We need more than aroha to sustain our community organisations

Advocating for community sector reform

There is long-standing mindset that Not-for-Profits (NFPs) do not have to pay employees as much money as their private sector counterparts due to the charitable nature of the organisations. Limited funds, cost-saving pressures, a belief that the work provides value beyond money, and a fear of overspending on operations at the expense of the cause, all contribute to this mindset.

Previously Not-for-Profits could use lifestyle factors to define themselves as a stand out employer, and to attract and retain workers. Benefits like flexibility, community, an enjoyable workplace culture, with a socially valued mission. Now the commercial sector are increasingly offering these benefits along with higher pay. Pay rates for advertised public sector roles have also spiralled upwards in recent years, raising the stakes even further for Not-for-Profits.

In New Zealand, we are well short of valuing the community sector adequately. Whilst charities themselves can access tax free benefits – what’s in it for staff working in the community sector and how can we support longer term sustainable care for our community organisations doing so much on so little?

Community Governance Aotearoa (CGA) and Not-For-Profit specialists Grant Thornton are joining forces to bring this concept to a wider audience and push towards some real change.

Chief Executive of Community Governance Aotearoa Rose Hiha-Agnew says “we surveyed community organisation Chairs throughout Aotearoa New Zealand, they are concerned at the loss of talented staff and the affect it has on service delivery (not to mention the time and effort in recruitment). We are looking for mechanisms that work to keep our people who love and serve our Not-for-Profits, in our sector”.

We do not underestimate the challenge of this undertaking, but we know if we can enlist supporters and partners along the way then we can make some meaningful change for the sector.

Why do we need this in New Zealand?

Our Australian counterparts have been leading the way in this space, introducing salary packaging (also known as salary sacrificing) benefits for Not-for-Profits over 20 years ago.

Under this type of agreement, the Not-for-Profit employer provides a designated portion of the employee’s salary in the form of benefits. Currently, the Australian maximum annual sacrifice amount is $15,900. The sacrifice calculation occurs before tax and therefore the overall taxable income decreases. The employee’s regular ‘cash’ salary comes from this lower taxable income amount and is paid as a normal wage alongside their benefits.

The arrangements utilise the Fringe Benefit Tax concessions and exemptions available to Not-for-Profits.

In practice this means each year employees of eligible Australian charities and Not-for-Profits can spend $15,900 of their salary tax-free. This can mean an actual cash benefit of up to an extra $100 per week; which could be the difference between retaining talent or losing talent to other sectors due to high inflation and cost pressures.

Why we like this concept

This approach allows targeting of the tax relief to the people who need it most, does not require different tax rates for different individual income taxpayers, and it is a proven concept. Australia has had this in place for over 20 years.

I love the idea that some of my taxes could be providing a targeted helping hand to employees of NFPs – to support them, their families and the good work they do in our community – seems like a no brainer to me” Barry Baker Not-for-Profit Specialist at Grant Thornton.

We know our Not-for-Profits already have some exemptions in connection to their charitable activity in New Zealand thanks to Fringe Benefit Tax. Community Governance Aotearoa and Grant Thornton are collaborating on this initiative as we see this as a natural extension of the status quo.

Tax relief, never!

Both organisations weighed up the benefits of a tax incentive for our not-for-profits here in Aotearoa New Zealand. We considered:

  • Government will not want to forego the tax revenue
  • More money in the economy

The Government may not be willing to forego the tax revenue and, it requires a change in legislation, but surely if the benefit outweighs the “work” involved to implement this change its work a little bit of effort?

Benefits include (but are not limited to)

  • economic stimulus as the purchasing power of individual employees increases
  • better service delivery as organisations can attract the best talent; and
  • widespread support for organisations that have charitable purposes.

Community Governance Aotearoa Chief Executive Rose Hiha-Agnew shares, “Our Chairs of our not-for-profits also tell us governors, and staff often dip into their own pockets to support their causes and communities – this initiative delivers real change and impact where needed, we really can do better here in Aotearoa”.

The simple answer is – if Australia can put it in place, so can New Zealand.

Real deliverables

In the end, we want our teams that work for Not-for-Profit organisations to be able to thrive on their salaries AND deliver awesome mahi – not have to choose between the two.

Ok, what next?

We are officially launching this initiative on May 17th 2024 with an online event.

We want our not-for-profit sector to get behind this and enable real change!

Sign up to our launch event, share with your friends, networks and community organisations.

Further reading:

 

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