What the OBBBA Means for Nonprofits: Strategy, Compliance & Funding Readiness

For over 25 years, we have had the distinct privilege of partnering exclusively with the social impact sector for their people management needs.

We have witnessed firsthand the incredible resilience, unwavering dedication and profound impact of mission-driven organizations across the nation. Time and again, when all else has faltered, it is the nonprofit sector that steps forward, supporting communities and centering the human element in every challenge.

Now, as the One Big Beautiful Bill Act (OBBBA), signed into law by President Trump on July 4, 2025, takes effect, we understand that many social sector executives are grappling with its potential implications. The aim of this piece is not to sensationalize or incite panic, but to offer a matter-of-fact overview and guide you through clear and proactive strategies. While aspects of the challenges the Act presents are unprecedented, the sector's inherent adaptability and commitment to its constituents remain powerful forces for positive change. As we often say, an organization's greatest asset is its people, and at a time like this, maintaining a steadfast focus on your people is paramount.

Understanding the One Big Beautiful Bill Act's Technical Landscape for Nonprofits

The One Big Beautiful Bill Act will reshape federal policy across nearly every major sector of the American economy through significant policy shifts, funding reallocations and regulatory changes.

For nonprofits specifically, the legislation introduces a range of provisions that will undoubtedly reshape the operating environment. From shifts in charitable giving incentives to modifications in excise taxes and potential impacts on federal funding streams, the legislation presents both opportunities and challenges.

Key Technical Provisions Affecting Nonprofits

Charitable Giving Restructuring:

• Above-the-Line Deduction: The Act reinstates an above-the-line deduction for non-itemizers, a welcome development that could encourage broader participation in giving by making charitable deductions accessible to taxpayers who take the standard deduction.
• Itemized Deduction Thresholds: New minimum threshold for itemized deductions which would require an individual to donate at least 0.5% of their contribution base before qualifying for a charitable deduction may reduce the tax benefits for some individual donors, potentially impacting giving patterns.
• Corporate Giving Requirements: Creates a 1% floor for corporate charitable giving, which would require corporations to donate at least 1% of their taxable income to qualify to take a charitable deduction. This works in conjunction with the existing 10% ceiling and may allow for carryforward provisions.

Excise Tax Expansions:

• Executive Compensation: OBBBA expanded the applicability of the tax on the compensation of certain nonprofit employees earning over $1 million. The Act removed the requirement that the employee must be among one of the top five highest compensated employees, significantly broadening the scope of who is subject to this 21% excise tax.
• Endowment Taxation: Through OBBBA's changes to IRC §4968, Congress aims to more aggressively monitor and regulate private universities' endowments, with enhanced net investment income tax provisions for colleges and universities with substantial endowments.

Federal Funding Implications:

• Medicaid and Social Services: This Act shifts responsibility of paying for food and health care programs onto individual states; a burden that most state budgets will not be able to absorb without significant trade-offs to other critical state-funded social needs programs.
• Healthcare Sector Impact: Hospitals will experience significant impacts with the health care provisions of the bill, which would reduce the support they receive from states to care for underserved populations, particularly affecting FQHCs and nonprofit hospitals.

What Executives Should Be Thinking About and Doing: Centering Your People Through the Full Talent Management Lifecycle

The strength of the social impact sector lies not only in its mission but in its people. As you navigate these changes, centering your talent and the needs of the communities you serve will be paramount. How can organizations maintain a focus on their people while bracing for and sustaining operations through ongoing and potentially more aggressive impacts? In the midst of responding to any immediate threats, begin with a holistic approach to the full talent management lifecycle, considering the employee experience from attraction, hiring and onboarding to development, retention and even offboarding.

Proactive Financial Scenario Planning and Future Compensation

Beyond traditional budgeting, develop multiple financial scenarios, including best case, moderate case, and worst case, to understand potential impacts on your funding streams. This allows for proactive decision-making regarding program scaling, cost restructuring and identifying new funding opportunities. Crucially, this planning must inform your compensation strategy. These types of planning discussions can be complex and emotional, especially as circumstances intensify. Hiring a process facilitator may smooth the process, and ensuring the right people are involved in these conversations is also essential to ensure holistic mitigation strategies are created.

Executive Compensation Strategy

The expanded applicability of the excise tax on highly compensated employees means a thorough review of executive compensation packages is non-negotiable. This is not just about plan compliance and fiduciary responsibilities options; it is about evaluating the long-term sustainability and competitiveness of your leadership compensation in a post-Act environment. Organizations could consider performance-based incentives that align with mission, impact and budget, rather than solely focusing on base salary, to mitigate potential tax burdens where possible. Transparency with your executive team on these considerations, in addition to understanding what's important to each of them, is vital for trust and alignment.

Broader Compensation Philosophy

Review your overall compensation philosophy to ensure internal equity and external competitiveness across all roles. This is also an opportunity to determine how you might introduce benefits and nonprofit retirement plans into the broader total rewards strategy. This may involve benchmarking against a wider range of organizations, both within and outside the nonprofit sector, to ensure you can attract and retain top talent. It is also key to complying with state pay equity and pay transparency requirements. Proactively communicating your compensation strategy, especially any adjustments, will be key to managing employee expectations and fostering a sense of fairness.

Strategic Workforce Planning and Talent Attraction

The Act's implications may necessitate adjustments to your workforce, but this can also be seen as an opportunity to strengthen your talent pipeline for the future. The concepts below are ones that our consultants help organizations address daily.

Anticipate Emerging Needs

Based on your financial scenarios and potential shifts in program delivery, identify emerging skill requirements and roles. Do you need more specialists in digital fundraising, strategy for innovation, data analytics for impact measurement or community engagement for new outreach initiatives? The changing funding landscape may require different expertise than your current team possesses.

Refine Talent Attraction Strategy

In a competitive talent market, your employer brand is crucial. Proactively articulate your organization's unique mission, employee value proposition, societal impact and the meaningful work your employees do. Showcase your commitment to employee wellbeing, professional growth and a supportive, psychologically safe work environment. Leverage agile recruitment channels that also considers a multigenerational workforce, including mission-aligned platforms and community networks, to attract candidates who are not only skilled but also deeply aligned with your values and committed to your cause.

Hiring and Onboarding for Success

As the tide shifts and your organization responds to opportunities, you may be welcoming new staff members with different skills and talents. A robust hiring and onboarding process is critical for setting new employees up for success and ensuring they quickly integrate into your mission and culture.

Streamlined Hiring Process:

Amidst potential changes, ensure your hiring processes are efficient, inclusive and focus on identifying candidates with both the necessary skills and a strong cultural fit. Don't go at this alone. Partner with a recruiting firm or even outsource this function to sustain bandwidth for other critical areas.

Effective Onboarding Framework:

Beyond paperwork, a comprehensive onboarding program should immerse new hires in your mission, values and the unique challenges and triumphs of the social impact sector. This foundational experience contributes significantly to shortened time-to-productivity and long-term engagement and retention.

Employee Engagement and Retention: Nurturing Your Greatest Asset

In times of uncertainty, fostering a supportive and engaging environment is paramount for retaining your most valuable resource, your people. The challenges ahead require not just operational adjustments, but a renewed commitment to the human elements that make your organization exceptional.

Communication and Transparency

Open and Honest Communication: Be as transparent as possible about the organization's financial health and the potential impacts of the Act, even when the news is challenging. Employees appreciate open discussion and clarity. Establish regular forums for questions, feedback and collective problem-solving. Some conversations, especially town hall-formatted meetings, can be challenging to navigate and require a great deal of listening and compassion. If this is not a strength of your leadership team, collaborate with expert facilitators who can help you design the agenda and moderate the flow of the conversation as well as support any breakout discussions.

Recognition and Professional Development

Recognition and Appreciation:

During periods of heightened stress and change, acknowledging and celebrating employee contributions becomes even more critical. Implement robust recognition programs that genuinely value effort, impact and dedication to the mission.

Professional Development and Growth:

Invest in continuous learning, upskilling and reskilling opportunities. Provide clear pathways for career progression and internal mobility within your organization. This demonstrates a commitment to your employees' long-term growth and makes them more resilient and adaptable to future changes.

Mission Connection and Purpose

Meaningful Work and Mission Connection: Regularly reiterate the impact your organization has on the communities you serve and go a step beyond by recirculating or recreating case studies and impact reports. Remind your team of the work they are doing and the impact it is having on those your organization serves and your fellow colleagues as well. Connect employees' daily tasks directly to the larger purpose, reinforcing the intrinsic motivation that draws individuals to the social impact sector. This powerful mission alignment is a key retention tool.

Employee Benefits: Holistic Wellbeing and Employee Experience

Beyond compensation, a comprehensive and employee-centered benefits package is a cornerstone of a positive employee experience, especially in times of stress and external shock. When uncertainty or disruption arises, employees often look to their organizations for stability and reassurance, and benefits play a powerful role in meeting that need.

Benefits Review and Adaptation

Review and Adapt:

Re-evaluate your benefits offerings in light of potential cost increases or evolving employee needs arising from the Act's impacts or the broader economic climate. This includes health insurance, nonprofit retirement plans, paid time off, and other ancillary benefits. Seek expert advice to optimize your benefits strategy. An experienced and creative benefits broker can play a key role in identifying gaps in your current offerings and finding strategic, cost-effective solutions.

This might involve exploring whether your organization is a good candidate for a medical captive or considering nonprofit retirement plan structures such as Multiple Employer Plans (MEPs) or Pooled Employer Plans (PEPs). These retirement options can help smaller employers offer competitive benefits with less administrative hassle and potentially lower costs than traditional 401(k) plans. Medical captives, on the other hand, can give organizations more control over healthcare spending, improve transparency, and create opportunities for long-term savings through shared risk and data-informed strategies. Both options require thorough research and a strong partnership with your benefits broker, who can guide you through the evaluation process and help determine what makes the most sense for your organization.

Mental Health and Wellness Support

Mental Health and Wellness: Recognize the increased mental and emotional strain that ongoing external shifts and disruption can place on your workforce. Prioritize and actively promote access to comprehensive mental health resources, Employee Assistance Programs (EAPs), and initiatives that foster wellbeing, resilience and work-life balance. Flexible work arrangements, where feasible and aligned with operational needs, can be a significant benefit that supports overall wellbeing.

Financial Wellness Programs

Financial Wellness: Consider offering resources or workshops on financial planning and literacy, particularly given the potential for economic shifts. Employees who feel more financially secure are better equipped to weather uncertainty and focus on their work.

Organizational Culture: The Foundation of Resilience Amidst Shocks

Just as benefits provide individual support, culture weaves those efforts into the everyday employee experience. Your organizational culture is your compass in turbulent waters, shaping how your people react, adapt and ultimately thrive in the face of ongoing external shocks.

Cultivating Adaptability and Innovation

Foster Adaptability: Cultivate an open feedback culture where change is viewed not as a threat, but as an inherent part of the social impact landscape, an opportunity for continuous learning, process improvement, and innovation. Encourage open and candid dialogue, experimentation, problem-solving and cross-functional collaboration to discover new and more effective ways of operating and delivering impact even when there are internal competing interests for resources.

Psychological Safety and Empowerment

Promote Psychological Safety: Create an environment where employees feel safe to voice concerns, share ideas, ask questions and even admit mistakes without fear of retribution. This is essential for transparency, for identifying challenges early, and for empowering teams to contribute fully to solutions.

Empowerment and Trust: Delegate authority and empower employees at all levels to contribute to solutions and take ownership. Trust your teams to navigate challenges with creativity, commitment and a deep understanding of your mission.

Values-Based Leadership

Reinforce Core Values: In times of external pressure and uncertainty, it is easy for focus to drift. Actively reinforce your organizational values in all communications, decision-making processes and leadership behaviors. These values are the bedrock of your mission-driven work and provide stability and purpose when everything else feels uncertain.

Thoughtful Offboarding: Maintaining Dignity in Transitions

Even in challenging times, how you manage employee transitions, including offboarding, significantly impacts your employer brand and the morale of remaining staff. Handled with care, offboarding can reinforce your organization’s values, preserve important relationships, and leave departing employees feeling respected and supported.

Responsible Transition Management

If workforce adjustments become necessary, ensure processes are handled with dignity, transparency and support. Employees do talk and handling a transition process without care can deteriorate trust and employer brand. Provide resources such as outplacement services or resume support to departing employees.

Knowledge Transfer and Continuity

Implement robust knowledge transfer protocols to ensure critical information and institutional memory are retained, minimizing disruption to operations and services. This also helps ensure a seamless transition to carry forward the mission in the event a successor is identified.

A Partnership Approach: Our Commitment to Your Success

Throughout our 25+ year journey supporting social sector organizations, we have guided executives and their teams through economic recessions, regulatory changes, key leader transitions and countless other challenges. Each experience has deepened our understanding of what makes mission-driven organizations not just survive, but thrive in the face of adversity.

We recognize that the One Big Beautiful Bill Act presents unique challenges that require thoughtful, strategic responses. Our approach is never one-size-fits-all. We take the time to understand your specific context, culture and constraints before developing tailored solutions that align with your mission and values.

Whether you need support with compensation strategy, workforce planning, talent acquisition, leadership development or culture transformation, we are here as your partner. Our consultants bring deep sector expertise, proven methodologies and, most importantly, a genuine commitment to the work you do and the communities you serve.

How We Can Support Your Journey

• Strategic Planning and Facilitation: We provide expert facilitation for complex planning discussions, helping your leadership team navigate difficult conversations about financial scenarios, compensation adjustments and strategic pivots.
• Compensation and Benefits Consulting: Our consultants can help you develop competitive compensation strategies and optimize your benefits offerings to attract and retain top talent in this market.
• Talent Management and Organizational Development: From recruitment and onboarding to leadership development and succession planning, we offer comprehensive talent management support tailored to the unique needs of nonprofits.
• Culture and Change Management: We help organizations build resilient, values-led, open feedback cultures that can adapt to external shocks while maintaining focus on mission and budget.

The Enduring Spirit of Service

The nonprofit sector has always been a beacon of hope and support, especially when systems are challenged and communities face adversity. No doubt, every nonprofit’s history is replete with examples of remarkable resilience, innovation and unwavering commitment to those you serve. This moment, while complex, is another chapter in that enduring story.

While we have not faced this unique scenario before, the principles of sound HR, strategic planning, transparent communication, and steadfast mission focus have consistently guided the sector through countless transformations. By embracing a forward-thinking, human-centered approach to the entire talent management lifecycle, you can not only navigate these current impacts but also position your organization for a brighter, more impactful future, continuing to be the vital backbone of communities across the nation.

Though the challenges ahead are real, based on tried-and-true experience, so is your capacity to meet them. Your people, including volunteers and board members, plus the communities you serve, are the source of your mission’s strength. By investing in, supporting and empowering them, you are not just navigating change; you are modeling the very values that make the nonprofit sector indispensable.

We have every confidence that the nonprofit sector can navigate these tides of change and emerge stronger, more resilient and more impactful.

For a summary of the latest updates, visit the Federal Policy Hub for Employers and connect with one of our HR Consultants on the Nonprofit team to ensure you remain compliant through these changes.