Non-profit organizations have unique considerations when it comes to payroll compliance. It is important to understand your tax obligations and how to pay your employees when you are operating as a 501(c)(3).
Maintaining payroll compliance is crucial to keep your 501(c)(3) status. When you partner with payroll solutions for non-profits, you can ensure compliance and focus on what your organization does best.
What Is a Nonprofit Organization?
A non-profit organization is an organization that brings in revenue that doesn't benefit shareholders or private interests. 501(c)(3) organizations are exempt from certain taxes.
The IRS states that organizations that are “operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational or other specified purposes” are eligible for tax-exempt status. Other types of nonprofits may also qualify for tax exemption, including social welfare organizations, labor organizations, and private foundations.
The IRS provides many tools and resources for nonprofits that your organization should become familiar with as you set up the structure for your nonprofit.
Is Paying Employees Different as a Nonprofit?
In some ways, payroll is the same for nonprofits as for regular businesses. For example, your organization will still need a federal employer identification number (EIN) and a state payroll tax identification number (TIN). Your organization may also need local tax identification numbers for payroll taxes.
Your organization will also need to collect I-9 forms from new employees and W-4 forms. You'll also need to purchase workers' compensation insurance for your employees as required, and you'll need to establish employee benefits for your workers since this is an expectation of many jobseekers.
Using Grant Money to Pay Employees
Your non-profit may receive grants to pay for some expenses relating to your organization. This expense may include payroll, but it's important to document which wages are paid from your grant. Your business will need to track the hours that the grant pays for to ensure that the grant is paying for activities that qualify for those grant dollars.
Executive and Board Member Payment
Executives and board members must be paid reasonable compensation for their efforts. To determine pay, you'll go through a process that is similar to any other organization, as you will consider experience, education, and so on.
One way to find out what is a reasonable amount for board members and executives is to determine what amount is competitive among similar nonprofit organizations. Knowing what other organizations pay their executives and board members will help you determine how much to pay your own.
Working With Volunteers
Many nonprofits have volunteers that contribute to the mission of the organization. While you may not be paying your volunteers in actual wages, if they're receiving a stipend or allowance, this should be treated as taxable income.
Minimum Wage Obligations
Your nonprofit organization must comply with minimum wage requirements like other organizations. The federal minimum wage was set at $7.25 in 2009; as of December 2023, that rate remains. However, your state may have a different minimum wage amount that is higher than the federal minimum wage. These rates can change regularly as inflation and cost of living increase.
Stay current with these amounts by following state and local wage laws and changes. Know the overtime laws (federal, state, and local) as well, so your organization appropriately compensates employees for their time.
Payday Payroll's Give Back Program
At Payday Payroll, our dedication to community support goes beyond providing exceptional payroll services. Central to this commitment is the Payday's Give Back Program, where we donate 10% of the annual payroll invoice amount back to our non-profit partners.
For non-profits partnering with Payday Payroll, this program offers more than just payroll solutions; it represents our promise to invest in their success and growth. Our belief is that real success is achieved when we support and uplift each other, creating a more vibrant and resilient community for everyone.
Have Questions About Non-profit Payroll?
Non-profit payroll processing is less complicated when your business uses non-profit HR software. Ensure your non-profit is on the right track with Payday Payroll’s specialized payroll and compliance solutions. Contact us today to simplify your non-profit’s payroll processes and stay compliant with all regulations.