Changes in Nonprofit Compensation Rules for January 2025 — and the Need for Even More Change This Year
From our survey late last year, we learned that many of our community members have active workforce concerns. We would love to hear more specifics about this, but one of the things we do know is that for most nonprofits, personnel is their highest dollar expense line. This one consideration makes the job of getting that realm of our work right a major focus. So, over this year, we will be keeping an eye on the issues that affect our workforces.
There are several changes in compensation rules that will apply to nonprofits starting this month, both on a federal and state level. The list that follows is necessarily incomplete; we will not list everything here, but we will depend on you to add content and context as we go forward.
As of January 1, 2025, the Department of Labor (DOL) significantly raised the minimum level of pay below which exempt employees must be paid for overtime work. The term “exempt” encompasses executive, administrative, professional, outside sales, and computer-related employees. Workers in these skill-heavy categories usually have a commensurate salary or are otherwise highly compensated and so don’t get paid extra for working more than 40 hours in a week. However, this isn’t the case for everyone, and the DOL has set a threshold to protect low-waged, white-collar workers from financial exploitation.
The DOL has set the cutoff level at “the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.” The new threshold is $1,128 per week (or $58,656 per year), a rise from July 2024, which set the weekly cap at $844 ($43,888 annually), up from $684 ($35,568 annually). To provide a sense of how significant this change is, remember that prior to 2019 the level was a paltry $455/week. The full rule can be accessed here, but you may also wish to consult the worker classification resources at the National Council of Nonprofits. The problems nonprofits can cause themselves by getting these classifications wrong can be very costly.
Also starting this month are hikes in the minimum wages of 21 states, as well as even more significant hikes in 48 cities and counties, mostly in California, Colorado, and Washington. You can learn more about this in detail from the Economic Policy Institute. We want to remind our community members that these minimum wage and living wage measures disproportionately affect people of color and women, and that some nonprofits have resisted such measures in the past or tried to gain exemptions from them, thus actively extending wage ghettos.
A 2024 report produced by Independent Sector called ALICE in the Nonprofit Workforce: A Study in Financial Hardship advocates for a more affirmative nonprofit sector approach to compensation. (You can download the report here.) ALICE stands for “asset limited, income constrained, employed” and comprises working people making too much money to qualify for traditional public assistance but not enough to afford the basics in their communities. According to the report, the nonprofit sector has the second-lowest level of workers earning either poverty-level or ALICE-level incomes, behind government employees but ahead of for-profits and the self-employed. Indeed, only around 17% of white workers in nonprofits find themselves in financial hardship—but the numbers for Black and Hispanic workers are twice that. The report picks out the subsectors of nonprofits where low pay is standard; among them, one finds areas such as residential care, home health care, child care, and retail trade, where others like the Nonprofit Quarterly have previously directed attention.
As participants know, the NFC community adheres to values of justice and equity. Issues of workforce compensation and care are at the very heart of living out these values. Over 2025, we hope to attend to the financial facilitators of these values in nonprofit practice. Even though it takes more than just compensation to make a workplace “sticky” and highly productive, getting pay levels right is critical.
Please let the rest of us know what you have recently done about pay issues as we head into the new year and how you think and feel about them. We welcome discussions of the complex issues involved.
