Today’s competition for talent is testing the nonprofit community. More than three-quarters of nonprofit organizations surveyed said they are struggling to find and retain talent.1
Rising healthcare costs, largely driven by inflation, are projected to increase medical spending by more than 5% in 2024 compared with the prior year. The continued escalation of healthcare prices will challenge organizations, particularly nonprofits, which often rely on the quality of their benefits to offset lower wages.2
But some nonprofits are finding new ways to fund their human capital needs and benefits. Some have found success by using endowments, and others have taken creative approaches to benefits to reduce costs without compromising the quality of care.
A Midwestern social services nonprofit recently felt a common human capital pinch. Wages for its direct care workers averaged $16 an hour. Turnover kept climbing. Recruitment became more and more challenging.
A major donor asked management and its board what it would take to raise every direct care worker’s wage by $2 an hour — and to do it in perpetuity? The answer: $3 million. A human capital endowment was established, funded by the donor and managed through an area community foundation. Worker wages increased across the board and the recruitment and retention issues disappeared almost immediately.
Consider the possibilities
While receiving a significant endowment may not be the typical experience for many nonprofits facing a talent crisis, there are steps organizations can take to improve recruitment and retention while taking care of the workforce. These strategies include:
- Thinking creatively about benefits funding. Start conversations with donors and corporations to gauge their support for helping you fund your employee benefits or creating a human capital endowment fund that would enable you to draw interest to sustain your funding challenges. If you acquire an endowment, be sure you diversify the funds and plan for a rate of return of 4% to 5%.
- Examining your demographics. Nonprofits also would benefit by deepening their insights into their employee demographics, and especially by digging deeper than the typical generational segmentation. Conduct a persona analysis to learn what the prevailing employee attitudes are toward benefits. It may enable you to cut costs while personalizing offerings to better meet the needs of the workforce.
- Narrowing provider networks. A narrow network plan still offers coverage across the spectrum of service providers, from physicians and specialists to urgent care clinics and hospitals. There just may be fewer options than a wider network plan.
- Offering individual policies. Individual Coverage Health Reimbursement Arrangements (ICHRAs) have gained popularity since 2019 under the Affordable Care Act (ACA). Through them, employees can choose the coverage that works best for them on the Health Insurance Marketplace, with the employer setting an amount it contributes through a Health Reimbursement Arrangement (HRA) to cover the costs. Some employers may terminate their group plans all together and transition to ICHRAs; others offer the ICHRA as a plan option.
- Adding Health Savings Accounts. Health Savings Accounts (HSAs), linked to high deductible health plans, are a valuable financial instrument to employers and employees alike due to their triple tax advantage. HSA funds are used to cover deductible costs for certain healthcare procedures, and what’s not spent puts retirement money in employees’ pockets.
- Educating your employees. Many workers do not understand the flexibility and benefits that may come with various benefits plans. For example, families can reap significant tax benefits from HSAs, and employees whose families are not eligible for benefits under your plan may be able to find coverage through government assistance programs. Make sure your workforce understands the options and how to tap into them.
1 National Council of Nonprofits, “Nonprofit Workforce Shortages: A Crisis That Affects Everyone,” March 22, 2023.
2 Fierce Healthcare, “Employer health costs set to rise 6.5% in 2023: Aon,” August 19, 2022.