Source: National Council of Nonprofits
Many nonprofits engage volunteers to provide voluntary, uncompensated services. Many nonprofits also hire employees, whose compensation and working conditions are regulated by state and federal laws. Hiring any employee triggers a host of legal requirements, from filing with the state to report a “new hire,” to determining the appropriate wages/compensation, to calculating “withholdings” from compensation for tax purposes. This webpage does not attempt to cover all these issues, but rather to debunk the myth that “all nonprofits only have volunteers.” We also want to encourage those managing nonprofits with employees to recognize that nonprofits compete with for-profit workplaces for talented workers, so setting the right level of compensation can make the difference between attracting and retaining qualified employees or, in contrast, suffering from high turnover and/or not being able to retain talented employees. Despite another myth that “good benefits makes up for low compensation,” generous benefits are definitely an important factor in hiring talented employees. The definition of gross income for income tax purposes includes benefits, such as health insurance; when analyzing an employee’s “total compensation,” fringe benefits, such as paid leave and opportunities for professional development and continuing education, are included.
How much should a nonprofit pay its employees?
Tax-exempt charitable nonprofits are required at a minimum to provide minimum wage. At the upper end, compensation must be “reasonable” and not “excessive,” which is a fundamental requirement of maintaining tax-exempt status. It is helpful to know what the “going rate” is when you are hiring a new staff member by reviewing “comparability data:” salary and benefits information from other nonprofits in the same or a similar geographic area, with a similar budget and mission focus. Many state associations of nonprofits collect salary and benefit information via regular surveys, and produce state-specific reports that allow you to compare compensation of similar organizations, by job titles/responsibilities. These data may be free to members as a benefit of membership in a state association of nonprofits. There are also national compensation surveys available for purchase, from GuideStar and others.