Nonprofit work can be incredibly rewarding, but it is a field that faces a surprising amount of nonprofit risk. Here is a look at some of the biggest risks nonprofit organizations may encounter and how they can be addressed.
One common mistake that nonprofits make is treating a worker as an independent contractor when their proper classification is that of employee. This can lead to payroll tax liability and potential penalties and lawsuits because the nonprofit might not have workers’ compensation coverage in place for the workers that it is treating as independent contractors. Therefore, if one of these workers is injured on the job and files a workers’ compensation claim, the nonprofit could be sued.
This can be avoided by understanding the distinction between employees and independent contractors. Contrary to popular belief, it is not simply a matter of agreeing on the terminology between the nonprofit and the worker. Several factors go into this determination, and a nonprofit should seek clarification if they have any doubt.
In addition, nonprofits must obtain workers’ compensation insurance for anyone who is an employee. Required in nearly every state, workers’ compensation is a type of insurance that will provide financial assistance to employees for injuries or illnesses that are sustained as a result of their employment.
Dissatisfied Volunteers And Staff
It can be difficult for a nonprofit to keep everyone on its payroll happy at all times, but it is important to keep in mind that dissatisfaction does pose a legal risk. For example, employees who are unhappy could be victims of workplace bullying, whether it is from coworkers or bosses. Nonprofits could be found legally responsible in cases where an employee claims the intentional infliction of emotional distress or assault.
To prevent this, the nonprofit’s board should implement an internal complaint procedure that is easy to understand and use, and ensure that leadership is setting a good example of how to behave at the workplace.
In addition, Directors and Officers (D&O) liability insurance can provide a valuable layer of protection. This type of policy can cover the costs of defending and settling lawsuits and judgments related to allegations of wrongful acts brought against the nonprofit’s board members, such as wrongful termination, harassment, and discrimination. Without this type of insurance in place, board members could be held personally liable and their assets could be at nonprofit risk.
Exposures Related To The Use Of Technology And Social Media
Online networking and social media form a crucial component of many nonprofits’ operations these days. However, along with the tremendous reach of modern technology comes a host of risks. For example, posting certain materials could result in claims of trademark infringement or copyright infringement, while using social media to vet potential employees and see how they would fit in with a nonprofit’s culture could lead to claims of discrimination or privacy violations. Likewise, nonprofits could be exposed to liability for defamation and other problems if their employees make certain types of statements on social media while identifying themselves as being part of the organization.
Many nonprofits collect sensitive and confidential data about parties they work with as well as employees. Unfortunately, as some of the bigger targets for cyber crimes, such as financial institutions, become better at protecting themselves from attacks, hackers are turning their attention to smaller organizations like nonprofits who lack the cybersecurity resources of major corporations so they can attempt to steal identities or funds. In addition, a nonprofit’s data could be accidentally released by staff members who are inexperienced with computers, or laptops containing sensitive data could go missing.
These kinds of risks can be difficult to avoid, but having the right insurance in place can go a long way toward preventing significant financial loss in the event of a lawsuit. Cyber liability insurance, for example, can provide coverage in a data breach, helping pay the expenses involved in notifying the affected parties of the breach, restoring the nonprofit’s reputation, offering credit monitoring services to those who are affected, and dealing with cyber extortion.
Mistakes With Contracts
Some nonprofits make the mistake of signing a contract with a vendor without reviewing it first. Vendors tend to use contracts that are written in their favor, and many clients simply sign contracts without scrutinizing them. Sometimes, contracts will have missing terms or language that was simply copied and pasted into the document from a previous transaction.
Nonprofits are always looking for ways to save money, and having every agreement reviewed by an attorney may not be cost-effective. However, agreements that have more serious consequences, such as lengthy terms and those involving significant amounts of money, should be reviewed. In addition, it is important to read and understand every contract before signing it, whether you have a lawyer review it or not, paying particular attention to auto-renew terms and ensuring there is a clear way of terminating the contract.
Reach Out To CI Solutions
Nonprofits cannot avoid nonprofit risk entirely, but they can gain financial protection from many of the most common risks with insurance. Get in touch with the nonprofit insurance specialists at CI Solutions today to learn more about how our tailored policies can give your organization peace of mind.