Nonprofits operate with a mission-driven focus, often working tirelessly to improve communities, support causes, or provide services. Like any other organization, they need to pay their employees to keep operations running smoothly. So, how do nonprofits pay employees?
While many nonprofits rely on volunteers and donations, they also hire full-time or part-time staff. Compensation for these employees typically comes from donations, grants, and other fundraising efforts.
Unlike for-profit companies, nonprofit organizations prioritize using their resources to further their mission. However, they must still offer competitive salaries to attract and retain skilled staff.
Balancing mission-driven goals with employee compensation is critical to making sure nonprofits fairly pay their employees while maintaining financial sustainability.
Overview of Nonprofit Revenue Sources
Before determining how nonprofits pay employees, it’s important to know where their funding comes from. Nonprofits draw from various revenue streams that help them fulfill their mission and compensate staff. These sources include:
-
Donations and grants: Nonprofits receive individual contributions from foundations or corporations. These funds can be unrestricted or allocated for specific purposes, including employee salaries.
-
Fundraising activities: Many nonprofits hold fundraising events or campaigns to generate additional revenue. Funds raised from these events often help support the organization's operational costs, including compensation.
-
Government funding and contracts: Some nonprofits receive government contracts or grants to provide essential services. This funding can be used to pay employees working on those specific programs.
-
Program service revenue: Nonprofits can also earn income from fees for services or products related to their mission. For example, museums may charge for admission, and thrift stores can sell donated items to support their cause. This additional income helps fund their mission and pay their staff.
These various revenue streams let nonprofits retain their paid staff, including executive directors and other key employees, to continue their important work.
Legal and Ethical Considerations
Nonprofits have to find the right balance between complying with regulations and paying their staff a fair wage. Paying salaries that are too high attracts scrutiny from the IRS and leads to legal complications, while offering too little makes it difficult to attract and retain skilled employees.
- IRS regulations for nonprofit compensation: Nonprofits must report executive compensation on Form 990, a document filed annually with the IRS. This promotes transparency in how funds are allocated to staff members — particularly in executive roles — demonstrating that the organization manages its resources responsibly.
- Difference between nonprofit and for-profit salary structures: Because nonprofits are mission-based organizations, they often pay lower salaries than for-profit companies. However, nonprofits still need to offer competitive wages to attract and keep qualified talent.
- Avoiding excess compensation to maintain nonprofit status: Nonprofits must avoid offering excessive salaries to employees. Overcompensation can threaten their tax-exempt status and lead to penalties or loss of funding. Making sure compensation is fair and in line with industry standards protects the organization’s reputation and status.
By adhering to IRS guidelines and industry standards, nonprofits can sustain their mission and operate transparently without risking penalties or loss of funding.
Factors Influencing Nonprofit Employee Pay
Like for-profit companies, how nonprofits pay employees can depend on their size, staff roles, and business location.
- Organization size and budget: Larger nonprofits with bigger budgets often offer higher salaries than smaller organizations that rely on smaller funding pools.
- Employee role and responsibilities: Compensation varies widely depending on the role. For example, an executive director generally earns more than a program coordinator or administrative staff member.
- Geographic location and cost of living: Nonprofits operating in cities with a high cost of living typically offer higher salaries to remain competitive in the job market.
- Market rates for similar positions in the nonprofit sector: Nonprofits often look at compensation levels for similar roles in other organizations to set appropriate salary ranges.
By carefully managing their budget and staying informed about the job market, nonprofits can pay employees competitively while maximizing their resources.
Common Types of Compensation in Nonprofits
Nonprofit employees' pay depends on the organization’s size and budget and may include various benefits and bonuses. Here’s a look at the typical compensation at a nonprofit:
- Base salary or wages: This is the most common form of compensation. Nonprofits must pay at least the minimum wage and meet all local and federal labor requirements.
- Benefits: Many nonprofits offer benefits like health insurance and retirement plans — though the packages might vary based on the organization’s size and resources.
- Bonuses or incentive pay: While less common, some nonprofits offer bonuses to staff based on performance or the organization’s financial success during the year.
- Perks: Nonprofits often compensate for lower salaries by offering perks such as flexible work schedules, additional time off, or professional development opportunities.
How nonprofits pay their employees often comes down to balancing their resources with offering a fair and competitive package. Whether through salary, benefits, or unique perks, nonprofits find ways to attract and retain the talent they need to keep their mission moving forward.
Attracting and Retaining Talent With Fair Compensation
Nonprofits face attracting top talent while competing with higher private sector salaries. Many conduct salary surveys or market research to remain competitive and stay informed about industry standards.
For example, according to the Bureau of Labor Statistics, nonprofit workers earn about $4.67 less per hour (including the cost of benefits) than those in the private sector. By benchmarking against similar organizations in the nonprofit and private sectors, they can set appropriate pay levels for various roles.
The Board of Directors often reviews and approves compensation, particularly for executive compensation, promoting transparency. This openness builds trust with employees and donors, helping nonprofits maintain a dedicated workforce and strengthening their credibility with stakeholders.
How ThriftCart Supports Nonprofit Employee Compensation Management
Looking for an easier way to manage employee compensation at your nonprofit? ThriftCart, an all-in-one point of sale (POS) software, offers simple, practical tools to make the process easier. Here’s how the platform helps you with employee pay:
- Tracks donations and revenue: ThriftCart helps nonprofits stay on top of their income, making it easy to decide how to use funds for employee pay.
- Easy payroll management: Built-in connections with QuickBooks accounting software make handling payroll straightforward and keep everything in line with regulations.
- Schedules and tracks time: The system monitors work hours and accurately calculates wages, automating the process to reduce errors and pay employees on time.
- Manages grants and funding: ThriftCart allows nonprofits to label where income comes from, helping organizations see exactly which funds are used for employee pay and which are for other needs.
ThriftCart makes it easier for nonprofits to manage employees while improving overall operations. It cuts down on administrative work, allowing more time and resources to allocate toward developing programs and furthering your mission. Added efficiency helps nonprofits stay focused on their goals, creating a better environment for both the organization and its paid employees and volunteers.
Take Control of Payroll and Donations With ThriftCart POS
Nonprofits handle various responsibilities, from managing employee compensation to tracking donations. So, how do nonprofits pay employees fairly? Integrated software helps them meet budget limits while offering competitive salaries and hourly wages.
ThriftCart makes processing payroll, organizing donation records, and overseeing staff schedules easier, helping nonprofits stay on top of their financial and operational tasks.
With features like automatic tax reporting, real-time donation tracking, and integrated time clocks for staff, ThriftCart automates payroll processing, donation tracking, and staff management, helping nonprofits run their business better.
Book a demo today to see how ThriftCart POS can simplify your nonprofit’s employee payroll, track donations, and handle your nonprofit’s day-to-day needs.
