Tax Information Reporting for Non-Profit Organizations

Information reporting, such as on Forms 1099 or W-2, is one of the crucial components of a well-functioning tax system.  Such information reporting both assists taxpayers in filing of their annual returns as well as informs the government of income earned by taxpayers.  Broadly speaking, the IRS has placed the burden of information reporting on the payors but ultimately the requirement to report income falls on the recipient. 

Much like with wage reporting, the Internal Revenue Code does not make the distinction between Non-Profit Organizations and For-Profit Organizations, thereby requiring many Non-Profit Organizations to file annual information returns.  The most common form of information reporting for organizations (besides payroll) is the filing of Form 1099. 

The most common types of reportable payments made by organizations which require reporting are

  • Non-Employee Compensation
    • These are payments to independent contractors made by the organization.  These can include service providers like accountants and lawyers.  Organizations should be sure that payees are independent contractors and not employees
  • Rent
    • Payments for the use of property (typically including any CAM charges or Real Estate Taxes included as part of the lease) are subject to information reporting.
  • Other Income
    • Organizations that make other payments that may be taxable to the recipient (such as prizes, awards, or non-qualified scholarships) should report these as “Other Income”

One area that is unique to the Non-Profit Sector is the potential payment in relation to the mission of the organization.  The Internal Revenue Code does have a somewhat broad definition of income, with income as “all income from whatever source derived” meaning “instances of undeniable accessions to wealth, clearly realized and over which taxpayers have complete dominion.”  While some of these cases can be clear (wages, interest) others can be a bit more obtuse (certain fringe benefits, prizes, and awards).  Where does a payment or benefit from an organization fit in – certainly if an organization is helping someone in need, the last thing they may want is to create a taxable burden on someone as a result. 

Luckily, there is an exemption for these payments.  The IRS considers payments from organizations generally to be “gifts” under IRC Section 102.  The IRS has published several different revenue rulings (Rev. Rul. 2003-12, 99-44, INFO 2006-0027) which elaborate on this, but largely the payments are made because of “detached and disinterested generosity….out of affection, respect, admiration, charity of like impulses.”  As such, the payments are “excluded from gross income” and “not subject to information reporting under 6041.”  So long as the recipients are not required to perform any services or similar and the payments are made out of this generosity the payments should be both exempt from tax and information reporting. 

Finally, a common question for many non-profit organizations relates to payments for foreign contractors.  Most non-profits are familiar with the information reporting rules requiring Form 1099 to contractors, but when the payment is made to an overseas contractor (who typically will not have a Social Security Number) questions arise.  While no one answer can be said, generally, payments made to a service provider who is providing the services outside of the US are not subject to US Taxation (as they are not Effectively Connected Income) and are not subject to reporting requirements.  Organizations should obtain a Form W-8 BEN from these contractors, which is a certification that the payments are not Effectively Connected Income (e.g. performed in the US). 

Other payments that are not for services (e.g. awards or prizes) or are performed by a non-resident individual in the US or are Effectively Connected Income are both taxable in the US and reportable payments.  Such payments are reported on Form 1042-S and may be subject to withholding at the source, which can vary greatly depending on the nature of the payment and the citizenship of the recipient. 

Edward McWilliams, CPA

EDWARD MCWILLIAMS, CPA

Partner

Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.

Can 2022 Be Your Year of Data?

Is data still a four-letter word at your organization? Do your data systems and processes feel more like a liability than an asset? Does “data culture” sound like a faraway luxury rather than reality? What would it take for 2022 to be the year when you started building a data culture at your organization?

The good news is that the path to building a data culture is an evolution. There are basic steps that any organization can take, no matter where you are on the data conundrum continuum. Join us for a 1-hour learning lunch where we will examine common pain points that nonprofits face with effective data management and identify basic steps you can start taking to turn around the state of data at your organization.

In this session, we’ll be addressing these questions:

– Does your data have an owner and why does that matter?

– What are data workflows and how do “non-data” people do them?

– How do we know if we need a new system?

– What should we do if our data seems unreliable?

– What are the risks of old data?

OSHA’s Emergency Temporary Standard: Guidance on Mandatory COVID-19 Vaccination/Testing

The Occupational Safety and Health Administration has published its Emergency Temporary Standard, which requires most U.S. employers with 100 or more employees to adopt a mandatory COVID-19 vaccination policy with an option to include an alternative weekly testing program.  The ETS is effective immediately and employers have until December 5, 2021, to comply with all of the requirements of the ETS, except for the weekly testing option for employees who have not been fully vaccinated.  While the ETS has already been legally challenged, employers should begin preparing for compliance. 

HR Audits: Frequently Asked Questions & How to Get Started

RealHR Solutions is a leading provider of HR audit services for organizations of all sizes.


Human resources (HR) audits help organizations take stock of their HR processes, identify problem areas or potential risks, and make timely changes as needed. They serve as a safeguard, helping your organization catch issues early and avoid damaging HR pitfalls.

After all, HR can be complicated. An extremely wide range of responsibilities falls under the HR umbrella, meaning there is a lot to keep track of. And with the huge potential impacts of neglecting just one aspect of your organization’s human resources—like costly legal non-compliance and lagging employee retention rates—it pays to conduct regular check-ups. This is especially true in today’s rapidly changing labor landscape.

This guide will cover the most frequently asked questions about HR audits as well as the first steps to get started conducting your own.

Here are a few frequently asked questions about HR audits.

What is an HR audit?

An HR audit is an analysis of an organization’s policies and procedures that relate to human resources, regulatory compliance, and other aspects of its internal operations. Audits should be as objective as possible, so they are typically conducted by third-party HR consultants or experienced HR departments. The results of an effective HR audit will reveal gaps in your organization’s practices and their impacts, plus areas of potential liability that need to be addressed.

What is the difference between an HR audit and assessment?

As you weigh your organization’s HR options, you may encounter both HR audits and HR assessments. These exercises are similar, but they differ in scope and focus.

HR audits focus on concrete HR policies, compliance, and other internal areas like performance management, job descriptions, and training requirements. They are often more granular in scope than HR assessments.

HR assessments are comprehensive reviews and evaluations of an organization’s complete range of HR activities. While they review concrete policies and compliance like audits, they also take a broader view of the organization’s HR practices as a whole.

Both HR audits and assessments should provide diagnostics and next steps to prioritize, but it is important to remember that they serve somewhat different purposes. While audits point you towards immediate internal and regulatory gaps that need correcting, assessments analyze your structures in a more holistic way to help you better align your HR practices with employees’ needs and organizational goals. It is recommended that audits be conducted every 1-2 years and assessments less frequently.

If you work with an HR consultant to prepare for or conduct an audit, ask about their assessment services. A valuable long-term partner will likely be able to offer support in both areas.

What operational areas do HR audits analyze?

An HR audit will typically cover the following operational areas:

  • HR practices, including those related to regulatory compliance and organizational policies reflected in your employee handbook
  • Recruitment and hiring practices
  • FLSA compliance/exempt/non-exempt classification of employees
  • I-9 practices
  • Employee onboarding
  • Exit interviews
  • Job descriptions
  • Mandatory training
  • Diversity, equity, and inclusion initiatives
  • Performance management processes
  • Other function-specific areas of your operations

The exact areas that your HR audit examines can vary based on its objectives and your organizational structure. Depending on what they are intended to accomplish, audits typically fall into one of a few general categories:Type of HR AuditObjectivesCompliance AuditsDetermining the organization’s compliance with federal, state, and local labor laws and other regulationsStrategic AuditsAnalyzing the strengths, weaknesses, and gaps in HR systems and policies to determine how well they align with the organization’s strategic plansBest Practices AuditsComparing the organization’s HR policies and practices with those of industry-leading companies or others considered best places to workFunction-Specific AuditsReviewing HR policies, practices, and compliance as they relate to one specific HR function, like job descriptions, pay equity, or benefits review

There may be some overlap between these objectives and the specific areas that an HR audit will review. This is why clearly defining your needs, goals, and the areas you want to learn more about is critical for conducting a successful HR audit.

Why conduct an HR audit?

In addition to conducting HR audits on a regular basis to ensure continued compliance and to evaluate the impact of policy and procedural changes over time, you may also choose to conduct an HR audit in specific situations. For example, an organization may conduct an audit to:

  • Perform due diligence reviews for investors, acquisitions or mergers, or other potential stakeholders.
  • Instill greater confidence in its management or enhance its reputation in the community.
  • Quickly diagnose and correct policy gaps after a noncompliance issue has already arisen.

Simply put, HR audits show you where your HR policies are working well and where they need to be improved or changed. Their ultimate purpose is to help protect your organization from compliance risks and to make strategic improvements at the policy level, whether proactively or in reaction to changing circumstances or challenges.

Who is involved in an HR audit?

An HR audit usually involves a few key individuals or teams, including:

  • Organizational or HR departmental leadership
  • An HR consultant, if contracted to conduct the audit
  • HR staff members, if the audit is conducted in-house
  • Leaders or staff from other relevant departments depending on the audit’s focus

HR audits need to be thorough and objective. They can be conducted in-house, but your organization must ensure that your HR team has the experience and skills necessary before diving in. In-house HR audits are more likely for larger or well-established organizations with functional HR departments.

To ensure objectivity and take the guesswork out of the process, many organizations opt to partner with third-party HR experts to conduct audits. Consider that many HR consultants offer specialized services, but since audits can touch on many different aspects of your HR practices, it is often beneficial to look for full-service HR partners who can bring more experience and broader insights to the table.

At RealHR Solutions, we offer a complete range of human resources consulting services, including audits, assessments, HR set-up, workplace investigations, organizational strategy, and more. With a background in employment law, a diverse team of experts, and the flexibility to offer both project-based and ongoing HR support, we can both conduct your organization’s audit and clearly lay out plans for improvement. Check out our complete range of HR offerings to learn more.

What are the steps of an HR audit?

This section explains the 7 core steps of a human resources audit.

Although the exact scope and focus of HR audits can vary, they follow a few general steps:

  1. Determine the audit’s type and scope.
    • Begin by defining your objectives for the HR audit and the operational areas that it will review. This could mean taking a comprehensive approach or instead focusing on one specific area or policy. Identify the audit’s key stakeholders and other departmental points of contact who will help you gather information.
  2. Create an HR audit questionnaire.
    • Based on the audit’s scope, develop a questionnaire or other document that walks through all the information needed to achieve the inquiry’s objectives. Clearly spell out what information you need and from whom. This document will effectively serve as the audit’s roadmap, so take your time to ensure it is as comprehensive as possible.
  3. Collect the necessary data.
    • Next, follow the questionnaire to begin collecting relevant data and reviewing the specific areas or policies that it covers. Reference the questionnaire as you go to ensure nothing is forgotten or skimmed over along the way.
  4. Benchmark your audit’s findings.
    • Your audit’s findings can be compared and benchmarked against internal data (like turnover or cost per new employee hired) to see changes over time and to identify solutions. You can also benchmark findings against external data of organizations of similar size or that meet other specific criteria in order to provide you with a frame of reference for best practices to help inform your next steps. This is an area where the support of HR experts is particularly helpful since benchmarking can be a challenge for smaller or inexperienced teams.
  5. Report your audit’s findings.
    • After gathering your data and/or using benchmarking data to interpret your findings, summarize your data and report it to departmental and organizational leadership. This report should outline key findings and prioritize them based on various risk or urgency levels.
  6. Develop a plan of action.
    • Building from the HR audit’s final report and prioritized recommendations, lay out a concrete plan of action and get started implementing it. This step is particularly important and requires thorough follow-up. Failing to act on compliance gaps identified by audits can actually increase your risk (for example, by creating a record that an organization was previously aware of FLSA misclassifications but did nothing to address them).
  7. Emphasize a culture of continuous improvement.
    • Conducting HR audits and responding to the information proactively reflects an organization that is interested in responding to not only compliance concerns but also looking toward continuous improvement. Actively track your progress through the audit’s plan of action and the impact of all HR changes made over time. Also, plan ahead to conduct additional HR audits in the future.
Before getting started with an HR audit, you need to check your organization's readiness.

How to Get Started

Ready to get started preparing for an HR audit? Here are the steps we recommend to check your organization’s readiness:

  1. Define your exact needs and your audit’s area of focus. Whether you conduct the audit in-house or work with a consultant, you must have a solid understanding of exactly what you aim to accomplish or learn more about.
  2. Realistically determine your team’s ability to conduct the HR audit in-house. Consider your HR team’s resources, knowledge, skills, and objectivity.
  3. Begin researching HR and compliance consulting firms, if you’ve determined that you need objective third-party support.
  4. Choose a partner who can conduct the audit and provide practical and specific recommendations based on its findings.

Remember, HR policy changes and regulatory compliance can have high stakes for your organization’s health. Think carefully about whether your own team or a third party is best positioned to conduct the audit objectively and then distill it into actionable next steps. For most organizations, the help of an HR consultant will be the best choice. Ideal partners will offer a full range of services, experiences, and insights to ensure you make the most of your audit’s findings over the long run.

The bottom line: Regularly conducting audits of your HR practices not only helps you to quickly identify risks but also to proactively protect your organization’s reputation, time, and resources. Audits can help your HR team foster a stronger culture of continuous improvement, keeping best practices and changing regulations top of mind as your organization grows over time.

It’s certainly possible for some HR teams to conduct effective in-house audits and enact successful action plans based on their findings. However, in most situations, the help of an objective expert will prove the more effective solution.

RealHR Solutions is a leading provider of HR audit services. If you have any questions about HR audits, please contact us to learn more. Or, keep researching to learn more about the importance of solid HR practices with these additional resources:

  • HR Assessments: The What, Why, When, and Who. Unsure if your organization needs an HR audit or an assessment? Learn more about HR assessments with this complete breakdown of what they are and what they accomplish.
  • What, Why, When, and How to Conduct a Pay Equity Audit. Pay equity is a critically important compliance and reputational consideration for organizations of all sizes. This guide outlines the key information you need to know about this type of audit.
  • Response to the Great Resignation. The impact of the COVID-19 pandemic on the labor landscape has been profound. This article digs into job market trends, their implications, and steps employers can take to boost employee retention.
Need a human resources audit? RealHR Solutions can help.

5 Ways to Make Sure Your Best Employees Never Want to Leave

Here’s something that keeps your Executive Director (or you?) up at night.

“What happens if Jason leaves? Sure, I’m the E.D – but Jason is really irreplaceable. He has all the relationships that drive the big money. If he ever leaves, this place will fall apart.”

Every organization has its rock stars. You, as the leader, want to do everything you can to make them never want to leave.

Here are five things you can do to retain your best employees.

FIRST OF ALL, SNAP OUT OF IT

No one, not even Jason, is irreplaceable.

You may rely on him now, but you’d find someone else if you had to. And more importantly, it’s highly unlikely that Jason will stay as long as you’d like no matter what you do.

You also need to snap out of the mentality that you are only the E.D. If you really feel that Jason is more important to the success of your work, maybe you should be the one shopping.

A big part of your job is to build a team of five-star players. Absolutely take great care of your rock stars but remember… if the band isn’t also first rate, you’re probably not getting a platinum album (do they still call them albums?)

5 THINGS YOU CAN DO TO IMPROVE RETENTION OF KEY STAFF

1) Champion purpose. A recent study by Harvard Business Review and The Energy Project (a company that assesses workplace productivity,) the single most important influencer for job satisfaction and retention is purpose.

Employees who derive meaning and significance from their work were more than three times as likely to stay with their organizations — the highest single impact of any variable in our survey. These employees also reported 1.7 times higher job satisfaction and they were 1.4 times more engaged at work.” 

While it might be hard to sell purpose if you lead a company that makes clothes hangers, you’re the Executive Director of a nonprofit. You exude purpose. What an advantage! You must ensure that your staff touches and feels the work, especially your rock stars.

2) Be inclusive. Ask for their point-of-view and listen to their voices. As an E.D., you actually don’t have the best vantage point of your organization. Your key staff does. Ask them what’s working, what’s not, what new territory should be explored, if there’s a new way of doing the work. I guarantee you that your rock stars think about that stuff all the time. Their ideas will be terrific. That’s why they’re your best employees.

3) Give credit. What better way to illustrate that your rock star’s voice matters than to execute one of her ideas? Then make sure to give credit where credit is due. The best way is to acknowledge the contribution in a public setting.

4) Build a career path. Take extra time with your rock star (Yes, it’s ok. Play favorites.) Understand his professional aspirations. Build a plan together to ensure that your high performer is gaining the skills and building the relationships that will lead him in that direction.

5) Create new opportunities. My friend (and client) Axel Marrero at Hyacinth AIDS Foundation has been in his job for nearly two decades. He was a guest speaker at my class at The Annenberg School at the University of Pennsylvania. A student asked, “How have you stayed so long without burning out? Haven’t you been interested in working somewhere else?”

Axel spoke of his personal connection to the AIDS epidemic, which brought a sense of passion. He explained that a big reason he never left is that he was constantly asked to take on new and different roles in the organization. He was allowed, even encouraged, to stretch different muscles. He praised his bosses for tapping into him as a thought partner and allowing him to have a real and valued voice.

Throughout this time, I have seen Axel at the near burnout stage. I’ve thought to myself that he wouldn’t last there too much longer. But each time I’ve thought that, either his E.D. or Axel saw it happening. Together, they created new opportunities for him, which have always been able to re-ignite his sense of purpose and reinforce his commitment to the organization.

INSURANCE AGAINST LOST ROCK STARS

Two last pieces of advice:

First, don’t be naïve. Rock stars like Jason will leave. You need to make sure that it doesn’t catch you off guard. Make sure your best employees are not lone cowboys. Institutionalize his relationships. Make sure they belong to the organization and not simply to Jason.

And finally, make it part of your rock star’s job to build bench strength. Chances are that he gets this and is already on it because he is, after all, a rock star. But the single best way to contend with the loss of a rock star is an internal promotion.

Shared Content  Joan Garry Consulting

3 Interview Red Flags That Are Actually Signs of a Good Leader

Lack of experience doesn’t always mean unqualified. Here’s how to spot the difference. 

While some may say integrity and emotional intelligence make a strong leader, others measure leadership skills based on a person’s drive, ability, and influence. The truth is, when it comes to hiring for a leadership role, what makes an ideal leader typically varies and reflects the company’s current goals, which is why promoting your highest performer isn’t necessarily always the best option.

In fact, the difference between a good and a great leader can sometimes be obscured by relying on traditional traits and first impressions. I often recommend coming into each interview without any expectations from candidates.

Sure, having an impressive résumé and credentials is one thing, but taking a chance on a candidate who shows promise to shake things up a little can impact your team and company in ways you never imagined. So, what’s one way to come into an interview with an open mind? Just like how leadership can easily be redefined, forget what you know about traditional interview red flags and try looking at them in a new light.

Whether you’re looking to hire someone who can drive results, bring everyone together, innovate business, or help develop skills, I’ll be walking you through a few of the most common interview red flags that could potentially translate into signs of a good leader.

1. Do they lack experience, or are they coming into the role with a fresh and new perspective?

An impressive and very detailed résumé that stands out from the crowd can go a long way in the hiring process — just ask any HR representative who has ever screened a candidate who openly lacks relatable work experience but showcases a lot of promise. When interviewing this type of candidate, try to grasp their work style, attitude, and personality.

Ask yourself: “Can I trust this individual to help shape my team?” Determine why they want to take on a leadership role, especially if it is an entirely different industry, and ask them about transferrable skills and similar experiences outside of work.

Depending on the goals you’re hiring for, experience doesn’t necessarily mean they’re unqualified. Sometimes a fresh and new perspective from an outside hire can help shake things up in your team and positively impact your company. With that said, because candidates like this are more of a risk to consider, prepare yourself for a lengthier interview process.

2. Are they job hopping from one company to another, or are they ambitious?

Lengthy résumés can either mean one of two things: The candidate has years’ worth of growth and experience in their field, or they have a tendency to hop from one job to the next before gaining real seniority.

If you notice a résumé that lists an alarming number of experiences that ran less than a year, before assuming anything, ask the candidate about their personal experiences and thoughts working for each company.

Ask them why they chose to leave and have them lists skills they’ve gained from each experience. Did they leave because they got bored? Did they leave because of disagreements? Ultimately, the goal is to figure out their career plan and determine how this position would benefit them and your company.

To question and change your mind about jobs and careers is human. And depending on an individual’s circumstances, some may be more inclined to leap into a new role. While this might seem an alarming move at first from HR’s perspective, it can also mean that the candidate isn’t afraid to go after what they want, which can be a great sign of leadership.

If risk-taking and goal-reaching are the traits you want to hire for, ensure that the candidate’s goals align with the company’s before moving onto the next step of the hiring process.

3. They’re too eager to know salary and benefits details, or have they done this before and they want to communicate directly?

If a candidate has proven to have the right experience and traits for the role, don’t be shocked if they come into the interview with a list of questions about the role, job structure, and employee benefits. This just proves that they’ve done their research about the company and industry.

Oftentimes, when a candidate does this they’re looking for a role (and pay) that compliments their work style and history. They know exactly what they are worth and want to ensure that all their expectations are met before moving forward or committing to future meetings.

Shared ContentInc.

Mandy Gilbert is the author of Just Go With It, a book that shares how to navigate the ups and downs of entrepreneurship. She has been recognized as the United Nations Global Accelerator and completed the Entrepreneurial Masters Program at MIT.

Employer Reporting and Disclosure Obligations for Employee Benefit Plans

Join us for our Employer Education Series
Date: November 10,2021
Time: 12:00-1:00 PM
Register in advance for this meeting
https://us02web.zoom.us/meeting/register/tZctfuysqDMpGdCyQNM6IgQPE7KTtgfuqVWI

Presenter:
Shelly Bloom-
Director, Legislative Awareness and Training
Emerson Reid, LLC

Topics to include:

  • Preparation for 2021 ACA reporting: What is new/different for this year?
  • Vaccine Mandate latest information (waiting for OSHA to write the regulation)
  • Surcharges for those who do not get vaccinated

Simple explanations of the various required reporting & disclosure obligations of employer-sponsored health & welfare plans (federal law)

Response to the Great Resignation

Response to the Great Resignation

Covid has changed a lot of things, especially how some people view their relationship with work. While the search for work-life balance is not new, the pandemic and a heightened focus on workplace equity is at the forefront of many people’s minds, and they are starting to take action.

In what some are calling “the Great Resignation,” employees are leaving their jobs in higher than usual numbers to pursue better opportunities. What defines better opportunities is not necessarily the same now as it was pre-pandemic, when pay scales and benefits packages often served as driving forces. Now, what motivates a significant portion of workers, especially in younger generations, is a more holistic approach to life that includes addressing personal and important societal needs.

In this article, we discuss the following:

Data Reflecting Job Market Trends

During the pandemic, millions lost their jobs and many more struggled with underemployment. As our country begins to open up again and returning to work is on everyone’s mind, one would think that employers should easily be able to meet their staffing needs. However, when it comes to post-pandemic recruiting and retention, workers find themselves in the driver’s seat.

Recent survey data shows some interesting trends. Most importantly, people are not jumping to get back into the workforce, and for those fortunate enough to remain employed through the pandemic, they do not feel compelled to stay in their current jobs.

The Society for Human Resource Management (SHRM) cites several surveys indicating that employee departures will rise as the pandemic subsides. Such predictions are supported by the recent U.S. Department of Labor’s Job Openings and Labor Turnover Summary (JOLTS) which reported that the combined number of people who voluntarily left their jobs in April and May 2021 totaled more than 7 million.

The Pandemic Changed Attitudes About Working From Home

As employers begin to roll out return to work plans, the ability to work remotely is of particular importance for employees and prospective job applicants. Eighty percent of Americans working from home during the pandemic enjoyed the arrangement according to 2020 research by McKinsey & Company. Over half of respondents reported that they were as or more productive than working in an office.

Workers Weigh in on Remote, Hybrid, or In-Person Strategies

study by the Becker Freidman Institute for Economics at the University of Chicago, published in July 2021, reveals that only a little over half of respondents (58 percent) would willingly follow their employer’s requirement to report to a business location five days a week. More than one-third (36 percent) would comply but start looking for a new position, and six percent would quit immediately.

Some workers might even give up a pay raise to remain fully remote. A recent Forbes article revealed that 64 percent of employees at prominent employers, such as Amazon, Goldman Sachs, and QualComm, would forgo a $30,000 salary bump to continue working from home.

These research results are compelling, but do not tell the whole story, as this sea change is not based solely on remote work opportunities. There are a variety of reasons coming together in a perfect storm to create this great exodus.

Factors Contributing to the Increase in Turnover

Since March 2020, a number of forces have refocused societal priorities and challenged people to rethink how they approach work and their lives. These various factors create an environment of escalating quit rates and labor shortages, forcing many employers to scramble as they try to address these concerns.

Flexible Working Arrangements

Covid response demanded many employers adopt work from home scenarios. This arrangement was a positive development for some employers and employees. For many workers, this autonomy was crucial as Covid-19 closed schools, daycare centers, and other avenues that provided family member care before the lockdown. As family demands continue, people are turning to their employers for support and seeking accommodations that proved workable over the past year and a half plus.

Additionally, there is a set of workers (Millennials & Gen Z) who do not define their lives by work. They see their career trajectories as having multiple employers, varying opportunities, and the ability to live wherever they feel at home, but still have viable employment prospects. They envision their careers as supporting their personal as well as professional goals as they seek to harness the best work-life balance.

Discrimination and Equity Concerns

The events of Summer 2020, focused our attention on the broad issue of discrimination (i.e., race, ethnicity, sexual orientation, etc.) in a way that has not happened since the Civil Rights movement of the 1960s.

Today, disparities in hiring, compensation, advancement opportunities, access to childcare, and many other work-related issues rank highly on workers’ checklists when evaluating if a company is a right fit. While many companies feel they have addressed these issues with appropriate policies and procedures, employees now expect more than lip service. Actions demonstrate a company’s commitment.

Employees are demanding more transparency and open communication from employers in all areas of the work relationship. They seek a comfort level that the company they work for sees them as individuals, values their contributions, and compensates them fairly. Additionally, being associated with an organization that supports equity in our communities and is motivated to play a role in resolving societal injustices also resonates with many of today’s job seekers.

A Meaningful Life

Living through a pandemic has given many people a new perspective. They desire to contribute more to society than simply completing their assigned tasks and bringing home paychecks. They want the work they perform and the goods and services they provide to improve the world in some way.

This desire to make the world a better place ties into the focus on eliminating societal inequities, but most people recognize that they may not be able to affect groundbreaking change or touch millions. So, for them, impacting their corner of the world — the people they interact with on a daily basis — is a starting point, and they expect their work environment to support that goal.

Covid-19 Related Issues

Employer return to work plans also play a direct role in creating the Great Resignation. Employers want to bring their employees back into the workplace safely, and employees wish to feel safe while there. However, how each employer and individual reaches that comfort level is different and such distinctions often cause friction, even polarizing coworkers, supervisors, and leadership.

Corporate vaccination policies are such an issue. Some employers are encouraging their workforces to take the vaccine; others have mandated it. For a certain population of employees, mandatory vaccination is untenable, and they will refuse, instead opting to resign or be fired. This situation is unfolding in the healthcare sector and spreading to others.

Even without mandatory vaccination policies, masking, social distancing, and testing protocols may also prove to be divisive, driving employees to leave organizations that impose policies with which they do not agree.

The Implications of High Resignation Rates

Rapid and extensive turnover is disruptive and expensive. The cost is both in hard dollars spent to recruit and train new hires and also in loss of institutional knowledge.

Productivity is likely to be impacted as those hired ramp up and learn their new responsibilities. Existing employees may feel overworked and underappreciated as they shoulder the burden of a reduced and green workforce. If open positions remain unfilled, companies may struggle to fulfill organizational goals, serve customers, and prosper.

Preventing an Employee Exodus

As worker expectations shift, employers must adjust, reevaluating how to attract and retain talent. This process is not confined to examining HR functions alone but involves assessing corporate culture. Core business needs must be met, but they must be balanced against emerging employee interests.

Some areas of consideration to solidify employee retention and recruitment include:

  • Opening lines of communication to not only hear employee concerns but also share insight into leadership decisions
    • If leadership agrees to transparency, fulfill that promise
  • Offering employees flexibility in structuring their workweek to the extent it aligns with the organization’s business plan and operations
  • Furnishing avenues for emotional and mental support
  • Updating job descriptions so they accurately represent each position
    • Avoid hiding the less desirable aspects of jobs, so candidates have appropriate expectations before accepting positions
  • Providing training and other pathways to upskill existing employees
  • Establishing onboarding, mentoring, and job opportunity processes to make people want to stay longer
    • These steps may foster a sense of accomplishment, engagement and commitment to the company
  • Conducting “stay interviews” to uncover employee needs, concerns, and complaints
    • Waiting until exit interviews does little to fortify retention
  • Training managers & supervisors to understand and support these initiatives

By reviewing some or all of these areas, leadership may discover that the policies and procedures relied upon for years no longer provide the company with protection against a talent drain.

How RealHR May Help You Address the Great Resignation

Every company is unique in what they add to the marketplace and the culture they adopt internally, so addressing the causes of the Great Resignation will differ from company to company. However, what every assessment has in common is the need for significant evaluation and realistic recommendations that align with organizational goals.

At RealHR, we have the knowledge and years of experience to help point you in the right direction. We welcome the opportunity to meet with you as you consider your options and examine your hiring and talent retention concerns.

The blog should not be construed as legal advice

Types of Penetration Testing – A Cybersecurity Guide

Cybersecurity

To start off we need to define penetration testing. What is it?

What is a penetration test?

Penetration testing (sometimes called a pen test) can be extremely useful in finding vulnerabilities in your organization’s cybersecurity protection. Basically, a team of experts attempts to “penetrate” your defenses, as if they are a bad actor, who actually wants to steal your data. If you’ve heard the term “ethical hacking” before, this is one of the ways that it is done. Think of it as hiring a hacker to conduct a simulated cyber attack in the form of a penetration test.

Through this process, your weaknesses can be identified and methods to shore up defenses will be recommended. Typically, it’s a good idea to do some type of penetration testing annually, to make sure that your systems are holding strong against the latest forms of cyberattack. You can do this yourself with online penetration testing tools, or you can hire a third party who will perform a more thorough test for you, and help you effectively respond to the results.

Why is penetration testing important?

Cyber attacks are on the rise. Technology is more widespread than ever before in our culture and our world —especially in our more remote hybrid workspace— and as a result, we rely more and more on it. Can you imagine waking up one morning and none of your accounts work, your website has been taken over and ransomed, your customer data sold?

That’s a worst-case scenario, but it happens every day to people just like you. Even smaller organizations and nonprofits are becoming the target of these attacks. Attacks of opportunity, when your passwords and data are leaked through a larger cyberattack, such as an attack on your web host, are some of the most common, and no one is safe from these.

Increasing your layers of cybersecurity and protection is the only way to stay ahead and mitigate the risk of an attack. Penetration testing is a great way to identify your weaknesses and fix them before a bad actor has the chance to leverage them.

Types of Penetration Testing

Let’s discuss a few of the different types of penetration testing that your organization can utilize. Generally, there are three main types of penetration testing, black box, grey box, and white box.

Black Box Penetration Testing

In a black box pen test, no information is given to the person or group performing the test. They go in on their own and attempt to penetrate defenses without prior information from you. This type of test is one of the most popular as it can be seen as truly authentic, seeing what defenses can be breached when an unknown attacker makes their first attempts. It can, however, be more costly as it is usually more extensive.

White Box Penetration Testing

White box penetration testing is opposite to black box, the tester is given full access to your system, network, and credentials and then identifies weak points as an outside 3rd party. This type of test is typically more affordable, as it takes less time and effort on the tester’s end. However, given that so much information is shared it can be seen as a less accurate method to black box penetration testing.

Grey Box Penetration Testing

As you may have guessed by now, a grey box penetration test is a mixture of white and black box. A tester goes in with a limited amount of information usually in the form of login credentials. This is a good balance between the two other penetration testings, and some believe it to be more realistic, as many times, a bad actor will do some reconnaissance and scope out an organization before attempting an attack, making a grey box test potentially the most realistic.

Subcategories of Penetration Testing

Each of the different types of penetration testing can be further broken apart into sub-categories of infrastructure, such as:

  • Web Application
  • Wireless
  • Social Engineering
  • Network
  • Client Side

When choosing what kind of penetration test is best for your organization, you can choose to do some subset of these either through white, grey, or black box penetration testing, or if deemed necessary, you could choose to do them all.

Typical Penetration Test Cost

The typical penetration test costs are dependent on many factors, making the most reasonable answer to this question, it depends… On average for a small nonprofit organization, the cost of a penetration test could be in the realm of $4,000. For extremely large organizations, the spectrum swings all the way up to $100,000. Likely, if you’re reading this you are part of a small to medium-sized company, where a penetration test would cost on average $4000 – $10,000.

If you’re concerned about the cost there are other ways to increase your cybersecurity defenses outside of a penetration test. Take our free Cybersecurity Self-Assessment to get tips and recommendations on what your organization can do to increase its security.

If you do think a penetration test would be useful, you can contact us to get a more personalized quote for penetration testing services and a free cybersecurity assessment.

Or if you’d just like to stay up to date with the latest in cybersecurity tips, you can sign up for our Cybersecurity Tip of the Week.

Performance Reviews: Overview & Tips from HR Experts

Let's start with these frequently asked questions about performance reviews.

Performance Reviews: Overview & Tips from HR Experts

Performance reviews are a complex but essential tool in managing a productive and engaged workforce.

However, for performance reviews to deliver maximum value, they should adhere to standardized processes backed up by best practices. A process that is not well developed, regardless of how simple or complex, can actually become a liability, creating unnecessary confusion and frustration that leads to disengagement or even turnover. It definitely pays to think carefully about what your organization is currently doing and how it can improve.

If your organization is developing a standardized performance review process for the first time or looking to strengthen its existing practices, this complete guide can help. Here are the topics we will cover:

Need help with your performance management strategy? We can help.

At RealHR Solutions, we help organizations create and improve their HR systems and practices, including those related to performance management. We know firsthand the impact that effective performance reviews can have on the underlying health of an organization. This guide will give you a solid foundation on which to build.

Performance Review Basics

1. What is a performance review?

A performance review is a regularly scheduled, structured meeting between an employee and their manager. Its core purpose is for the manager and employee to evaluate the employee’s work performance, the manager to provide feedback, and both to discuss the employee’s strengths and weaknesses that can be capitalized on or addressed.

This touchpoint gives the employee a clear sense of what they are currently doing well, how they can improve, and their progress towards achieving professional goals.

2. What is performance management?

Performance management is the broader process of how an organization manages its employees and evaluates work performance on an ongoing basis. Performance reviews are one part of performance management systems as a whole.

Organizations are increasingly shifting towards performance management models focused on continuous feedback, goal-setting, and course correction rather than relying on review meetings alone. However, performance reviews still serve a valuable purpose as standardized checkpoints for managers and employees to formally discuss performance.

3. Why are performance reviews important for employees?

Simply put, employees need to understand how they are performing to succeed and grow in their roles and within an organization. Performance reviews provide employees with the context and feedback they need to improve, develop, and feel invested.

Without performance feedback, employees can easily feel left adrift with no idea of where they can improve or how their contributions impact the organization as a whole.

4. Why are they important for organizations?

Effective reviews create a structured time and space for discussing performance in which both parties have clearly set expectations. They drive employee productivity, growth, and engagement—all of which are critical factors of long-term organizational success.

In addition, performance reviews reveal how the organization can improve its management and engagement strategies. They can also be used as an opportunity to discuss compensation changes in ways that are  tied to performance.

5. How often should performance reviews occur?

Organizations typically conduct performance reviews annually, biannually, or quarterly. The right timeframe will depend on a number of contextual factors, but the most important point is that performance reviews should occur on a regular basis that is clearly communicated to employees in advance.

6. How do you prepare for performance reviews?

Effective performance reviews require plenty of preparation. The exact process will look different for managers and employees. We cover how both parties should prepare for reviews in a section below.

Follow these recommended performance review steps.

Recommended Performance Review Steps

Depending on your organization’s exact needs and circumstances, you may adjust some elements or logistical details of the performance review process, for instance when conducting performance reviews remotely. However, there are standard steps that you should keep in mind as you develop your organization’s own process.

At RealHR Solutions, we recommend these core steps and best practices for performance reviews:

This is the performance review process that we recommend at RealHR Solutions.
  1. Organization presents performance review goals, plans, and processes.
    • Start by nailing down a few essentials. What will your organization accomplish with this round of performance reviews? How exactly will the process work? When should employees and managers finish preparing, and when will the reviews occur? Will performance reviews be tied to compensation changes? Clearly communicate these objectives and details to the organization’s management teams and employees.
  2. Manager shares instructions and self-assessment with the employee.
    • Managers should provide clean instructions and timeframes to employees who will be taking part in the performance review process. Self-assessments are an important component of effective reviews, so give employees plenty of time to complete them thoughtfully. Provide guidance on which types of input will be helpful as well as regular reminders leading up to the review meetings.
  3. Employee completes and shares their self-assessment.
    • Self-assessments give managers more insight into their employees’ performance and allow employees to help actively guide the conversation. Performance review self-assessments typically ask employees to provide input on elements like:
      • Their biggest accomplishments over the past performance period and why
      • Their most notable shortcomings over the past performance period and why
      • What they feel to be their biggest role-related strengths and weaknesses
      • Areas where they would like to develop their skills or explore new responsibilities
      • Feedback, both positive and constructive, on the organization’s management and/or their peers
      • Questions about organizational decisions and goals
  4. Manager solicits feedback from employee’s peers, clients, and/or direct reports.
    • Gathering feedback from a range of perspectives gives managers a clearer sense of their directs’ performance and how it impacts the organization as a whole. You may ask employees to provide feedback on their peers and managers as part of the self-assessment or follow-up separately. Clearly explain the types or scope of feedback that will be most helpful to keep this process focused and productive.
  5. Manager reviews employee self-assessment and completes the performance review form.
    • The manager should next review the self-assessments, their own notes or records, past performance reviews, and feedback from other sources to then distill them into key takeaways. Focus on specificity, impact, and concrete examples. Organizations should use standardized forms (like the example below) to compile these takeaways and examples in a way that is truly helpful for both the manager and employee.
  6. Performance review meetings occur.
    • The manager will walk through the completed form with the employee, pausing to discuss key points and answer questions throughout. The meeting should conclude by restating, realigning, or adjusting expectations and goals with the employee for the coming performance period.
  7. Compensation changes are reviewed (if applicable).
    • If your organization has tied compensation changes to the performance review process, take time during the meeting or in a separate follow-up meeting to present and discuss salary decisions with the employee.
  8. Manager and employee regularly return to performance goals and discuss progress on an ongoing basis.
    • The performance review process is most effective when backed up by ongoing feedback and conversations about goals. The manager and employee should refer to the employee’s performance goals throughout the year to check for alignment and progress. This reinforces strengths, addresses areas for development, and prevents unnecessary surprises for both parties.
Use this performance review template form to create one for your own organization.

Performance Review Template

During the performance review process, managers should review employee self-assessments, records from past reviews, peer feedback, and other notes to complete standardized performance review forms. No two performance review forms are exactly the same since every organization has unique contexts and objectives for the review process, but there are a few essentials that we recommend including.

This performance review template includes all of the most important elements to keep in mind:

This performance review template includes all of the most important elements needed for effective reviews.
  • Employee Information: Include basic information needed for accurate record-keeping, like names, employee position, and the performance period.
  • Core Values & Objectives: List out the role’s stated core values and objectives, each with clear definitions and/or criteria.
    • For each value or objective, rate the employee on a scale from “exceeds expectations” to “unacceptable,” and include relevant notes and specific examples that back up the rating.
    • The exact rating process that you use may vary. However, the main idea is to give this section a standardized, objective structure that clearly ties performance to your organization’s definition of success for that role.
  • Performance Goals: Use this section to determine whether or not past performance goals were met during the previous period and to present new goals for the upcoming period.
  • Overall Rating: Sum up the employee’s performance with an overall rating, again tying it to specific examples and what constitutes success for that role.
  • Employee Comments: Leave space for noting questions, comments, and feedback provided by the employee during the meeting, and then act on them later as needed.
  • Acknowledgment & Signature: Include a brief acknowledgment statement to be signed and dated by both the employee and manager.
Keep these performance review best practices in mind while preparing for your organization's reviews.

Performance Review Best Practices

In addition to following the core steps listed above and using standardized review forms, there are additional performance review best practices that your organization should emphasize throughout the process:

1. Give everyone advance notice and clear explanations.

Performance reviews can be a stressful or tense experience for even your organization’s top performers. Give your entire team, both employees and managers, plenty of advance notice that performance reviews are coming up so that they will have time to prepare.

Additionally, your leadership and/or HR team should clearly explain to managers and employees how the process will work, what is expected of them, and when they should be ready. Make it easy to access the resources they will need, and set specific deadlines for completing self-assessments and performance review forms.

2. Ensure managers know how to properly prepare.

Performance reviews can have major impacts on employees’ experiences with your organization, so managers must properly and thoughtfully prepare ahead of time.

However, if managers feel ill-equipped or left in the dark about exactly how they should prepare, the process is already off to a rocky start. A poorly run performance review with inaccurate ratings or muddled takeaways can open up a variety of engagement and retention risks, both for the employee and the manager who needed more support.

A clearly defined performance review process with expectations, objectives, timeframes, and resources (like standardized forms) will be essential. Host one or more meetings leading up to the performance reviews dedicated specifically to answering managers’ questions and reviewing expectations.

3. Ensure job descriptions are up-to-date and accurately reflect the employee’s position.

Your organization’s job descriptions should accurately define each role’s core responsibilities, values, and objectives. These elements are used to measure success in each role, so outdated job descriptions can potentially become a source of frustration during the performance review process.

For instance, if a key responsibility has drifted from one role or department to another, but that change is not reflected in the current job descriptions, unnecessary confusion may arise about why employees did or did not spend time tackling that task over the previous performance period.

As managers prepare for performance reviews, they should review the organization’s job descriptions to see if they still accurately reflect employees’ work. If not, they should work with your HR team to develop updated job descriptions that reflect the current day-to-day responsibilities of the role. During or after the performance reviews, present the updated job descriptions to employees as needed, and have them sign to acknowledge their updated expectations.

4. Use clear language and focus on measurables, specific actions, and their impacts.

For performance reviews, clarity is key. Avoid over- or underexplaining important points. Reread your performance review forms multiple times prior to conducting meetings to ensure their points are clear, precise, and leave no room for misinterpretation. Tie these specific actions and examples to the real impacts that they had on the team or entire organization. 

Pay extra attention to growth and development that employees have demonstrated, and emphasize continued growth during the conversation and in the next goals that you lay out for the coming performance period. A focus on development, forward momentum, and increased impact will foster engagement and retention over time, helping employees feel more invested in the organization’s success.

5. Provide truly actionable and honest feedback.

Performance reviews should give employees more insight into how well they are performing, the impacts they have, and how they can improve. Without honest feedback that can be concretely acted upon, employees can easily leave the conversation with more questions than answers.

One useful framework for providing actionable feedback is the Start, Stop, Continue model. This involves breaking feedback down into three categories:

  • Tasks the employee should start doing
  • Tasks the employee should stop doing
  • Tasks the employee should continue doing

Sorting specific tasks or responsibilities into these categories gives the feedback a more tangible sense of direction and makes it clear to the employee where their time and attention is best spent. Just be sure to back up each individual task or piece of feedback with its impact or underlying reasoning. You may also ask employees to provide feedback about their manager or the organization as a whole using this same model.

When giving constructive or negative feedback, be tactful and sensitive but never avoid telling hard truths because it may be uncomfortable. If an employee is underperforming, they need to know. Starting an open conversation can show employees areas of improvement that they were perhaps unaware of. It can also reveal critical engagement and retention risks that the organization needs to address but would not have otherwise known about.

6. Establish clear, measurable goals for the next review period.

End performance reviews by outlining employee goals for the upcoming performance period. To be effective and truly useful for employees, these goals should be specific and measurable. Keep clear records of them, and regularly return to them throughout the next period, not just when preparing for performance reviews again.

When possible, create cascading goals for your organization. What are your organization’s big-picture strategic goals? What goals can you set at the departmental level and down to the individual level that will support those strategic initiatives? Setting interconnected goals in this way can show employees how their individual contributions directly tie into broader organizational success.

culture of continuous improvement is a major asset for any organization. You can help foster that culture by using performance reviews as touchpoints for ongoing coaching, development, and improvement.

Let's explore how managers and employees should prepare for performance reviews.

How to Prepare for Performance Reviews

Finally, here are some key steps that both managers and employees should follow when preparing for performance reviews.

How Managers Should Prepare

  1. Have consistent performance conversations with direct reports outside of the formal performance review process, and give both positive and construction feedback more frequently.
  2. Provide direct reports with clear timelines and instructions for performance reviews.
  3. Review all relevant notes, reports, emails, previous performance reviews, and more pertaining to the individual’s performance over the past period.
  4. Anchor the reviews with concrete measurables and specific impacts. Avoid generalized or overly subjective feedback.
  5. Give direct reports the opportunity to ask questions and to provide feedback on their peers and management, but keep the conversation focused on performance and impact. Note any tangential items for later follow-up.

How Employees Should Prepare

  1. Review all relevant notes, reports, previous performance reviews, and other resources pertaining to your performance over the past period.
  2. Get started on your self-assessment early to give the process careful thought.
  3. Choose a handful of concrete examples that illustrate key wins over the previous performance period. Compile any documentation or reports on impact that can back up your claims.
  4. Be prepared to receive feedback by realistically self-evaluating before review.
  5. Come with any questions directly relating to the performance conversation, the past performance period, and goals for the next period.

Wrapping Up

Performance reviews are just one part of the broader performance management process. They can be complex, but they are also a critical part of leading an organization that meets its goals, retains employees, and fosters growth.

Whether preparing to create or improve your organization’s performance review practices, there is always more to learn and changes to consider as your organization grows. Resources like this guide and the template above can give you a solid foundation on which to build. But remember that the most effective performance management processes will be tailored to your organization’s unique needs. 

This is why many organizations choose to work with HR experts when considering performance management practices. Specialized HR consultants can provide guidance whether you are looking to build management systems from scratch, improve current practices, or simply provide better training to managers based on industry best practices.

RealHR Solutions is a leading provider of HR consultation services, including performance management guidance, employee assessments, job descriptions, and more. Contact us to discuss your needs, and be sure to keep learning with these additional resources:

Looking for performance review support? We can help.