A 90-Minute Crash Course in Legal Compliance for Nonprofits David Heinen North Carolina Center for Nonprofits

Connect Learn Advocate

Important Disclaimers North Carolina Center for Nonprofits If you can read this fine print, you are sitting too close to your screen!

Bylaws and other governance documents North Carolina Center for Nonprofits

Hierarchy of Rules Internal Revenue Code N.C. Nonprofit Corporation Act Articles of Incorporation Bylaws Internal policies and procedures North Carolina Center for Nonprofits

N.C. Nonprofit Corporation Act Unusual provisions of N.C. law Only one Board member required No annual report Inspection of financial records by the public North Carolina Center for Nonprofits

Nonprofit E-Voting Nonprofit members can vote by Board members can take action by unanimous written consent by Notice to members and directors can be given by Must document in bylaws North Carolina Center for Nonprofits

Articles of Incorporation Filed with N.C. Secretary of State Members vs. self-perpetuating board of directors Limitation of liability North Carolina Center for Nonprofits

Articles of Incorporation 501(c)(3) restrictions: Charitable purposes No private inurement Limited lobbying No political activity Dissolution clause North Carolina Center for Nonprofits

Bylaws Size and composition of board of directors Selection and term limits for officers and directors Quorum E-voting provisions Amendments Indemnification North Carolina Center for Nonprofits

Recommended Policies Conflict of interest policy with annual disclosures Whistleblower policy Document retention and destruction policy Compensation review and approval process Policies on chapters and affiliates North Carolina Center for Nonprofits

More Recommended Policies Policy on making organizational information available to the public Process for review of Form 990 Gift acceptance policy Investment and spending policy North Carolina Center for Nonprofits

A few tips 1.Review your bylaws and articles of incorporation regularly 2.Look for inconsistencies among your governing documents and policies 3.Amend articles of incorporation and bylaws as needed North Carolina Center for Nonprofits

The top four ways to get in trouble with the IRS North Carolina Center for Nonprofits

Tip #1 Get all of your support from a single donor! Public charities vs. private foundations Public support test North Carolina Center for Nonprofits

Tip #2 Pay your board members! Prohibition on private inurement Excess benefit transactions Private benefit North Carolina Center for Nonprofits

Tip #3 Be partisan! Lobbying is legal for 501(c)(3) nonprofits But partisan political intervention is impermissible Nonpartisan election-related activities are allowed North Carolina Center for Nonprofits

Tip #4 Don’t bother filing your 990! Automatic revocation of tax-exemption Board review of Form 990 Changes to Guidestar.org North Carolina Center for Nonprofits

State sales and use tax refunds North Carolina Center for Nonprofits

Sales tax refunds Refunds are different than exemption Semiannual refunds File by October 15 and April 15 North Carolina Center for Nonprofits

Sales tax refunds Nonprofits eligible for refunds Most 501(c)(3)s, with the exception of those with the following NTEE classifications: Community improvement and capacity building Public and societal benefit Mutual and membership benefit North Carolina Center for Nonprofits

Sales tax refunds Sales tax refunds on indirect purchases Most reimbursed purchases of staff or volunteers are eligible for refunds But not reimbursements for travel expenses (food and lodging) North Carolina Center for Nonprofits

Charitable solicitation and donor acknowledgment North Carolina Center for Nonprofits

Charitable solicitation Filing requirements License required for most nonprofits Exemption for nonprofits that: Less than $25,000 in grants and contributions per year; and Do not compensate officers, directors, or professional fundraisers File with N.C. Secretary of State North Carolina Center for Nonprofits

Charitable solicitation Filing requirements for individuals Fund-raising consultants Solicitors Contracts must be filed with Secretary of State Burden is on nonprofit to check that contractors are licensed North Carolina Center for Nonprofits

Charitable solicitation Question: Do you need to register in other states? Answer: Remember the disclaimer from the beginning! North Carolina Center for Nonprofits

Solicitation disclosures Name of organization Address of organization Purposes for which contributions will be used Disclosures required on gift acknowledgments, website, and other solicitations North Carolina Center for Nonprofits

Donor acknowledgement Acknowledgement required* when: for all gifts of $250+, and receive gifts of $75+ for which you provide valuable goods or services *The burden is actually on the donor to have this written acknowledgement, so technically a nonprofit is not required to provide it. Having said that, if you want your donors to continue to make contributions, you should strongly consider providing written acknowledgement letters. Furthermore, if you can read this footnote, you are straining your eyes too much! North Carolina Center for Nonprofits

Workers’ compensation and unemployment insurance North Carolina Center for Nonprofits

Workers’ compensation insurance Required for nonprofits with three or more employees Full or part-time Uncompensated officers no longer count as employees North Carolina Center for Nonprofits

Unemployment insurance 501(c)(3) nonprofits are exempt from FUTA State unemployment insurance taxes (SUTA) Exemption for nonprofits with fewer than four employees who work 20 hours per year Administered through N.C. Division of Employment Security (DES) North Carolina Center for Nonprofits

Unemployment insurance SUTA options for nonprofits 1.Pay SUTA – quarterly tax based on experience rating No 1% surcharge in Reimbursement method – maintain 1% of payroll with DES No surcharge More volatility with staff turnover North Carolina Center for Nonprofits

Unemployment insurance Employees eligible for unemployment Discharged through no fault of their own Nonprofit employer is responsible for benefits North Carolina Center for Nonprofits

Unemployment insurance Employees ineligible for unemployment Discharged for fault – may be partially eligible, depending upon culpability Employees may dispute their ineligibility, so it’s important to document the reason for termination North Carolina Center for Nonprofits

Worker misclassification North Carolina Center for Nonprofits

Employees vs. independent contractors

North Carolina Center for Nonprofits Behavioral control Financial control Relationship of the parties

Economic realities test 1.Is the work an integral part of the employer’s business? 2.Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? North Carolina Center for Nonprofits

Economic realities test 3.How does the worker’s relative investment compare to the employer’s investment? 4.Does the work performed require special skill and initiative? North Carolina Center for Nonprofits

Economic realities test 5.Is the relationship between the worker and the employer permanent or indefinite? 6.What is the nature and degree of the employer’s control? North Carolina Center for Nonprofits

Fair Labor Standards Act and overtime rules North Carolina Center for Nonprofits

Fair Labor Standards Act Minimum wage Overtime pay for non-exempt employees Travel time Compensatory time Equal pay for equal work North Carolina Center for Nonprofits

Fair Labor Standards Act Exemptions for executive, professional, and administrative staff Paid on salary basis Must be paid $455/week ($23,660 per year) Must meet duties test Exemption for highly-compensated employees North Carolina Center for Nonprofits

New DOL overtime regulations 1.Raise salary threshold from $455 per week ($23,660 per year) to $913 per week (47,476 per year) North Carolina Center for Nonprofits

New DOL overtime regulations 2.Raise salary threshold for highly-compensated employees from $100,000 per year to $134,004 per year North Carolina Center for Nonprofits

New DOL overtime regulations 3.Automatically adjust for inflation Salary thresholds last adjusted in 2004 Would be adjusted every three years in the future North Carolina Center for Nonprofits

New DOL overtime regulations Effective date: December 1, 2016 North Carolina Center for Nonprofits

Fair Labor Standards Act Basic question – Does FLSA apply? Applies to employment that is for work in interstate commerce Interstate commerce can be met by: 1.Enterprise coverage 2.Individual coverage North Carolina Center for Nonprofits

Fair Labor Standards Act What if neither enterprise nor individual coverage applies? N.C. Wage and Hour Act fills in this gap Incorporates definitions for overtime exemptions from FLSA regulations Limited exceptions for actors and for outdoor theatre production staff North Carolina Center for Nonprofits

Fair Labor Standards Act Potential impact on N.C. Wage and Hour Act Automatically makes the same changes to exemptions for workers covered by state law in North Carolina Barring action from the N.C. General Assembly North Carolina Center for Nonprofits

Proposed DOL overtime regulations Potential impact on N.C. nonprofits More employees would be entitled to overtime if they work 40+ hours per week How many more? Could raise wages or reduce hours for many people served by nonprofits North Carolina Center for Nonprofits

Proposed DOL overtime regulations Options for nonprofits with affected employees Raising wages to remain above thresholds Paying 1.5 times normal hourly rate for overtime hours Limiting the number of hours staff can work Considering how you define your workweek North Carolina Center for Nonprofits

Proposed DOL overtime regulations Less desirable options that some nonprofits are considering Replacing some full-time workers with part-time staff Limiting telecommuting Reducing employee benefits Eliminating or reducing some programs and services Eliminating some fundraising events North Carolina Center for Nonprofits

Proposed DOL overtime regulations What you can do (math assignment) 1.Will your exempt employees still be exempt if and when the DOL proposed regulations take effect? 2.How many hours per week are they currently working? 3.Does it make more sense to raise wages or pay time-and-a-half? Or do something else? North Carolina Center for Nonprofits

Proposed DOL overtime regulations What you can do (reading and writing assignment) 1.Let the Center know if a change in NC law would help your nonprofit. 2.Let the Center know what actions you are taking. North Carolina Center for Nonprofits

For more information North Carolina Center for Nonprofits David Heinen Vice President for Public Policy and North Carolina Center for Nonprofits