may 2004 newsletter 2 · common wage and hour mistakes wage and hour investigations by the...

he publication of the U.S.Department of Labor’s new wageand hour regulations on April

21, 2004, received a mixed greeting.Some groups claim that the newregulations will result in substantialnumbers of workers losing overtimebenefits. Others, including the BushAdministration, claim that largenumbers of Americans will now beeligible for overtime pay. Theregulations go into effect on August 23,2004.

The reaction in the nonprofit sectorwas also mixed, but in a different way.Some nonprofit HR directors and CEOsgreeted the announcement by simplyvowing to review the regulationscarefully in order to make certain theirorganizations are in compliance. Most,however, failed to notice the change.

U.S. Secretary of Labor Elaine L.Chao testified before Congress on April28, telling legislators that the newregulations would mean guaranteedovertime protection for 1.3 millionsalaried workers who earn $455 a weekor less.

Whether you’ve been keeping upwith the public debate and wonderingwhich “side” is telling the truth, orignoring the matter like a dreadedhousehold chore, it’s time to take a lookat the regulations and determine whatactions are necessary.

Wage and hour violations are alurking risk in many nonprofits. Unlikerisks that pose obvious threats to an

Volume 13, No. 2, May/June 2004A publication of the Nonprofit Risk Management Center

continued on page 2

Check out Nonprofit CARES on the Web

Classification ConundrumAvoiding Potentially Costly Exempt Vs. Non-Exempt Errors

Tby Melanie L. Herman

Visit www.nonprofitcares.org to check out Version 2.0 of theComputer Assisted Risk Evaluation System (CARES), the onlyonline risk assessment tool that offers specific action-oriented adviceon a wide range of subjects based on your answers to an assessment.Unlike a tool that produces “canned” results that are the same forevery user, CARES produces a truly customized report. CARES is likehaving a risk management consultanton your desktop. The cost is only $89for a license that never expires, andyou can check out the program forfree and with no obligation. Registerat www.nonprofitcares.org to take theprogram for a test drive. Forgot yourpassword? A brand-new featureallows you to retrieve a forgottenpassword.

organization’s well-being, itis very difficult for even awell-intentioned CEO tospot compensation errorsthat could jeopardize thefiscal health of thenonprofit. As long as thenonprofit meets its payrollobligation every pay periodand employees voice few orno complaints about theirpay stubs, wage and hour violationsgo unnoticed. Yet undetectedcompensation errors are commonplacein the nonprofit world.

2 Community Risk Management & Insurance • May/June 2004

Volume 13, Number 2May/June 2004

Published three timesannually by the NonprofitRisk Management Center,1130 Seventeenth Street, NW,Suite 210, Washington, DC20036, (202) 785-3891, FAX:(202) 296-0349, orwww.nonprofitrisk.org

Questions about the contentof this publication should bedirected to the editor, BarbaraOliver. For information onadvertising contact SuzanneHensell. They can be reachedat (202) 785-3891.

Sheryl AugustineCustomer Service Representative

[email protected]

Suzanne M. HensellDirector of Marketing & Education

[email protected]

Melanie L. HermanExecutive Director

[email protected]

Barbara B. OliverDirector of [email protected]

John C. PattersonSenior Program [email protected]

Leslie T. WhiteProgram Director

[email protected]

Special AdvisorGeorge L. Head, [email protected]

Staff Directory(all staff can be reached

at 202.785.3891)

continued on page 3

Classification Conundrumcontinued from page 1

Common Wage and Hour MistakesWage and hour investigations by

the Department of Labor often claimthat an employer failed to pay overtimebecause of misclassifying and treatingemployees who were really “non-exempt,” as if they were “exempt.” Thetrue danger in this practice lies in thefact that if the government’s position iscorrect, the nonprofit will not only oweback overtime wages and withholdingtaxes, but also penalties—often moneythat the nonprofit had not budgetedand is generally not available out of theoperating budget. Other common butrisky practices include:

■ disciplining exempt employees bydocking pay in periods of less thana full day, which results in theconclusion that the employer waspaying the employee by the hour,rather than on a salary basis, thuscreating liability for overtime;

■ failing to treat mandatory work-related meetings and trainingsessions as hours worked;

■ not providing “duty free” lunchesfor non-exempt staff—keep in mindthat if you’re requiring an employeeto answer phones or perform anytask during lunch you have notprovided a true lunch break;

■ not requiring non-exempt employeesto clock in and out for lunch—someemployers automatically deduct onehour or one-half hour from anhourly employee’s workday,regardless of whether the employeeactually takes a lunch break;

■ not paying work preparation time ortravel time that is legitimately partof the job;

■ not reimbursing employees foremployment–related expenses (e.g.,mileage or required extra insurancepremium for auto coverage theemployer requires that exceeds thestate’s minimum limits);

■ not providing all wages due attermination. Most states have “finalpaycheck” laws that require promptpayment of a departing employee’sfinal check that may includepayments for accrued vacation time;and

■ erroneously classifying employees asindependent contractors.

An employer that commits any of theviolations just described may be liablefor unpaid wages, statutory penalties,interest, and attorneys’ fees for allaffected employees. To avoid exposure tofinancial penalties and an enormousheadache, every employer shouldconduct a thorough review of wage andhour practices and eliminate any non-compliant practices.

Step by StepThe new regulations provide an updatedapproach to the three tests that shouldbe used in classifying white collaremployees: the salary test, the salarybasis test, and the duties test. If you’reresponsible for developing jobdescriptions and/or classifyingemployees in your agency but you don’t

3Community Risk Management & Insurance • May/June 2004

continued on page 6

“Make plans today to

conduct a careful

review of all staff

positions in order to

determine which

classification is correct

under the updated

rules. If a position has

been classified

incorrectly, consult

with legal counsel

about the process for

changing the

classification and

reducing the exposure

facing your agency.”


fully understand these tests (Can youexplain them in lay-person’s terms tosomeone else?), there’s a good chanceyour nonprofit has made somepotentially costly missteps in classifyingemployees. It is never appropriate toclassify employees based solely on theirsalary, rank, background, or thenonprofit’s desire to avoid overtime pay.Act wisely: Make plans today to conducta careful review of all staff positions inorder to determine which classificationis correct under the updated rules. If aposition has been classified incorrectly,consult with legal counsel about theprocess for changing the classificationand reducing the exposure facing youragency. Here are some suggested steps forreviewing the positions in yournonprofit.

Step 1: Does the Position Meetthe Salary Test?

Salary Test—The regulations providethat positions that are paid more than$455 per week may be exempt fromovertime, but only if the positions meetthe second and third tests. This meansthat an employee whose annualearnings are $23,660 or less must beclassified as non-exempt. If a positionpays more than $455 per week proceedto Step 2. Remember, the title, position,authority or role of the employee are ofno consequence in determining whethera position meets the salary test.

Step 2: Does the Position Meet theSalary Basis Test?

Salary Basis Test—The salary basistest answers the question of whether theemployee is paid on a salary basis or afee basis. According to the Departmentof Labor, “Being paid on a ‘salary basis’means an employee regularly receives apredetermined amount of compensationeach pay period on a weekly, or lessfrequent, basis. The predeterminedamount cannot be reduced because of

variations in the quality or quantity ofthe employee’s work. Subject to excep-tions listed below, an exempt employeemust receive the full salary for any weekin which the employee performs anywork, regardless of the number of daysor hours worked. Exempt employees donot need to be paid for any workweekin which they perform no work. If theemployer makes deductions from anemployee’s predetermined salary, i.e.,because of the operating requirementsof the business, that employee is notpaid on a ‘salary basis.’ If the employeeis ready, willing and able to work,deductions may not be made for timewhen work is not available.”

For information on the circum-stances under which a salaried employeemay receive less than his or her fullsalary for any week in which theemployee performs any work, see DOLFactsheet #17G, available atwww.dol.gov. The term “Fee basis” isdefined in 29 CFR 541.605.

Step 3: Does the Position Meet theDuties Test? Which ExemptionCategory Applies?

Duties Test—The duties test is themost complicated of the three tests. Itprovides that a position that is eligiblefor exempt status because it meets thesalary and salary basis tests can only beclassified as exemptif the position’s dutiesmeet the parameters ofan allowed exemptioncategory. The mostcommon exemptioncategories areexecutive,administrative andprofessional. Theseare discussed in thenext section. Keepin mind that otherexemption categories,such as technical and creative, exist aswell. Consult the DOL Web site forinsight into the additional exemptioncategories.


thoughtful, appreciative boardor executive director may wantto pay a nonprofit’s volunteers

“just a little something” beyondreimbursing individual volunteers fortheir expenditures on the organization’sbehalf. Some nonprofits rationalize amonetary gift as a demonstration ofthanks for the loyalty volunteers haveshown to the organization: “Buyyourself something you like as areminder of how much we like and needyou.” Or the “little something” may beoffered as token compensation for thecountless gallons of gas and miles ofwear that volunteers put on their cars asthey so willingly drive to and from thenonprofit (“Helping you get here is theleast we can do, when you do so muchfor us.”).

Any nonprofit executives who findthemselves thinking or saying thesewords should find better ways to say,“Thanks, please stay,” to theirvolunteers. The “little something” paidperiodically to all volunteers may seemlike a nice way to thank them for thetime they so graciously give to thenonprofit, but may raise serious issuesand yield unwanted tax consequencesfor the nonprofit and volunteer.

Paying volunteers money oranything of value that can reasonablybe construed to be in exchange for theirwork is confusing and potentiallydangerous to your nonprofit, and evento the volunteers you’re trying toreward. The basic source of theconfusion and the danger is that thelaw draws sharp distinctions betweenemployees and volunteers. The precisedistinctions vary among jurisdictions,but the almost universal point ofdifference is that employees get paid fortheir work—volunteers do not. Pay avolunteer for his or her work and you’ve

Board of Directors

PresidentArthur F. Blinci

Adventist RiskManagement, Inc.

Riverside, CA

TreasurerLinda P. VarnadoAmerican Red Cross

San Antonio, TX

SecretaryPhillipa Taylor

Public Welfare FoundationWashington, DC

Karen BeavorGeorgia Center for Nonprofits

Atlanta, GA

Samuel C. BennettThe Salvation Army

West Nyack, NY

Pamela E. DavisAlliance of Nonprofits

for Insurance,Risk Retention Group

Santa Cruz, CA

Michael DownsPension Boards -

United Church of ChristNew York, NY

Debra C. GriffithBoy Scouts of America

Irving, TX

David L. MairSatellite Beach, Florida

Judy NolanAmerican Red Cross

Falls Church, VA

John B. PearsonBig Brothers of Massachusetts Bay

Boston, MA

Ann Mitchell SackeyGreater Philadelphia

Federation of SettlementsPhiladelphia, PA

Marty ScherrInternational Social Service

Baltimore, MD

Jo Sachiko UeharaWashington, DC

continued on page 5

by George L. Head, Ph.D.

A

Tempting But Confusing and Dangerous:

Paying Volunteers“Just a Little Something”

transformed the former volunteer intoan employee—or at least you’ve createda plausible basis for that person (orperhaps someone else) to claim he orshe is an employee of your nonprofit.

Why Claim Employee Status?A person who joined your

nonprofit’s staff as a volunteer, or soyou’ve always thought, may haveseveral reasons for claiming employeestatus:

1. If your nonprofit terminates thisperson as a volunteer for anyreason, he or she, claiming to be apaid employee, may file forunemployment compensationbenefits or may sue for wrongfultermination of employment.

2. If this person becomes ill or isinjured off the job, he or she mayassert entitlement to the healthinsurance benefits your nonprofitgave all its “other employees.”

3. As this person approachesretirement age, he or she maydemand pension benefits like your“other employees” receive, or maysue for having been wrongfullydeprived of eligibility to participatein your pension plan.

4. If this person dies while stillworking for your nonprofit, his or


Paying Volunteers“Just a Little Something”continued from page 4

her surviving dependents may go tocourt, arguing that—because youpaid the deceased from time totime—they should receive the samelife insurance benefits you provideto the families of “otheremployees.”

5. If, now or in the future, this personbecomes very angry with yournonprofit or with one of its leaders,the volunteer may start destructiverumors, or may go to the media,bringing adverse publicity, decreaseddonations, and possibly regulators’scrutiny by claiming that yourorganization violates the wage andhour laws by paying staff membersless than the required minimumwage.

Any of these five sets of circumstancescan impose costs on your nonprofitthat are much greater than the largelyintangible benefits it gains by paying itsvolunteers “just a little something.”When the potential costs substantiallyexceed the probable benefits, soundmanagement calls for finding less risky,more responsible alternatives. There aresome ready, effective alternatives forretaining, motivating, and thanking allyour productive, generous volunteers.

There are Better WaysThe two primary reasons a

nonprofit’s board or executive directormay be tempted to pay its volunteers are(1) to cover their expenses for their workand (2) to motivate their continuingefforts for the nonprofit.

The two straight-forward ways tocover volunteers’ expenses are (1) toreimburse individual volunteers forparticular amounts they can documenthaving spent for the nonprofit and (2)for expenses that are more difficult todocument (such as for commuting orlunches) a uniform monthly allowancethat, on the average give or take a dollaror two, covers each volunteer’s costs.

Either of these two payment proceduresaccomplishes the reimbursementobjective more logically, openly,predictably, and defensibly than the“just a little something” approach.

Those who volunteer for nonprofitsgenerally do not do so for the money;if they wanted money from theirnonprofit efforts, they would become itsemployees. Instead, most volunteerslabor because they believe in a givennonprofit’s mission. Beyond themission, they may seek others’ gratitudefor their selfless work, opportunities towork with or lead others, or perhapscommunity recognition.

Most volunteers don’t work for “justa little something” in their wallets orchecking accounts. Therefore, to reward,motivate, and hold good volunteersincentives such as volunteer-only socialevents, “outstanding volunteer(s) of theyear” awards, and newspaper articlesabout volunteers’ group achievementscan be particularly effective. Theserewards require more than “just a littlesomething” from the board or CEO.They require some creative effort,originality, andpersonalattention froma nonprofit’sleadership.They requiremore personaleffort andattention fromthe leaders, butultimately theymean more tothe volunteerswhom theleaders wish toinspire and to the successful pursuitof your shared mission. ■

George Head is special advisor to theNonprofit Risk Management Center.Dr. Head welcomes your comments andfeedback on the issue of paying volunteersor any risk management topic or dilemmafacing your nonprofit. He may be reachedat [email protected].


“Some nonprofit

leaders regard all

of their staff as

‘professionals’

and therefore

believe the

professional

exemption applies

to all positions.

This is rarely,

if ever true.”


Executive ExemptionEligibility for the executive employee

exemption is limited to positions:❑ Whose primary duty is managing an

enterprise, or managing acustomarily recognized departmentor subdivision of the enterprise;

❑ Whose customary duties includesupervising the work of at least twoor more other full-time employees;and

❑ Whose authority includes the abilityto hire or fire other employees, orwhose recommendations as to thechange of status of other employeesare given weight.

Classification Tip: Some nonprofitmanagers believe that anyone whosupervises two or more employees isautomatically “exempt.” As the sectionabove indicates, this is a misconceptionabout the regulations.

Administrative ExemptionEligibility for the administrative

employee exemption is limited topositions:❑ Whose primary duty is the

“performance of office or non-manual work directly related to themanagement or general businessoperations of the employer or theemployer’s customers”; and

❑ Whose primary duty includes theexercise of discretion andindependent judgment.

Classification Tip: A key to properlyapplying the Administrative Exemptionis understanding the phrase “discretionand independent judgment with respectto matters of significance.” Somenonprofits misstep by claiming that all(or most!) employees use discretion andjudgment. A closer look reveals that theopposite is generally true: a minority ofemployees at the typical nonprofit usediscretion and judgment. When anemployee performs work that involves

following techniques or procedures,they are applying skill to the task.When an employee is expected to departfrom or change procedures withoutsupervisory intervention they areprobably using discretion andjudgment.

Professional ExemptionPositions that may be exempt under

the professional exemption categoryinclude those where:❑ The primary duty is work requiring

advanced knowledge, defined byDOL as “work which ispredominantly intellectual incharacter and which includes workrequiring the consistent exercise ofdiscretion and judgment”;

❑ The advanced knowledge requiredfor the position is in a field ofscience or learning;

❑ The advanced knowledge requiredfor the position is acquired througha “prolonged course of specializedintellectual instruction.”

Classification Tip: Some nonprofit leadersregard all of their staff as“professionals” and therefore believe theprofessional exemption applies to allpositions. This is rarely, if ever true. Therequirements listed above should makeit clear that the professional exemptionapplies in only rare instances. While itmay be good for morale to refer to staffmembers as “professionals,” rememberthat this term is interpreted narrowly inwage and hour regulations and a staffmember who is regarded as aprofessional may be non-exempt andtherefore eligible for overtime pay.

For more information on theexecutive, administrative andprofessional exemptions, see the HandyGuide to the FLSA published by theDepartment of Labor and available at:www.dol.gov/esa/regs/compliance/whd/hrg.htm or visit the Wage andHour Division site atwww.wagehour.dol.gov.

It is important to realize that to beexempt from overtime, an employee

continued on page 7


Wage and Hour Q & A■ Q. Can a part-time employee be paid on a salary basis and qualify for exempt status?

A. YES, as long as the position also meets the salary test and the duties test.

■ Q. Can we dock the pay of an exempt employee who only worked a partial day last week buthas exhausted their accrued leave?

A. NO. Disciplinary action may be taken against a salaried, exempt employee who fails to meetyour performance requirements, but you may not dock their pay on any day where theyperformed any work.

■ Q. We no longer employ secretaries. All of our secretaries are now called AdministrativeAssistants. Doesn’t this mean the administrative exemption applies and they are no longereligible for overtime pay?

A. NOT NECESSARILY. The position description must be scrutinized carefully to determinewhether the position of administrative assistant is eligible for the administrative exemption. Inmost cases AAs should be classified as non-exempt.

■ Q. We cannot afford to pay overtime, so we ask incoming employees to voluntarily agree to“exempt” status. As long as they volunteer, is this ok?

A. NO. An employee may not opt out of the wage and hour laws.

■ Q. Where can I find additional information on the wage and hour laws and the new regulations?

A. The Department of Labor’s Wage and Hour Division’s Web site is available atwww.wagehour.dol.gov. You may also call the Division’s toll-free help line, available from 8 a.m.to 5 p.m. in your time zone, at 1-866-4US-WAGE (1-866-487-9243). Keep in mind that whenstate laws differ from the federal Fair Labor Standards Act, your nonprofit must comply with thestandard most protective of employees. Links to state labor departments can be found atwww.dol.gov/esa/contacts/state_of.htm.


must not only meet the federal test forexempt status, but must also meet anystate requirements that may be morestringent than the federal exemptions.Review the wage and hour provisions inyour state by visiting your statedepartment of labor Web site. Acomplete listing of state labordepartments is found at www.dol.gov/esa/contacts/state_of.htm.

Before proceeding with changingthe classification of any positions inyour nonprofit, consult an experiencedemployment attorney licensed in yourstate who can advise your nonprofitabout the best way to proceed. ■

The U.S. Department of Labor Web site(www.dol.gov) offers numerousresources on the new “white collar”regulations, including 3 to 20 minutevideos that can be viewed online.Underlined words in the slides and scriptoffer links to the regulatory text, preamble,fact sheets andother relateddocuments. Theseminars can alsobe downloaded fortraining at yournonprofit. Visit:www.dol.gov/esa/regs/compliance/whd/fairpay/main.htm fordetails.


10th AnniversaryNonprofit Risk ManagementInstitutes

Nonprofit organizations by theirvery nature are risk-takingoperations. They venture to

provide services to people at risk, in riskyplaces and on limited, and sometimesrisky, budgets. To tell a nonprofit

organization not to take risks isas good as telling theorganization to close its doors.The purpose of the Nonprofit RiskManagement Institutes is toprovide policies and procedures,techniques and direction forkeeping your nonprofit’s doorsopen. The annual Institutes iswhere board members, executivedirectors and senior staff whoare concerned aboutsafeguarding nonprofits meet toexpand their horizons. Take thisopportunity to reinvest inyourself and your organization.Register yourself and a team ofstaff from your organization forthis year’s conference.

What’s It All About?This 10th Annual Nonprofit Risk

Management Institutes will focus onemployment practices, youthprotection, and insurance—threesubjects that present recurringchallenges to nonprofit leadership. Theformat of this year’s programencourages participants to choose themost compelling subject area and followit through day-to-day, or to select themost compelling topic from each timeslot no matter the subject. Either way,you’ll leave Washington fortified byyour immersion in practical insightsand best practices.

Who Should Attend?The Institutes program is designed for

nonprofit CEOs, program managers,CFOs, board members, department

heads and professional advisors tononprofits. Veteran nonprofitexecutives and newly employed staffmembers who have responsibility forrisk management, HR, youth protectionor insurance/risk financing will feel athome. At the Institutes, you will besurrounded and inspired by kindredspirits who have made a truecommitment to protecting the vitalmission-focused programs and assets oftheir nonprofits.

Open FormatThe 10th anniversary Institutesfeatures an open format—whichmeans that you can design aconference agenda that suits yourpersonal interests and professionalneeds. You may:

■ attend all of the sessions in asingle track; or

■ move from track to track,choosing individual sessions thatinterest you.

REGISTRATIONTo register for the 10th annualNonprofit Risk Management Institutes,visit www.nonprofitrisk.org or call(202) 785-3891 to request a copy ofthe printed brochure.

ExhibitsThe 2004 conference will feature an

exhibition of companies that provideproducts and services to nonprofits.To inquire about space availability callSuzanne Hensell at (202) 785-3891 [email protected]. For generalconference inquiries, contact SherylAugustine at (202) 785-3891 [email protected].


Sunday, October 179:30 - 10:00 am Forum Registration10:00 am - 4:00 pm 3rd Annual Forum for Insurance Agents

& BrokersNoon - 5:00 pm Institutes Registration1:30 - 5:00 pm Concurrent Sessions

Insurance “Boot Camp” for Nonprofit Leaders—This intensiveclinic offers a foundation for those who have new responsibilities ininsurance and risk management, whose insurance skills needrefreshing or who simply want to get a firmer footing on the ever-shifting insurance terra firma. What is out there and what policies dononprofits need?

Effective and Legal Employment Practices—This clinic covers arange of critical employment topics: wage and hour concerns,proper overtime pay practices, legal hiring, practicalrecordkeeping, and performance appraisal. The final hour willprovide an opportunity for participants to receive advice on theirthorniest employment dilemmas from a panel of experts.

Youth Protection Retrospective—This session sets the stage forthe future of youth protection. Presenters will highlight critical issuesin youth protection and offer a retrospective look at developmentsduring the past decade. Ground has been gained and lost innonprofit organizations’ work with children and teens that portendsfuture strategy.

5:00 - 6:30 pm Opening Reception in the Exhibit Hall

Monday, October 188:00 - 9:00 am Exhibit Hall Open/Coffee and Pastries9:00 - 10:15 am Plenary Session

10:30 am - 12:15 pm Concurrent SessionsTop 10 Employment Mistakes That Could Land YourNonprofit in Court—Investigate some of the common triggers ofemployment claims and lawsuits against nonprofits. Find out whatyour agency can do to avoid the potholes and pitfalls that havetripped up other organizations.

Staff Screening: A Closer Look—Focus on the hows and whys ofcomprehensive screening, and the options available for examiningcriminal history records. Learn about findings from a demonstrationproject conducted by the Boys & Girls Clubs of America, theNational Mentoring Coalition, and the National Council of YouthSports.

Insurance Industry Specialization: Who’s Doing What?—Diginto the increasing move to specialization by insurance agents/brokers and markets. Find out which carriers are expanding theirfocus on specific nonprofit segments and which companies aremoving away. Learn who the specialists are for brokering, TPA andclaims management services.

12:30 - 1:45 pm Networking Lunch2:00 - 4:00 pm Concurrent SessionsStaffing Changes: How to Manage Expansion andDownsizing—Managing transformation effectively is key toreducing the likelihood of a lawsuit and fortifying the nonprofit towithstand a legal challenge. This session will explore and explainproven strategies for managing employment transitions safely andwith compassion.

Youth Protection Policies: Translating Theory IntoPractice—Investigate the progress organizations have made informulating policies to help protect children who are participatingin their programs from abuse. Strategies employed ensureadequate supervision,training and educationthat remove theopportunities for abusersto victimize children.

Insurance CoverageClinic—Understandinghow coverage works isessential to managing anonprofit’s insuranceprogram. Look at several intriguing policy nuances. Study caseschosen from actual policy disputes involving nonprofits. Rachet upyour knowledge and confidence about components of coverage.

Tuesday, October 198:00 - 9:00 am Exhibit Hall Open/Coffee and Pastries9:00 - 10:15 am Plenary Session

10:30 am - 12:15 pm Concurrent SessionsCommon and Confounding Lessons From Recurring andWacky Employment Cases—Lawsuits alleging wrongfultermination, benefits or age discrimination, illegal retaliation, andsexual harassment are filed every day in U.S. courts. Many of thesecases offer familiar and avoidable patterns, while an occasional casepresents a path not previously taken. There are both humor andlessons to be learned buried in the legalese.

Responding to Allegations and Incidents of Abuse—Measurestaken by youth-serving organizations seem to be reducing thenumber of abuse cases, but not yet eliminating them. You still needan organizational response to abuse allegations, effective strategiesfor minimizing the damages to the organization and the victims,and to know the role of the attorney, investigative agencies,insurers, and officers of the organization.

Putting Your Insurance Program Out to Bid: ThreeApproaches—This session will explore three approaches toputting a nonprofit’s insurance program out to bid: open bidding,market assignment and conceptual competition. Learn how theapproaches differ, and the pros and cons of each from theperspective of the nonprofit client, the agent or broker, and thecarrier.

12:30 - 2:00 pm Working Lunch SessionsThe Employment Trends Crystal Ball: Looking Over YourShoulder and Into the Future—To wrap-up the employmenttrack, a panel of employment gurus offer insights on rapidlyapproaching trends and challenges in the employment arena andthose a bit further down the road.

Trends and Advances in Youth Protection—The closing sessionin the youth protection track looks at the growing body of claimsinvolving youth-on-youth abuse. These events includes bullying,violence, sexual harassment, and sexual abuse.

Commercial Markets vs. Alternatives: What Risks andRewards Are in Store for Nonprofits?—The final session in theInsurance track will weigh the ongoing question: Are nonprofitsbest served by a marketplace that includes captives, risk retentiongroups and pools, in addition to commercial insurers?

2004 Nonprofit Risk Management Institutes Program


Insurance for VolunteerPrograms

F

The following article is excerpted fromChapter 9 of No Surprises: Harmonizing Risk &Reward in Volunteer Management, 3rd Edition.To purchase a copy, call (202) 785-3891 or visitwww.nonprofitrisk.org. The book isavailable as a printed publication or as adownloadable PDF file.

Claims Against the Volunteerear of incurring personal liability forvolunteer service isn’t uncommonamong the estimated 90 million

Americans who perform volunteer serviceeach year. Volunteer board members may betargeted in suits alleging wrongfulemployment practices, breach of fiduciaryduty, fraud and other causes of action. Suitsagainst volunteer service providers mayallege negligence or gross negligence incaring for a client. Despite the relativeinfrequency of these actions, it’s importantto understand the legal and insuranceprotections available to your volunteers.There are two major categories of protectionthat a volunteer can turn to if he or she facesa suit: volunteer protection laws at the stateand federal levels, and insurance. Thisarticle addresses the topic of insuranceprotection.

Many nonprofits purchase broad formsof coverage that will defend a volunteershould he or she be named in a suit. And insome cases, an insurer may elect to defend avolunteer even if the coverage was intendedto protect the nonprofit only. If volunteersaren’t covered as insureds under thenonprofit’s CGL, D&O or professionalliability policies or the nonprofit doesn’tpurchase any coverage, the volunteer maylook to his personal homeowners’ policy orrenters’ policy for coverage. Other optionsare a volunteer liability policy purchased bythe nonprofit to provide additionalprotection for its volunteers, and personalauto liability policies.

❑ Homeowners’ or Renters’Policies—Volunteers who are homeownersmay enjoy some protection under theirexisting homeowners’ policies. In somecases coverage is provided for volunteeractivities without the need for any action onthe part of the homeowner. In otherinstances the volunteer must request abroadening endorsement. Whether it’sprovided at no additional cost or minimalcost, this coverage is potentially valuableprotection in the event the volunteer isnamed in a suit. Volunteers who have arenters’ policy may enjoy similar protection.Many homeowners’ and renters’ policies

don’t cover losses stemming from alleged“wrongful acts,” but are limited to damagesfrom bodily injury or property damage.Some policies include personal injury (libel,slander, defamation, invasion of privacy,etc.). Consequently, some homeowners’policies will only pay for your negligentacts that result in bodily injury or damage tothe property of others—and won’t respondif you are accused of violating someone’scivil rights (e.g. in an employment practicessuit) or mismanaging the organization (e.g. asuit alleging fraud by the board).

Since these policies differ to a largeextent, urge your nonprofit’s volunteers tocheck their policies and discuss their boardor other volunteer service with theirinsurance agent to determine the extent towhich these policies provide coverage.

❑ Volunteer Liability Policies—Some volunteers don’t have the option ofrelying on a homeowners’ or renters’ policyfor coverage simply because they don’tpurchase such policies. Another option isVolunteer Liability coverage. This coverageis typically packaged with a VolunteerAccident policy that is purchased by anonprofit. For example, one provider offersup to $1 million in personal liabilityinsurance and up to $500,000 in excessautomobile liability insurance above thevolunteer’s own insurance as part of itsvolunteer insurance package. The personalliability coverage provides protection for apersonal injury or property damage liabilityclaim arising out of the volunteer’s duties onbehalf of the nonprofit. Exclusions includealleged errors or omissions in connectionwith the volunteer’s professional servicesand property damage to property in thecare, custody or control of the volunteer. Insome cases, a state agency or state-sponsoredinsurance program may offer volunteercoverage at a reasonable cost.

❑ Personal Auto LiabilityPolicies—A volunteer who will be drivinghis or her auto while providing service for anonprofit should review his or her personalauto coverage. The volunteer’s personal autopolicy will extend protection to thenonprofit while the volunteer is driving forthe nonprofit. Most states have laws thatrequire the owner of a motor vehicle topurchase minimum levels of liabilityinsurance. Volunteers should review theirpolicy limits and consider the need toincrease these limits depending on thenature of the services they provide to anonprofit. ■


Welcome to the Risk Management Marketplace, a regular feature in Community Risk Management & Insurance. TheMarketplace provides information on the product and service offerings of a number of companies serving the nonprofitsector. Inclusion in the Marketplace does not constitute an endorsement by the Nonprofit Risk Management Center. Toinquire about advertising rates and space availability for future editions of the Risk Management Marketplace, contactSuzanne Hensell, Director of Marketing & Education, at (202) 785-3891 or [email protected].

Risk Management MARKETPLACE



320 PARK AVENUE NEW YORK NY 10022-6839212 224 1600 www.mutualofamerica.com

Mutual of America Life Insurance Company is aRegistered Broker-Dealer. For more information

and a prospectus call: 1-800-468-3785. Theprospectus contains complete information onall charges and expenses, including separateaccount and portfolio company expenses, and

an annual contract fee. Please read it carefullybefore you invest.

We Specialize in Retirement Plans

Why Mutual of America?

• Salaried sales and service representatives

• HotlinePlus, our online, Internet-basedsystem provides employers with immediateaccess to plan information

• Administration, record-keeping and claimsservices all provided by one company

• Toll-free number and Web site for employeetransactions

• Quarterly statements mailed to employees’homes along with informative newsletters

• Twenty variable Investment Alternativesand an Interest Accumulation Account

Mutual of America is dedicated toproviding employers of not-for-profitorganizations with comprehensiveretirement plan products and services.

1-877-888-2081 www.mariskpartners.com

Rely on the experience of our staff.

No matter how unique your situation, Munich-American RiskPartners has

the talent and expertise you’re looking for. Specializing in alternative solutions, we help

clients control the total cost of risk.

And when it comes to stability, we’re the only alternative risk specialist that offers the

resources of American Re—a member of the Munich Re Group—which has been standing behind its commitments and

paying claims for over 86 years.

So call Munich-American RiskPartners with your alternative risk needs today.

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Munich-American RiskPartners is a division of American Re-Insurance Company. Risks are underwritten by

American Re-Insurance Company and other members of the Munich ReGroup. The Munich-American RiskPartners name and logo are

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©2004 American Re-Insurance Company. All rights reserved.



Remember when closing your eyes and hanging on tight were all you needed

to feel secure?

800-253-3104www.markelsocialservice.com

Now that you run a social service agency, your eyes arewide open. Where others see only your good works, yousee that things can spin out of control. Markel sees thingsyour way, and can design an insurance program that protects your staff, clients, board members, and volunteers.

Feel secure with Markel.



Sign Up for Monthly RiskManagement Tips in Youre-mailbox

The Nonprofit Risk Management Center’s shortelectronic newsletter offers tips and useful hints. Topicsin recent editions of the e-news have included tamingjunk e-mail, documentation for volunteers who drive,the importance of job descriptions, and changes in theFair Labor Standards Act. Because your organization isa nonprofit, you may receive this timely informationabsolutely free. To startreceiving your copy of themonthly e-news, just fill out theshort online form atwww.nonprofitrisk.org/nwsltr/nl_sub_f.htm. Please fill in thedemographic information,which will help us serve youbetter. Questions about our e-news? Call Barbara Oliver at(202) 785-3891.

GreatAmericanInsurance.com© 2004 Great American Insurance Company

®

SpecializedInsurance forSocial ServiceAgencies andNon ProfitOrganizations

SpecializedInsurance forSocial ServiceAgencies andNon ProfitOrganizations

SPECIALTY HUMAN SERVICES DIVISION

www.hsd.gaic.com


Shipping & Handling$1.50 for orders of $7.50 or less

$5.00 if subtotal is $7.51 - $25.00$7.00 if subtotal is $25.01 - $50.00

$10.00 if subtotal is $50.01 - $75.00$13.00 if subtotal is $75.01 - $100.00

Actual shipping cost will be billed for orders over $100.00,Next Day UPS, or 2nd Day UPS.

Telephone: (202) 785-3891; FAX: (202) 296-0349

Mail or fax this form with payment to:

1130 Seventeenth Street, NW, Suite 210Washington, DC 20036-4604

SUBTOTAL

Int’l Checks, please add $12.00

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Visit www.nonprofitrisk.org for a complete description of allcurrent titles, including tables of contents. Also available: e-books—download our current titles and save shipping and handling costs.

Customer Information

Name

Title

Org

Address

City State Zip

Tel ( )

FAX ( )

E-mail

Method of Payment Check enclosed P.O. # ____________________ Charge my: Visa MasterCard AmEx

Card No.

Exp. Date

Signature

New Address!

New Address!

Call (202) 785-3891 to inquire aboutquantity discounts.

Order online atwww.nonprofitrisk.org

Products / Publications Order Form Price No. Total

NEW! Managing Facility Risk: 10 Steps to Safety $15.00

NEW! Playing to Win: A Risk Management Guide for Nonprofit Sports & Recreation Programs $20.00

NEW! Staff Screening Tool Kit—3rd Edition $30.00

NEW! No Surprises: Harmonizing Risk and Reward in Volunteer Management—3rd Edition $15.00

Ready in Defense: A Liability, Litigation and Legal Guide for Nonprofits $20.00

A Golden Opportunity: Managing the Risks of Service to Seniors $20.00

Enlightened Risk Taking: A Guide to Strategic Risk Management for Nonprofits $25.00

Enlightened Risk Taking: The Workbook $15.00

Coverage, Claims & Consequences: An Insurance Handbook for Nonprofits $30.00

The Season of Hope: A Risk Management Guide for Youth-Serving Nonprofits $30.00

Nonprofit CARESTM –Version 2.0—Computer Assisted Risk Evaluation System (visit www.nonprofitcares.org to order!)

Vital Signs: Anticipating, Preventing and Surviving a Crisis in a Nonprofit $20.00

Full Speed Ahead: Managing Technology Risk in the Nonprofit World $25.00

Taking the High Road: A Guide to Effective and Legal Employment Practices for Nonprofits $45.00

No Strings Attached: Untangling the Risks of Fundraising & Collaboration $15.00

More Than a Matter of Trust: Managing the Risks of Mentoring $15.00

Managing Special Event Risks: 10 Steps to Safety $12.00

Healthy Nonprofits: Conserving Scarce Resources Through Effective Internal Controls $15.00

Leaving Nothing to Chance: Achieving Board Accountability Through Risk Management $12.00

Prepared for distribution to:Prepared for distribution to:Prepared for distribution to:Prepared for distribution to:Prepared for distribution to:Big Brothers/Big Sisters of AmericaBoy Scouts of AmericaCalifornia Association of NonprofitsChild Welfare League of AmericaDelaware Association of Nonprofit AgenciesGeorgia Center for NonprofitsKansas Non Profit AssociationLaubach LiteracyMaine Association of NonprofitsMichigan League for Human ServicesMichigan Nonprofit AssociationMinnesota Council of NonprofitsNorth Carolina Center for NonprofitsOhio 4-H Youth DevelopmentPresbyterian Church USAPro Bono PartnershipTexas Association of Nonprofit OrganizationsUnited Way of Central IndianaY Services Corporation

Please route to:

Executive DirectorDirector of VolunteersRisk ManagerLegal CounselHuman ResourcesFinance/Administration

1130 Seventeenth Street, NW, Suite 210Washington, DC 20036-4604

Inside This Issue

Classification Conundrum........................................................................................................ 1

Paying Volunteers “Just a Little Something”........................................................................... 4

Insurance for Volunteer Programs .......................................................................................... 10

Risk Management Marketplace ............................................................................................... 11

Publications from the Nonprofit Risk Management Center ................................................. 15

may 2004 newsletter 2 · common wage and hour mistakes wage and hour investigations by the...

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