After two years of serving people in need during the pandemic, the nonprofit workforce is in jeopardy. A recent survey from the National Council of Nonprofits found that 26 percent of nonprofit organizations reported job-vacancy rates of 20 to 29 percent. As of December 2021, 450,000 fewer employees were working at nonprofits than before the pandemic.
In a letter sent this month to President Biden and congressional leaders, a coalition of more than 1,200 nonprofits noted that workforce shortages “can be seen in virtually every community as nonprofits are forced to restrict needed services, institute waiting lists, or close operations entirely.” The coalition is seeking federal policy remedies to the crisis.
Even before the pandemic and the so-called Great Resignation, these workforce shortages were a growing concern in the nonprofit social-services world. The problem has only accelerated since then — especially among nonprofits with government contracts.
A pre-pandemic report from our organization, the Alliance for Strong Families and Communities (now Social Current) and the American Public Human Services Association, found that unlike for-profit service providers, nonprofit human-services organizations struggle with government contracts that fail to cover the full cost of providing services and achieving positive outcomes.
What’s more, spending caps associated with these contracts preclude nonprofits from using funds for anything that isn’t directly related to program expenses. That means costs involved in retaining employees, such as raises, increased benefits, and workforce training, are rarely included.
Not surprisingly, this leaves human-services nonprofits unable to compete with wages and other benefits offered by private businesses. For example, Cornerstones of Care, a Kansas City, Mo., nonprofit that relies heavily on government contracts, currently has a 45 percent employee-turnover rate despite raising starting salaries, adding sign-on bonuses, and increasing paid time off and paid holidays. This has forced the organization, which offers a range of services to children and families, to cut back the number of people it serves.
A similar scenario is playing out at Maryhurst, a Louisville, Ky., nonprofit that contracts with the state to provide services for child-abuse survivors. The organization has increased wages for direct-care workers by 30 to 35 percent since June, resulting in $500,000 in added expenses. With an additional $200,000 in overtime and bonuses, Maryhurst’s labor costs have grown enormously during the last six months while revenues have stayed flat. Despite these efforts, vacancy rates remain at nearly 35 percent, forcing the organization to delay or reject numerous residential referrals and temporarily close programs.
Wages, however, aren’t the only problem for nonprofits trying to retain employees. The restrictive nature of government contracts makes it difficult for workers to engage in many activities that could produce meaningful results. This leads to staff dissatisfaction and higher turnover rates. When funds, for instance, are targeted for homelessness or housing services, they typically can’t be applied to mental health or substance-use disorders — even though these are often root causes of homelessness. As one nonprofit leader from Florida told us: “You can create programs to meet guidelines and get paid, or you can create programs that you know work better and not get paid.”
The federal government loosened some contract regulations during the pandemic that have helped with employee retention, including dropping requirements that prohibited telework. But there is no guarantee that these policies will continue. And some helpful policies, such as the Employee Retention Tax Credit, which provided a payroll tax credit for retaining employees at nonprofits and businesses, are already set to expire.
Several policy fixes would help address onerous contract regulations for these groups. Top among them: State and local governments should ensure that contracts cover the full cost of providing services and overhead. Our research found that most government contracts pay only about 70 cents on the dollar for direct program expenses. At the very least, these contracts must recognize the need for salary increases, especially during a time of rising inflation.
Signs of Progress
There are some signs of progress at the state and local level.
A special committee in California’s state senate held the first-ever hearing on the state of the nonprofit workforce last month, with the committee chair calling for government contract funding to “reflect the real cost of delivering these services.”
In New York City, a new task force established by Mayor Eric Adams and Comptroller Brad Lander will focus on reducing payment delays to nonprofit contractors, increasing funds for costs that aren’t related to specific programs, and increasing public transparency in the contract registration and payment process.
More jurisdictions need to follow their lead. And philanthropic leaders should speak up about why the challenges facing the field demand a significant response from all levels of government.
Foundations also need to ensure their own practices reflect the workforce problems confronting grantees. That starts with taking a close look at funding requirements. Governments typically expect philanthropy to make up the difference when they don’t fully reimburse nonprofit human-services providers. But even when foundation funding is available, it is more likely to focus on direct programming, leaving little for workforce development and other operational expenses. When filling gaps in government contracts, foundations need to make sure their funding approach gives grantees the flexibility to invest in workforce development and pay higher wages.
Leaders of human-services organizations also need to work harder to find solutions to the workforce crisis. Social Current, which represents more than 1,800 social-service organizations, has begun taking steps in that direction. This summer we will launch a workforce resilience learning collaborative, which will explore strategies for maintaining a strong and healthy workforce in an unpredictable and challenging environment.
A survey of our member organizations before the pandemic found that one in eight is technically insolvent, meaning that financial liabilities are greater than assets. The situation is likely even worse today. These groups, most of which rely on government contracts, need all the help they can get to navigate the complex challenges, systemic inequities, and personal trauma experienced by the individuals they seek to help, while managing the struggles and burnout facing their own staffs.
Social-service groups are working harder than ever to address some of society’s greatest challenges. Philanthropic, nonprofit, and government leaders need to work overtime themselves to ensure these organizations can continue to provide essential services to the millions who rely on them every day.