Nonprofit Employee Benefits: How to Budget for Them and Track in Financial Records
Employee benefits are essential for attracting and retaining top talent, even for nonprofits with tight budgets. Offering competitive benefits helps show your team that you value their contributions, but it also requires careful financial planning and tracking. In this blog post, we’ll walk through how to budget for employee benefits in a nonprofit organization and ensure they’re properly reflected in your financial records.
Don't let benefits be a 'trick'—they can definitely be a 'treat' when planned right!
1. Understanding the Types of Employee Benefits
Before diving into the budgeting process, it’s important to understand the various types of employee benefits typically offered by nonprofits. These can include:
Health insurance: Medical, dental, and vision coverage are essential benefits that help provide security to your team.
Retirement plans: Offering a 401(k) or 403(b) plan can help employees save for the future.
Paid time off (PTO): Vacation days, sick leave, and personal days are common offerings.
Flexible spending accounts (FSAs): FSAs allow employees to use pre-tax dollars for medical expenses and childcare.
Professional development: Conferences, workshops, and continuing education opportunities.
When you offer strong benefits, your employees will never dream of ghosting you!
2. Budgeting for Employee Benefits
Budgeting for employee benefits requires understanding both fixed and variable costs. Here’s how to get started:
a. Calculate the Costs of Health Insurance
Health insurance is often the largest component of an employee benefits package. The cost will depend on factors such as the size of your nonprofit, the age of your employees, and the plan options available in your region. Work with an insurance broker to understand the full costs, including:
Premiums: The monthly cost of providing coverage. Decide how much of the premium the organization will cover and how much employees will contribute.
Employer contributions: Some nonprofits choose to contribute to employees' health savings accounts (HSAs) or flexible spending accounts (FSAs).
Make sure to account for any anticipated rate increases when projecting your budget for the upcoming year.
b. Retirement Plan Contributions
If your nonprofit offers a 401(k) or 403(b) retirement plan, you’ll need to budget for employer contributions. Careful consideration should be made whether to auto-enroll eligible employees. Many organizations offer a matching contribution up to a certain percentage of the employee’s salary. Be sure to calculate:
The total salary of employees participating in the plan.
The match percentage or flat contribution the organization will provide.
Don't let your benefits budget turn into a financial 'boo-boo'! Plan carefully for your retirement contributions.
c. Paid Time Off (PTO)
While PTO may not have a direct financial cost (since salaries are already part of your budget), it’s important to account for potential temporary hires or overtime costs needed to cover for employees on leave. Additionally, some states require nonprofits to pay out unused PTO when an employee leaves (sometimes within two days!), which could be an unplanned expense.
d. Professional Development
Professional development can enhance employee satisfaction and improve their skills, which ultimately benefits your nonprofit. Allocate a portion of your budget for conferences, courses, and workshops, based on the needs and interests of your team.
e. Miscellaneous Benefits
If your organization provides other perks like wellness programs, commuter benefits, or childcare support, make sure to estimate these costs as well. Don’t overlook small benefits that can add up over time.
3. Monitoring and Adjusting Your Benefit Costs
Employee benefits should be reviewed periodically to ensure they remain affordable and competitive. To do this, consider:
Benchmarking against similar nonprofits: Compare your benefits package to similar organizations in your region or industry. This will help you assess if your offerings are competitive while ensuring you’re not overextending financially.
Adjusting for inflation and rate increases: Health insurance premiums, in particular, tend to rise each year. Be proactive in budgeting for these increases.
Employee surveys: Regularly ask employees about the benefits they value most. This can help you prioritize the most appreciated benefits while potentially eliminating underused or costly ones.
Remember: Don’t let rising costs 'haunt' your nonprofit. Review benefits annually to stay ahead of any financial surprises!
4. Tracking Employee Benefits in Financial Records
Accurate tracking of employee benefits in your nonprofit’s financial records is essential for maintaining compliance and ensuring the health of your budget. Here’s how to keep everything organized:
a. Use a Separate Line Item for Benefits
In your budget and financial statements, employee benefits should be listed as a separate line item from wages and salaries. This provides a clear picture of the total compensation package you offer and makes it easier to track changes year over year.
b. Allocate Benefits by Program or Department
If your nonprofit is organized by programs or departments, you should allocate benefit costs proportionally. For example, if 25% of an employee’s salary is attributed to Program A, then 25% of their benefits should be as well. This will help you better understand the true costs of running each program and will support more accurate grant reporting.
c. Track Employer Contributions and Employee Deductions Separately
When recording benefits in your accounting software, be very careful to post employer contributions and employee deductions accurately. This is one of the errors we see most often in nonprofit financial reports. Attention to this detail not only keeps your records clean but also ensures transparency for both internal and external audits.
d. Monitor Year-End Benefits Liabilities
For benefits that can roll over or accumulate, such as unused PTO or retirement plan contributions, you’ll need to account for any year-end liabilities. This will help prevent financial surprises during audits or financial reporting.
5. Staying Compliant with Regulations
Nonprofit organizations are subject to various state and federal laws governing employee benefits, such as the Affordable Care Act (ACA) and Department of Labor regulations. It’s essential to stay informed about the laws that apply to your organization. Failure to comply can lead to financial penalties and damage your nonprofit’s reputation.
Consider working with an accountant or a payroll service that specializes in nonprofit organizations to ensure you’re compliant with current laws and have up-to-date records.
“Staying compliant is the real sweet treat when it comes to avoiding financial penalties!"
Conclusion
Budgeting for employee benefits requires careful planning and ongoing management. By understanding the full scope of your benefits, calculating the associated costs, and tracking everything accurately in your financial records, your nonprofit can offer a competitive package without breaking the bank. As we move toward the end of the year, now is the perfect time to review your benefits and make adjustments to your budget for the upcoming year.
By prioritizing transparency and keeping your financial records organized, you’ll be better equipped to meet your organization’s goals while supporting the team that makes it all possible.
Don’t let your benefits budget be the monster under the bed! With the right tools, your nonprofit can provide 'boo-tiful' benefits and keep your financials on track.