Protecting Your ECBOs: Getting Started with Regulatory Compliance and Nonprofit Insurance

This blog post explores organizational risk management for ethnic community-based organizations (ECBOs), focusing on two critical areas: regulatory compliance and nonprofit insurance. It outlines federal, state, and local filing requirements to keep your organization in good standing, explains essential insurance coverage types, and provides practical tips informed by ECBO leaders in Switchboard’s community of practice. Whether your ECBO is newly incorporated with 501(c)(3) status or just starting up, this blog offers actionable strategies to protect your organization so you can focus on serving your community.

As ECBO leaders, you likely focus your energy on meeting the needs of your community and making sure you have the resources to carry out your programs and services. However, an equally important and often less well-understood part of your job is to make sure your organization is protected from various risks that could threaten its safety and sustainability. While comprehensive nonprofit risk management covers many different aspects of an organization’s mission, operations, and finances, this blog post will focus on regulatory compliance and nonprofit insurance—what these are, why they’re important, and practices to address them. Use this blog to start conversations with your Board, leadership team, and community partners about incorporating these practices into your ECBO’s operations.

What is regulatory compliance and why is it important?

None of us founded or chose to lead an ECBO to do paperwork! Yet staying compliant—or in good standing—with federal, state, and local regulations is essential to protecting your organization. Compliance simply means filing all necessary paperwork on time and following the rules mandated by government agencies. Miss a filing deadline and you’ll face penalty fees or, even worse, your ECBO could lose its legal and nonprofit status entirely.

Federal, state, and local regulations each have their own requirements, paperwork, and timelines. But once you understand what’s required, compliance becomes manageable. Below is a brief overview with links to helpful resources.

Federal Level

The Internal Revenue Service (IRS) regulates nonprofits at the federal level. Although tax-exempt organizations don’t pay federal income taxes, you must still file an annual tax return (Form 990) with the IRS. This form collects information about your organization’s activities, governance, and finances, allowing the IRS to verify that you continue to meet requirements for tax-exempt status.

Which Form 990 you file depends on your ECBO’s gross revenues and assets:

• Form 990-N: Organizations with gross receipts under $50,000
• Form 990-EZ: Organizations with gross receipts of $50,000-$200,000 and total assets under $500,000
• Form 990: Organizations exceeding either of those limits

When to file: By the 15th day of the 5th month after your fiscal year ends (e.g., May 15th if your fiscal year is January to December). You can request a six-month extension without fees if needed.

Payroll Taxes: Once your ECBO has employees, you must file quarterly payroll taxes using Form 941 (Employer’s Quarterly Federal Tax Return). This reports income tax withheld from wages, Social Security contributions, and Medicare taxes.

Form 1099: If your organization paid any individual (contractor or honorarium) more than $599 during the year, you must send them Form 1099, which reports non-employment income to the IRS.

State Level

State requirements vary depending on where your ECBO is located, but most states have two key compliance areas: annual reports and charitable solicitation registration. Understanding your state’s specific requirements will help you avoid penalties and maintain your nonprofit status.

Annual Reports

In most states, you must file an annual report with the agency that handles incorporation (such as Office of the Secretary of State and Department of Justice). The annual report is typically a 1–2 page form requesting updated contact information and requiring a filing fee.

• Many states offer one-year or two-year filing options
• Most states allow online filing
• Fees generally range from $50–$150 depending on your state, filing period, and annual budget

Charitable Solicitation Registration

Most states require nonprofits to register if they plan to solicit charitable contributions from residents of their state. This involves:

• Application fees
• Supporting documents (often including your IRS Form 990)
• Annual financial reporting requirements
• Renewal deadlines

City/County Level

City and county requirements vary widely. However, two of the most common are property tax exemptions and business licenses.

Property Tax Exemptions: If your ECBO owns property or is considering buying property, research whether your local government automatically exempts nonprofits from property taxes. Not all do—you may need to apply for an exemption.

Business Licenses: Some cities and counties require nonprofits conducting business within their borders to apply for a business license. Operating without required licenses may result in fines.

Practical Tips for Staying Compliant

The following tips are informed by practices and insights shared by participants in Switchboard’s monthly community of practice for ECBO leaders:

Stay organized:

• Create a checklist with key filing dates and add them to your calendar
• Include compliance updates on Board and leadership meeting agendas

Share the responsibility:

• Identify at least one other staff member or volunteer to be your compliance partner—don’t go it alone!

Get free help:

• Find pro bono legal services by asking peer nonprofit leaders or contacting your state’s Bar Association
• If you use a payroll company, ask whether your monthly fees include HR consultations on regulatory changes

Learn from your peers:

• Connect with other nonprofit leaders in your city or state to share compliance strategies and tips

Why is nonprofit insurance important?

As an ECBO leader, you need to plan for worst-case scenarios: injuries to staff, volunteers, or community members; property damage; theft or fraud. Nonprofit insurance protects your organization from financial loss if and when these situations occur.

The stakes are high. Without insurance, a single incident could lead to financial ruin, loss of donor funding, damage to your ECBO’s reputation, and personal liability for officers and Board members. Having proper coverage allows your organization to rest easy knowing you’re protected.

It matters for grants. Having proper insurance demonstrates that you’re a responsible grant recipient. Many funders now require you to have organizational insurance and policies (such as sexual harassment, whistleblower protection) before you can even apply for grants.

What are the most important types of insurance that smaller nonprofits should purchase?

General Liability Insurance

General liability insurance provides coverage in the event of harm caused by the negligence of an organization’s directors, employees, or volunteers.

What it covers:

• Bodily injury (e.g., a community member falls and breaks an arm due to a faulty stairway your organization failed to fix)
• Property damage (e.g., damage to the office space listed in the liability insurance policy, property damage caused by your events when you list the venue as an additional insured)
• Personal injury (actions that damage someone’s reputation)

Directors and Officers (D&O) Insurance

D&O insurance generally covers the legal costs for defending a lawsuit brought against an organization’s Board of Directors or managers for harm caused by their actions. D&O insurance typically covers defense costs and may cover settlements or judgments, depending on policy terms.

D&O insurance covers employment-related claims not covered under general liability, including:

• Wrongful termination
• Harassment and discrimination based on legally protected classes
• Retaliation against employees who report workplace violations

Cyber Security Insurance

Cyber security insurance protects organizations from the financial fallout of cyberattacks and data breaches. While not commonly needed in the past, in our current environment—with remote work, virtual meetings, and cloud data storage all used regularly—it’s critical protection.

Workers’ Compensation Insurance

All states require organizations to carry workers’ compensation insurance—though exemptions, such as for small employers or volunteers, vary by state. Workers’ compensation, which is fully paid for by the employer, covers medical expenses and lost wages in the case of job-related illness or accidents.

If your ECBO fails to obtain required coverage and an accident occurs, the injured employee can file a lawsuit against your organization in civil court or file a claim against the state workers’ compensation system.

Practical Tips for Getting Insured

Find the right broker:

• Work with an insurance broker or agent who is familiar with nonprofit insurance and willing to learn about your ECBO’s operations

Before meeting with a broker, gather:

• Basic information about your ECBO’s mission, programs, operations, and finances
• Copies of your incorporation and 501(c)(3) letters
• Information about past insurance claims (if any)
• Details about specialized activities (e.g., working with children under 18, providing transportation, offering professional counseling), which may require additional coverage

After you’re insured:

• Review policies with key staff and Board members to make sure everyone understands what’s covered
• Review the coverages every year with the insurance broker to update the size of operations and identify new coverage needs

Key Takeaways

Serving and uplifting your community is why your ECBO exists. Staying compliant and properly insured is what allows your ECBO to continue to exist. These practices build trust with funders and your community, demonstrating you’re a good steward of resources. And—should a worst-case scenario occur—your organization will know what to do and will be protected.

Additional Resources

Regulatory Compliance:

• IRS Form 990 series
• State-by-state regulatory requirements: interactive map showing relevant government websites for each state
• Legal requirements for maintaining 501(c)(3) status: webinar from Law Help and DC Bar Pro Bono

Nonprofit Insurance:

• The Nonprofit Risk Management Center: information and resources on risk management topics

The IRC received competitive funding through the U.S. Department of Health and Human Services, Administration for Children and Families, Grant #90RB0053. The project is 100% financed by federal funds. The contents of this document are solely the responsibility of the authors and do not necessarily represent the official views of the U.S. Department of Health and Human Services, Administration for Children and Families.