Running a profitable nonprofit business, like an association chapter, is a huge job, especially for volunteers and staff who aren’t experts in all facets of chapter management. For the first time in their lives, many leaders find themselves outside their comfort zone when outsourcing and hiring people to:
- Design a chapter website
- Manage the chapter’s IT
- Run a PR campaign
- Facilitate a strategic planning session
- Plan meetings
- Take on administrative tasks
Some chapter leaders may think that sounds doable. But here’s the problem: they don’t know what they don’t know. If they run afoul of laws and regulations, or don’t do their due diligence, they could jeopardize the chapter’s finances and reputation.
We’ve been dealing with lots of jeopardy in this series of posts on chapters in crisis. So far, we’ve covered:
- Financial mismanagement
- Financial fraud
- Compliance issues
- Data privacy
- Website disasters
- Struggling chapter leaders, and
- Leadership succession challenges
In this series, we’re assuming chapters are subsidiaries, a situation that brings more risk to National, but also supposedly provides more control. Even if your components are independent, you’ll benefit from the advice we share.
Chapter crisis: chapter outsourcing and hiring issues
Chapter leaders bring a wide range of experience and expertise to their volunteering “job.” Some of them have years, maybe decades, of experience hiring employees, or selecting and working with vendors and contractors. But others have never signed a contract or paycheck in their lives.
Lack of due diligence on vendors
When inexperienced chapter leaders hire experts, they don’t always know what to look for and what to ask. Think about it. How do you know what to look for in a website developer or software vendor? You don’t because you ask your IT department to vet them, right? If a search engine optimization (SEO) firm calls, you hand them over to the marketing department. Whom do your chapters rely upon?
Just imagine a chapter leader getting a call or email from a local SEO firm promising “page 1” ranking on Google. They don’t do any due diligence because they don’t know how or don’t even realize they should. Unfortunately, the firm uses quickly implemented but ill-advised methods to get a higher Google ranking for the chapter’s website—for a month or so. Then, Google’s web crawlers detect the spammy SEO practices and penalize the website so it’s no longer visible in any search results. Ouch.
Employees vs. contractors
The definition of employees vs. contractors has been in the spotlight thanks to California’s new labor law. Chapter leaders who hire employees or contractors must understand the difference between the two. What if they hire someone as an independent contractor to take care of office administration? After a few years, this person realizes they should be receiving the benefits of an employee, so they contact the state wage and labor board. Uh oh.
You’re happy to hear about a successful chapter hiring their first employee. But then someone on the board tells you about the questions asked during prospect interviews. It’s enough to make you cringe. You sense a lawsuit coming.
How to deal with hiring and outsourcing nightmares
Every case is different. Was a contract signed? Were the contractually promised services delivered? Did the chapter deliver on their end? Is there any chance of resolving the issue amicably? Is the company local? What’s your lawyer’s number again?
Classifying someone as a contractor who should’ve been an employee will cost you or the chapter, depending on your relationship. The chapter will need legal and financial advice. They’ll also be on the hook for federal and state back taxes, penalties, and interest.
For hiring issues, ignorance is no excuse. You must get legal counsel involved, and quick.
How to prevent hiring and outsourcing nightmares
Knowledge truly is power in these situations. Every chapter leader should receive a toolkit that provides all the information they need to lead and manage their chapter, including best practices for outsourcing, contracting services, and hiring employees. Best practices will also help chapters avoid conflict of interest issues too.
The toolkit should include tip sheets and checklists:
- Vendor due diligence questions and red flags
- Specific checklists for hiring vendors for website, IT, meeting planning, and marketing services
- Questions for vendor reference checks
Ask the experts in your office for assistance in developing specific vendor checklists.
HR or management assistance
Develop a checklist that outlines the differences between an employee and a contractor. The IRS website explains the nuances, but keep aware of any state laws, such as California’s, that can complicate the picture. It may be worth your time to find out which chapters are using contractors (1099 as opposed to W2) so you can ensure they’re classified correctly.
Consider having your association take on the human resources (HR) role for chapters. Another option is subsidizing the use of a third-party human resources firm. We know of one national association that took over HR responsibilities for their chapters, even the ones with staff.
You could also encourage chapters to hire an association management company for specific responsibilities, such as meeting planning, marketing, and/or administrative tasks.