Executive Order 38 compliance: a roadmap for NY nonprofits

The annual EO 38 Disclosure Form is gone.

This is not a partial suspension. Governor Kathy Hochul discontinued EO 38 on October 8, 2021. In 2022, the State agencies that administered its rules repealed their implementing regulations. For covered providers, the compliance regime ended.

The residual problem is documentary. Many New York nonprofits still carry EO 38 assumptions in board packets, compensation policies, audit workpapers, grant budgets, and internal dashboards. Those assumptions can distort fiscal-health analysis. They can also cause staff to spend time preparing a disclosure that no longer exists.

The rise and fall of Executive Order 38

Executive Order 38 was issued on January 18, 2012. It applied to certain entities receiving State funds or State-authorized payments. The policy had two central controls:

• a limit on administrative expenses;
• a limit on compensation for covered executives.

The order was directed at spending from public funding streams. It was not a universal governance statute for every nonprofit incorporated in New York. Scope depended on the provider, the source of revenue, and the relevant agency rules.

Implementation was dispersed across agencies. The Department of Health, Office for People With Developmental Disabilities, Office of Mental Health, Office of Addiction Services and Supports, and Office of Children and Family Services were among the agencies operating EO 38 regulations. That agency-level structure matters. Organizations often encountered the rule through Medicaid-funded, human-services, behavioral-health, residential, or care-related operations rather than through a single centralized filing system.

The administrative ratio was phased in:

The final 15% threshold became the number most frequently retained in nonprofit memory. It was simple, restrictive, and easily misapplied. A 15% figure often appeared in planning meetings as if it were a sector-wide benchmark for overhead. It was not. It was a regulatory limit under a specific executive-order framework for covered providers and covered spending.

The compensation rule was equally visible. EO 38 generally prohibited a covered provider from using more than $199,000 annually in State funds or State-authorized payments for a covered executive’s compensation. The number became shorthand for a supposed New York nonprofit salary ceiling. It was never that broad.

EO 38 was a funding-linked compliance regime, not a permanent statewide definition of acceptable nonprofit overhead or executive pay.

The rule’s legal structure weakened before its formal end. On October 18, 2018, the New York Court of Appeals invalidated the executive compensation “soft cap.” Then, on October 8, 2021, EO 38 was not continued under Executive Order No. 6. Agency regulations followed in 2022.

The timeline is operationally clear:

1. January 18, 2012: EO 38 established controls on executive compensation and administrative costs for covered providers.

2. 2013 through 2015: administrative expense thresholds moved from 25% to 20%, then 15%.

3. October 18, 2018: the Court of Appeals struck down the non-State-funds compensation restriction known as the soft cap.

4. October 8, 2021: EO 38 was discontinued when it was omitted from the continuation order.

5. 2022: implementing regulations were repealed by the relevant State agencies.

An organization reviewing historical filings should treat these as separate events. The 2018 decision did not end EO 38 in full. The 2021 discontinuation and the 2022 regulatory repeals did.

What the 15% administrative cost cap actually measured

The executive order 38 administrative cost cap has often been reduced to a crude overhead ratio: 15% administration, 85% programs. That reduction loses the relevant accounting distinctions.

Under EO 38, the limit was tied to covered operating expenses and the required allocation to program services. The rule was intended to constrain administrative spending within the covered provider’s operating structure. It was not a general instruction that every dollar classified as management and general on a Form 990 had to remain below 15% of total organizational expenses.

That distinction remains useful even after repeal because nonprofit financial statements continue to require functional-expense allocation. Salaries, occupancy, information systems, finance staff, insurance, and shared leadership costs do not become program costs merely because an organization seeks a lower overhead ratio. Nor does a high administrative ratio automatically establish weak fiscal health.

The correct analytic question is narrower: what does the ratio measure, over what denominator, and for which funding population?

For a current dashboard, an NYC nonprofit should separate at least four categories:

• Functional expenses reported in audited financial statements. These follow accounting-policy allocations across program, management and general, and fundraising functions.
• Grant-specific indirect cost limits. A government contract or private funder may impose an administrative or indirect-cost ceiling independently of EO 38.
• Contract reimbursement rules. A provider may face line-item restrictions, rate methodologies, documentation requirements, or cost-allocation rules under an active contract.
• Internal operating targets. A board may use an overhead target as a management metric, but it should be labeled as internal policy rather than State law.

The former nys nonprofit administrative expenses limit under EO 38 should not be inserted into current policies as a mandatory 15% rule. If an organization retains a 15% target, it should state why: lender expectations, contract economics, board risk tolerance, a legacy policy, or a management preference. The target should also identify its denominator. “Administrative expense” without a denominator is not a compliance metric.

There is a practical governance issue here. Legacy policies often say that the organization “will comply with EO 38” or that it “shall maintain administrative costs at or below 15%.” The first clause is obsolete. The second may be an intentional internal rule, but it should not survive by accident.

A policy revision should distinguish legal compliance from operating discipline. One is mandatory. The other is a board choice.

The $199,000 compensation limit did not govern all pay

The ny EO 38 executive compensation limits were more complicated than the headline number suggests.

The original framework restricted the use of more than $199,000 in State funds or State-authorized payments for the compensation of a covered executive. A covered provider could not simply treat that amount as a universal maximum salary. The issue was the source of funds used for compensation, the identity of the executive, and the provider’s status under the applicable regulations.

The former rules also contained a “soft cap” mechanism. It limited compensation from non-State sources above a threshold connected to the 75th percentile of comparable compensation, unless a waiver was obtained. That non-State-funds restriction was the portion invalidated by the New York Court of Appeals in 2018.

The result was material. After the 2018 ruling, a nonprofit could not be required under the soft-cap provision to limit compensation paid entirely from non-State sources such as donations, Medicare revenue, or private insurance proceeds. The $199,000 State-funding rule remained relevant until the full EO 38 framework ended. The two rules had different legal status after 2018.

This is the point most likely to be misreported in compensation reviews. Three statements must be kept separate:

Current executive-compensation governance still requires analysis. It simply requires a different analysis.

A board setting pay for a chief executive, chief financial officer, clinical executive, or other senior officer should still maintain contemporaneous comparability data, document the decision-making process, identify conflicts of interest, and evaluate the organization’s revenue concentration. Those are governance and fiscal-health questions. They should not be confused with an EO 38 cap that no longer applies.

For organizations with substantial government revenue, the practical issue is now often affordability rather than a statewide salary ceiling. A compensation package can be legally permitted and still create a weak operating model if the organization relies on restricted contracts that do not adequately support leadership, finance, compliance, technology, and program supervision.

EO 38 disclosure forms are no longer required

The EO 38 Disclosure Form was an annual compliance artifact. It supported reporting on executive compensation and administrative expenses for entities within the order’s coverage. Following the discontinuation of EO 38 and repeal of the implementing regulations, covered providers are no longer required to submit those annual forms.

That means a current compliance calendar should not list an EO 38 filing deadline. A current audit request list should not request a new EO 38 disclosure. A grant-management team should not build a recurring workplan around the former disclosure process.

The proper treatment of old disclosures is retention, not renewal.

Historical EO 38 materials can still be relevant in several limited contexts:

• an audit covering a reporting period when the rules were active;
• a government contract dispute involving historical costs;
• an internal review of compensation funded in an earlier period;
• a merger, acquisition, or diligence review examining compliance history;
• litigation, investigation, or records-retention obligations.

Historical compliance remains historical compliance. Repeal does not change whether an organization met a rule in a year when that rule was active. But it does eliminate the basis for treating the form as a current annual obligation.

A legacy disclosure form is a records-management item. It is not a live compliance deliverable.

This distinction should reach the board level. Governance committees frequently receive recurring compliance schedules compiled over many years. Those schedules tend to persist after the underlying statute, regulation, executive order, or contract requirement has changed. EO 38 should be removed from forward-looking obligations and moved to a historical-regulatory register.

The same cleanup applies to staff training. Compliance manuals that still describe EO 38 waivers, salary calculations, or disclosure-form preparation should be marked as archived material. Leaving obsolete instructions in an active manual creates a control failure: employees cannot reliably distinguish enforceable requirements from institutional folklore.

What remains after EO 38

The repeal of EO 38 did not create an unregulated environment for New York nonprofits. It removed one defined regime. It did not repeal contract terms, accounting standards, charity-law duties, or agency-specific obligations that arise elsewhere.

The most significant error is to treat the end of the former 85% program-spending requirement as an exemption from every spending rule connected to public funds. That conclusion does not follow.

For example, direct-care spending mandates for nursing homes, including requirements often described through “70/40” terminology, are separate rules. They remain outside the EO 38 repeal analysis. An organization should not use an EO 38 repeal notice as evidence that nursing-home direct-care requirements, reimbursement obligations, or other sector-specific spending mandates have disappeared.

Likewise, an organization may still face:

• contract-specific limits on indirect costs or administrative charges;
• Medicaid rate and cost-reporting requirements;
• agency rules governing allowable expenses;
• procurement and subcontractor controls;
• executive-compensation review under board policy, federal tax principles, or funder terms;
• reporting conditions attached to a specific city, state, or federal award.

The compliance architecture has changed from one broad executive-order framework to a more fragmented map. That makes contract inventory more valuable.

A nonprofit with multiple revenue streams should not ask whether it is “EO 38 compliant.” That phrase now describes an expired regime. It should ask which active restrictions attach to each revenue stream, which expenses are allocable, what documentation supports the allocation, and whether board-approved compensation is financially sustainable.

This is a data-modeling task before it becomes a legal task. The organization needs a revenue-source table tied to contract terms, program codes, allowable-cost rules, reporting dates, and responsible owners. Without that structure, staff substitute a remembered headline number for actual compliance metrics.

A replacement workflow for finance and compliance teams

The most efficient response to the repeal is not simply deleting “EO 38” from a calendar. It is replacing a discontinued control with a current control map.

Start with the legal entity level. A parent organization, a separately incorporated affiliate, and a managed program may have different contract portfolios. Their exposure should not be collapsed into one overhead percentage.

Then map the actual funding base. State funds, State-authorized payments, city contracts, federal awards, private insurance, philanthropic grants, and unrestricted contributions can each carry different restrictions. The former EO 38 distinction between State-linked and non-State funds is historically useful, but it is no longer a current filing test.

Next, review the organization’s internal documents. The following items commonly retain obsolete EO 38 references:

1. Board compensation policies. Replace mandatory references to the $199,000 cap with a current process for comparability review, conflict management, approval, and documentation.

2. Administrative-cost policies. Identify whether a 15% target is retained as an internal standard. Define the numerator, denominator, reporting period, and exceptions process.

3. Grant-budget templates. Remove EO 38 terminology unless a historical award file requires it. Insert the applicable contract-specific indirect-cost rule instead.

4. Compliance calendars. Retire annual EO 38 Disclosure Form tasks. Preserve historical filing dates in an archive if retention practices require them.

5. Audit and diligence questionnaires. Reframe questions from “Are you EO 38 compliant?” to “Which active funding restrictions apply to executive compensation and indirect costs?”

6. Data dictionaries. Mark EO 38 fields as historical where they remain necessary for prior-period reporting or records searches.

The benefit is not semantic. It is control accuracy. An outdated policy can cause unnecessary restrictions in one organization while masking active restrictions in another. Both are governance problems.

The current status in one sentence

Executive Order 38 is no longer an active New York nonprofit compliance framework. Its administrative expense cap, executive compensation limits, and disclosure-form requirements ended when the order was discontinued and agency regulations were repealed.

The former numbers remain useful for reading older audits, board minutes, and regulatory files. They are not current statewide operating limits.

For a portfolio review, the useful database queries are:

• Find policies containing “Executive Order 38,” “EO 38,” “$199,000,” “15% administrative,” or “85% program services.” Classify each result as historical reference, active internal target, or obsolete compliance language.
• List all government and quasi-government revenue by contract, agency, program, and renewal date. Attach the active indirect-cost, compensation, and reporting terms to each record.
• Identify annual compliance-calendar tasks tied to the EO 38 Disclosure Form. Move them from current obligations to historical records management.
• Compare executive compensation approvals against current board documentation. Test process quality and funding sustainability, not an expired salary ceiling.
• Separate nursing-home direct-care mandates and other sector-specific spending rules from the retired EO 38 framework. Do not treat repeal as a general exemption.