Nonprofit Payroll: The Basics

 
 

Introduction

Congratulations! You've embarked on the rewarding journey of establishing a nonprofit organization, securing its foundation, and obtaining that coveted 501c3 status. Now, the next phase begins: expanding your nonprofit's impact by bringing paid employees on board. However, the realm of responsibilities associated with new hires, including taxes, labor laws, annual reporting, and more, can be daunting. Fear not! In this article, we're here to equip you with top-notch nonprofit tips to conquer the intricacies of payroll. Discover how to maintain legal compliance, uphold the welfare of your new team members, and ensure your nonprofit's continued success.

Nonprofit Payroll

Paying Nonprofit Employees

Navigating payroll essentials can feel overwhelming, especially for smaller nonprofits lacking specialized HR personnel. Yet, payroll management is achievable with research and understanding. Here's a look at some fundamental payroll questions:

  • Is the minimum wage applicable to nonprofits? Yes, it generally is subject to federal and state regulations.

  • What are Exempt vs Non-Exempt Employees? Differentiating between employees entitled to overtime pay (non-exempt) and those exempt from such benefits (exempt) is crucial under the Fair Standards Labor Act (FLSA).

  • What is a pay period? This is your payment schedule, often biweekly, weekly.

Taxes

Even tax-exempt nonprofits must address certain employment-related taxes. Key payroll taxes include:

  • Federal Income Tax: Calculated and withheld based on employee Form W-4.

  • State and Local Income Tax: Withholding varies by state and locality regulations.

  • FICA (Social Security and Medicare): Withheld from employee pay and matched by your nonprofit. A unique exemption exists for religious bodies opposing these taxes based on religious convictions.

  • FUTA and SUTA: Federal and state unemployment taxes, with certain exemptions for nonprofits. Nonprofits with 501c3 status may be exempt from FUTA but remain obligated to fulfill state unemployment tax requirements.

Benefits and Other Deductions

Health / Dental insurance, 401(k) plans, and other benefits are crucial considerations. The Affordable Care Act mandates health insurance for nonprofits with 50 or more full-time employees.

Annual Reporting

Despite tax-exempt status, annual tax reports are mandatory for most nonprofits. Forms like Federal Form 990 help maintain tax-exempt status and most states require specific reporting as well

Director Salaries

While there's no fixed IRS figure for high-level positions, ensuring "reasonable compensation" is advised. Objective third-party evaluations aid unbiased decision-making. Director and key personnel compensation amounts are typically disclosed in the Form 990 and are made public record.

Volunteer Compensation

Volunteer compensation should be nominal to avoid jeopardizing nonprofit status. Non-monetary incentives such as training or meals are more advisable.

Minister Pay

Ministers' taxation varies, with Social Security and Medicare handled differently due to their self-employed status.

Labor Laws

Nonprofits must adhere to labor laws, encompassing overtime, paid time off, FMLA leave, meals and breaks, record-keeping, and labor law posters.

Final Thoughts

Managing nonprofit payroll need not be overwhelming. Payroll software and careful research can simplify processes. Assign a financially savvy team member to oversee compliance and stay updated on changes in laws. Remember, investing in salaries and benefits fosters employee loyalty and drives your nonprofit's growth.

Incorporating these insights into your nonprofit's payroll strategy empowers you to navigate the intricate payroll landscape with confidence. Your dedication to managing payroll responsibly will ensure your employees are well-supported, your organization thrives, and your mission soars to new heights.

Patricia Doylenonprofits, nonprofit bookkeeping, Accounting Basics