 2024 will witness nonprofits focusing on advanced cybersecurity measures to protect sensitive donor information, maintain trust, and ensure compliance with data protection regulations.

This trend involves the adoption of robust cybersecurity solutions, including advanced encryption methods, multi-factor authentication, and continuous monitoring of digital assets. Nonprofits will invest in cybersecurity training for staff to create a culture of awareness and vigilance against evolving cyber threats. By prioritizing cybersecurity, nonprofits can safeguard their reputation, protect donor trust, and ensure the integrity of their digital operations.

DIGITAL TRANSFORMATION AND AUTOMATION:

The digital transformation journey for nonprofits involves more than just adopting new technologies; it’s about reimagining processes and workflows to drive efficiency and impact. Automation technologies play a central role in this transformation, automating repetitive and time-consuming tasks to free up resources for more strategic and value-added activities.

In 2024, nonprofits will increasingly embrace automation tools for tasks such as donor communication, event management, and data entry. This not only streamlines operations but also reduces the risk of human error. By integrating automation into their workflows, nonprofits can enhance productivity, improve accuracy, and focus their efforts on achieving their core mission objectives.

As nonprofits navigate the digital frontier in 2024, the strategic adoption of technology will be a defining factor in their success. By embracing data-driven decision-making, making confident and strategic technology choices, prioritizing cybersecurity, and leveraging digital transformation and automation, nonprofits can position themselves as agile, efficient, and impactful organizations. These technology trends offer a roadmap for nonprofits to not only stay relevant in an evolving landscape but to thrive and drive positive change in their communities and beyond.

THIS ARTICLE WAS ALSO FEATURED IN OUR 2024 NONPROFIT TRENDS GUIDE. READ THE ARTICLE AND MUCH MORE RELATED CONTENT HERE!

Matthew Burke, CPA

Matthew Burke, CPA

Partner

Matt specializes in providing Cerini and Associates’ diverse array of midsized business clientele and nonprofit organizations with valuable consulting and assurance services. He prides himself on value-added, responsive, and innovative service to his clients; with a focus on forward-thinking and creative solutions. Matt joined the firm in 2002 and has years of experience with many types of complex accounting, auditing, compliance, and general business matters that impact entrepreneurial, established, and nonprofit businesses.