Our Workforce 2026 report highlights a year of disruption. Employers are facing labour market challenges, rising employment costs and expanding worker rights. What does this environment mean for not-for-profit organisations?

While the research is mainly based on mid-market businesses, its findings are still relevant to not-for-profit organisations. Like commercial businesses, not-for-profits have to navigate funding constraints, public accountability and the need to deliver service effectively while protecting their strong values-led cultures.

Labour market challenges for not-for-profit organisations

Recruitment, retention and skills gaps

Our report highlights a cooling labour market, with people moving roles less often and employers hiring more cautiously. Even as overall vacancies decline, persistent skills shortages mean employers are still finding it hard to attract the right talent.

Many of these workforce difficulties are deeply rooted for the sector. Not-for-profit organisations often rely on public funding, grant income and long-term service commitments while meeting various regulations, which affects the way they hire. This means their labour market challenges persist even if the economy improves.

Organisations may find:

• Cautious recruitment increases pressure on existing teams and volunteers, leading to worsening employee satisfaction and could also lead to higher staff turnover
• Mission alone is no longer being enough to attract or retain talent – employees are searching for development, progression and flexibility.
• Lower mobility can be a benefit. With limited alternatives, staff may remain longer. Organisations can use this opportunity to reduce employee turnover, but only if workload and wellbeing are well managed. Keeping on top of capacity is particularly challenging in areas with critical public service delivery, such as education, housing and care, where workforce shortages directly affect the service delivered.

Rising employment costs in not-for-profit organisations

Cost pressures from wage increases

Rising employment costs – eg increases to National Minimum Wage and National Insurance changes – stand out as the single biggest workforce pressure.

While private sector organisations may offset these cost increases through pricing or commercial efficiencies, not-for-profit organisations must balance them against fixed funding, regulatory requirements and service delivery commitments.

Pay is rarely the main draw for those working in the not-for-profit sector, but with the ongoing cost-of-living crisis it is something employees cannot afford to overlook. Not being able to offer across-the board pay rises may have a greater impact on a workforce in the current economic environment.

Where working patterns are evaluated and hiring budgets are tightened, not-for-profit organisations may experience:

• Role consolidation to merge responsibilities under a lower headcount
• Delayed recruitment
• Increased workloads and burnout risk.

For publicly funded or regulated organisations, funding agreements or regulatory requirements make it harder to respond to rising costs.

Expanding worker rights and employment risk

Compliance and governance implications

Major risks for employers in 2026 include expanded worker rights, stronger enforcement and increased exposure to employment litigation.

Not-for-profit organisations are typically value-led employers. They may also have blended workforces, including paid employees, volunteers and, in some cases, governing bodies like trustees or boards. This values-led approach reflects the purpose of the organisation and public accountability of fairness and high moral standing but can have side effects:

• High expectations of fair and ethical treatment, meaning higher reputational risk if employment practices fall short of the organisation’s stated values. Expanded worker rights give employees clearer routes to challenge unfair or inconsistent treatment.
• Delaying difficult employer decisions, which increases legal, financial and wellbeing risks. If issues are handled informally or left unresolved, decisions become harder to justify and more likely to be scrutinised by regulators or tribunals.
• Relying on purpose and organisational values as part of the employment offer. Employees may disengage early or raise grievances if their experience doesn’t match up to the promise.

Implications for leaders of not-for-profits

As well as operational challenges, not-for-profits need to make strategic decisions that take into account financial and reputational knock-on effects. Not-for-profit leaders should:

• Think about evolving their strategic workforce planning to align workforce decisions to funding cycles, not just annual budgets. It’s worthwhile identifying critical skills and mapping out how the organisation will protect them in varied economic environments.
• Clearly communicate the ’total reward’ offering, being transparent on pay growth but emphasising how flexibility, development, wellbeing and purpose compensate for this limitation. Where non-pay related benefits and other flexible benefit options exist, linking them can enable employers to offer alternative rewards.
• Review employment contracts, policies and volunteer arrangements to make sure they are clear, robust and can stand against challenge. Those with governance responsibility (eg trustees, boards or governing bodies) should also understand their legal obligations as employers.
• Use targeted staff surveys and external benchmarking to track key workforce metrics for more informed governance and leadership decisions.

Being able to deal with these pressures successfully will be essential for not-for-profit organisations to maintain their service levels and protect trust in the years ahead.

RSM helps not-for-profit organisations turn these pressures into opportunities – offering insight, benchmarking and practical advice to support better workforce planning, stronger governance and long‑term resilience in a changing employment landscape. Please get in touch with Hannah Catchpool, Nicola Whitmarsh or your usual RSM contact.

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