Payroll & HCM Services for Nonprofits

Given that a nonprofit’s workforce can encompass employees, board members, executives, and volunteers, managing payroll and correctly classifying each role can be quite challenging. This complexity is further increased by the diverse funding sources that nonprofits often use, such as grants, fundraising events, crowdfunding, and private or corporate donations. To avoid legal issues, payroll mistakes, delays in payment, or incorrect tax calculations, it is crucial to understand the appropriate payment methods for the various types of workers in a nonprofit.

According to the IRS, board members and executives should receive “reasonable compensation” similar to what they would earn at a comparable organization. Compensation can include wages, benefits, perks, and bonuses. Executive and board compensation often reaches six figures, influenced by factors such as educational background, experience, local compensation averages, job responsibilities, hours worked, and the nonprofit’s total budget.

Volunteers play a crucial role in advancing a nonprofit’s mission by offering their time for unpaid projects or tasks. To encourage volunteerism, many nonprofits provide incentives like discounts, expense reimbursements, or stipends. However, it’s essential to note that stipends and similar benefits are often considered taxable income, subject to income tax and FICA contributions. Some small perks can be excluded from taxable income, but always consult payroll experts to stay within FLSA guidelines. Volunteers earning less than $500 annually might be protected from tort liability under the Volunteer Protection Act. Keeping these tax and liability concerns in mind is vital for managing your nonprofit’s workforce and compliance strategy.

Since churches and religious organizations are unique 501(c)(3) entities, payroll for ministers and religious figures differs from other nonprofit roles. Ministers are often employees, though some may be classified as self-employed for Social Security and Medicare tax purposes if they seek a tax exemption from the IRS by filing Form 4361. Employee ministers’ pay is subject to income tax, and churches are generally exempt from the employer portion of FICA taxes for ministers. Any compensation, including housing stipends, must be reported appropriately for tax purposes. Housing stipends are excluded from gross income for federal income tax purposes but are subject to self-employment tax. IRIS payroll & HCM provides specialized payroll and compliance support for these organizations.