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Minimum Wage No Small Issue For Nonprofits

By Andy Segedin - December 31, 2015

Just 75 cents per hour is all that it took to push a program of one rural Michigan nonprofit from breaking even to deep into the red. LifeChallenge of Michigan in Hillsdale, Mich., operated Tastes of Life, a restaurant program that provided employees looking to find their feet an opportunity to gain real-world work experience.

It ran for three years until September 2014, according to Jack Mosley, executive director of LifeChallenge Michigan. Mosley described Tastes of Life as a break-even venture throughout its existence, until a bump in the state minimum wage in September 2014 from $7.40 an hour to $8.15. The estimated $10,000 annual cost of paying Taste of Life’s 12 to 15 employees the new wage combined with climbing food costs to pull the program under, according to Mosley.

Tastes of Life’s rural location prevented LifeChallenge from being able to pass the buck onto the consumer, Mosley said.  “It’s really relevant to the people who are here. As far as customers, if the average hourly wage in our area is $15 an hour, it’s all comparable to that,” Mosley said. He opined that mom-and-pop type establishments are the most likely to suffer from federal and state increases in the minimum wage.

Advocates in states across the nation continue to push for minimum wage increases past $8.15 and up to $10 and $15 per hour. The momentum for reform has organizational leaders in the precarious position of supporting a change that would benefit clients, but that they themselves might not be able to afford to pay without major shifts in funding.

Living wage advocates in New York City last year managed to bump the minimum wage for 80,000 nonprofit workers in public-service fields operating under city contracts to $11.50 an hour. There was also an across-the-board 2.5 percent cost of living adjustment.

The increase was from reworked city contracts, said James Parrott, chief economist and deputy director of New York’s Fiscal Policy Institute (FPI). It will cost the city an estimated $55 million the first year, a commitment the city has expressed intentions of continuing. FPI and its partners plan to advocate for a hike to $13.50 this year and $15 in 2017 with a cost of living adjustment potentially on a sliding scale to benefit the lowest-paid workers.

Future considerations include developing a comprehensive estimate of the city’s complete nonprofit workforce across disciplines and continuing the minimum wage discussion at the state and county level, Parrott said.

Minimum wage increases, a hot topic of conversation across the country, are forcing nonprofit leaders to reconsider how they do business, particularly with government.

State and county government contracts help fund other nonprofits, Parrott said. There are organizations impacted by the city’s contractual increase with staff participating in the work specific to those contracts getting a pay increase and others who are not involved in those agreements being left out.

Some low-wage employees in the sector work for community organizations that receive no government contracts and would rely on philanthropic contributions to meet any sort of mandated minimum wage increase, according to Parrott. Though Parrott accepted that current advocacy efforts to increase government contracts would not benefit such organizations, he said that he didn’t want “perfect to be the enemy of good.”

Parrott acknowledged the difference between a minimum wage and living wage and that the cost of living can vary greatly depending on whether one lives in a rural area or city. The economist said an ultimate goal would have sights set greater than $15 an hour, but declined to go into further detail.

Meeting workers’ cost of living is important, Parrott said, in an effort to get workers to the point where they are not reliant on tax credits and to make nonprofits competitive with other workplaces for quality employees. “You don’t want the human services sector competing with other industries with the same money and less responsibility,” Parrott said.

Unlike a big-name retailer or fast-food establishment that can absorb a wage increase by charging a few extra dollars for a cheeseburger, most nonprofits do not have such direct means of absorbing wage increases, said Doug Sauer, CEO of the New York Council of Nonprofits (NYCON). New York Gov. Andrew Cuomo has advocated for a $15 minimum wage in the state. Sauer estimated that about 550,000 nonprofit workers across the state are making less than $15. The figure is based on the state’s estimate of 3 million impacted employees statewide and the fact that 18 percent of New York’s workforce is in the tax-exempt sector, Sauer said.

The cumulative cost associated with increasing minimum wages in the nonprofit sector is unknown, Sauer said. A Head Start program that Sauer has been in contact with has 90 employees, for example, and would need to increase its $3 million budget by one-third to meet the obligation. As the program is 99-percent dependent on federal money, it would likely go under without a significant bump in support. Results of an impromptu poll conducted by NYCON this past October show nonprofit leaders leery of what might happen. Some 92 percent of leaders claim that their organization’s financial sustainability would be in jeopardy and 30 percent responded that employee benefits would be reduced. Organizations’ leaders appear supportive of wage increases, but unsure of the play-out, Sauer said.

“There’s a reason it’s an under-compensated workforce. It’s because government has seen it as a cheap workforce,” Sauer said of the nonprofit sector. “You can raise the wage, but if government doesn’t want to pay it and donors say ‘we want more bang for the buck,’ it’s not a stable workforce. We’re squeezed.” Sauer recognized that a bump in government contracts wouldn’t finance a minimum wage increase for many agencies and that fundraising for increased operating costs such as employee wages is not a sexy target.

Seeking better philanthropic support might be the best solution, given the volatility of government budgets, Sauer said.

Homeboy Industries in Los Angeles, which works to help individuals regain their feet through employment, has been supportive of Los Angeles County’s plan to increase the minimum wage from $9 to $15 during the next five years, according to Jose Osuna, director of external affairs. Homeboy was one of three area nonprofits to seek an exemption for transitional employees, an exemption it ultimately received. Homeboy employs 70 permanent and 200 transitional workers, Osuna said.

“The reason we sought the exemption was that we’re already very financially strapped,” Osuna said. “We receive very little government funding and want to continue our current services. The other side of that is, because of the nature of our organization, people receive financial support through us. We have no-interest loans, therapeutic services for free, support services, tutoring [for employees]. We factored that in.”

Homeboy leaders declined to provide estimates of how much the minimum wage increase will impact the organization or what the figure would have been if transitional employees were not considered exempt. Osuna indicated that Homeboy would have been forced to reduce its transitional workforce by 43 percent had it not received an exemption. Homeboy does not anticipate any special fundraising efforts in response to the hike, Osuna said. Instead, leadership will add the cost to its $12 million overall budget and take a holistic approach to fundraising.

Osuna credited Homebody’s transitional employees, many of whom value its supplemental resources compared to a wage increase, for speaking out on the organization’s behalf as leadership sought the exemption. When approaching the minimum wage issue on one side or the other, Osuna recommended reaching out to staff and clients to get their perspective. “If you don’t get a positive buy-in from them, it’s really not worth it,” he said. “It is a different feel, the people you are helping, people you are employing.”  NPT


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