Social Services: Meeting the Challenges of Rising Minimum Wages

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Grant Thornton's 2017 State of NFP: Social servicesAs advocates across the nation continue to push for minimum wage increases up to $15 per hour, 22 states plus the District of Columbia will see minimum wage increases in 2017. The increases are creating serious challenges for not-for-profit organizations in those states and D.C., and serious concern in other states.

For social services and other not-for-profit organizations, the issue of an increased minimum wage is extremely sensitive. On the one hand, improving the livelihood of employees who serve the sector is certainly positive. On the other hand, without increased funding, the negative effects on social service organizations could be profound. Unlike a popular retailer or a fast-food chain that can absorb these costs by increasing prices, not-for-profits will be forced to pay their employees at least the minimum standard without the ability to pass along or otherwise recover the increased expense. This will hold especially true for social service organizations that rely heavily on government support to fund their operations.

For many social services organizations, particularly those that help individuals with developmental disabilities, more than 90% of their revenue is government funded. Of that funding, 80% goes directly to wages for direct support professionals (DSPs). Since 2008, these organizations have seen an average government support rate increase of only .05% annually. As a result, DSPs have not received significant wage adjustments over that time frame. This has caused record vacancy and turnover rates in these demanding jobs. The majority of DSPs currently earn more than the minimum wage. However, that might not be enough to keep them in their not-for-profit job with a minimum wage increase that will close the salary gap between not-for-profits and for-profits. The for-profit sector’s less-demanding minimum wage jobs that require little training will likely draw many DSPs from their not-for-profit jobs. Failure to maintain a wage premium will increase the already high vacancy rates, unless the government steps up its funding.

Without some level of funding relief from the government or other private sources, there could be numerous negative impacts of minimum wage increases on social service organizations.
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Contact Nicholas Lazzaruolo
Partner, Audit Services, Not-for-Profit and Higher Education Practices
+1 631 577 1866