GUEST POST // Compensation for Nonprofit Staff Members: 4 Strategies
By Jon Osterburg of Jitasa
You’ve likely heard the term “Great Resignation” to describe the trend of thousands of employees voluntarily leaving their jobs in 2021. Nearly every industry felt its impacts—including the nonprofit sector. While for-profit employees often cited the desire to find more meaning in their work as their reason for leaving, many nonprofit staff resigned due to burnout from taking on multiple roles within their organization at the same time.
This trend has led many nonprofits to reevaluate their strategies for retaining staff members. If your organization is in this position, one consideration that you’ll almost certainly discuss is compensation. In this guide, we’ll cover four strategies to consider as you approach the topic of compensation for nonprofit staff members:
Review your nonprofit compensation policy.
Offer holistic compensation packages.
Consider your staffing options.
Understand when you need to issue a 1099.
Regularly assessing your staff compensation is about more than just staff retention. It’s also an essential part of effective nonprofit financial management, as how much you pay your staff impacts your organization’s annual budget. Let’s get started!
1. Review your nonprofit compensation policy.
Your nonprofit’s compensation policy guides how you determine salaries, benefits, and other aspects of compensation for staff members. In particular, it outlines the procedure for setting compensation for organizational leaders, such as your executive director.
To maintain 501(c)(3) registration and tax-exempt status, nonprofits need to reinvest all of the revenue they bring in back into the organization. Because these funds belong to the nonprofit rather than to its leaders, all nonprofit staff members take an agreed-upon salary from the organization’s overhead expenses. Having a compensation policy reduces the likelihood that conflicts of interest will arise in this decision-making process, especially when it comes to compensating your executive director.
Jitasa’s guide to nonprofit compensation policies outlines three requirements set by the IRS that a compensation policy helps your organization follow:
Salaries should be a reasonable amount, but not excessive.
Benefits and bonuses need to be reported along with salaries as part of overall compensation.
Executive compensation is reported annually on your nonprofit’s Form 990.
Your compensation policy also helps back up the decisions you make so that you pay all of your employees—especially your leaders—a fair salary. Make sure to take this policy into consideration as you evaluate whether to reset your compensation for various staff members.
2. Offer holistic compensation packages.
Most discussions of compensation revolve around direct payments to support staff members financially. However, when you think about compensation packages for your staff, you’re reviewing more than just employee salaries.
Astron Solutions’ guide to nonprofit human resources recommends viewing compensation in terms of the total rewards employees receive for working at your organization. This holistic approach requires you to consider not only direct compensation such as salaries and bonuses, but also various forms of indirect compensation, including:
Benefits such as health insurance, retirement plans, and paid time off.
Additional services like financial planning help or employee wellness programs.
A positive organizational culture where team members enjoy working together and staff accomplishments are recognized.
Holistic compensation gives your nonprofit a competitive edge as you provide more benefits and improve work-life balance for staff members. Nonprofit staff members are often willing to take a pay cut if they can do a job that makes a positive impact in the community. But that doesn’t mean compensation isn’t important!
Examine both your direct and indirect compensation plans to review all of the benefits you offer for working with your organization. Emphasizing both aspects of compensation can help your nonprofit both retain current employees and attract new ones.
3. Consider your staffing options.
One of the greatest challenges nonprofits face is ensuring they have enough personnel with the right skills to cover all necessary responsibilities at their organization. Depending on your nonprofit’s needs and capabilities, you could solve this problem by hiring new staff, recruiting volunteers to complete tasks, and/or outsourcing some positions.
Let’s look at the benefits and drawbacks of each of these options in more detail so you can determine the best options for each of your nonprofit’s roles.
Hiring
Bringing on new staff members is probably the first option that comes to mind when there are tasks that need to be accomplished at your organization, but your current staff doesn’t have the necessary skills or space in their schedules to take on those additional responsibilities. Hiring also becomes a consideration when your nonprofit is planning for large-scale growth in the near future.
The main challenge with hiring is that it requires a lot of resources. Between writing job postings, reviewing applications, conducting interviews, and training new staff members, hiring is time-consuming and expensive. However, it’s worth considering if your nonprofit is growing at a rate that provides enough responsibilities for one or more additional employees long-term.
Recruiting Volunteers
If your organization just needs help with a short-term project, you may consider recruiting a skilled volunteer instead of a paid employee. For example, you could ask a web developer to assist in revamping your nonprofit’s website or a graphic designer to create promotional materials for your year-end giving campaign.
Because your organization will receive these services pro bono, recruiting volunteers is the least expensive nonprofit staffing option. In nearly every situation, you’ll only be able to recruit volunteers on a temporary, part-time basis. If you try to recruit long-term, these volunteers may lose their motivation to continue working without compensation, even to help further your nonprofit’s mission.
Outsourcing
When considering all of the different roles your nonprofit has to fill, a few lend themselves to outsourcing. For example, instead of hiring an in-house accountant or looking for a skilled volunteer to help file your organization’s taxes each year, you could choose to outsource to a nonprofit-specific accounting firm. Doing so not only helps your organization during tax season, but also provides year-round benefits like strengthened internal controls and access to expert financial advice.
Outsourcing certain nonprofit roles cost less than hiring internally. Plus, when you outsource, you gain access to a team with skills in a specific area such as financial management, legal, or design that has firsthand knowledge of how to work through issues unique to nonprofits.
4. Understand when you need to issue a Form 1099.
If your nonprofit hires contractors in addition to regular employees, keep in mind that there is a difference in the way the government views each group. So, you’ll have to issue different tax forms to ensure federal compliance. While you’ll issue full-time employees a W-2 so they can file their taxes each year, you’ll need to issue a Form 1099 to provide contractors with that same tax information.
Specifically, a Form 1099 is required when you’ve made payments:
To someone who is not your employee.
For services in the course of your nonprofit organization.
To an individual, partnership, vendor, or estate.
Amounting to $600 or more during the year.
To make the process easier, request that contractors fill out a W-9 as soon as your organization establishes a relationship with them. This way, you’ll already have the information you need to issue a Form 1099 when the time comes. Consider reviewing online content and course materials on the subject so that you better understand 1099s and can ease your tax process for years to come.
Effective nonprofit compensation requires balancing a variety of factors. You need to offer competitive packages to retain and motivate your employees, but at the same time prevent excessive compensation to comply with regulations and maintain a balanced organizational budget. Use the strategies above to get started, and consider discussing your approach to compensation with experts in nonprofit finance to help you navigate its complexities and retain staff members long-term.
This guest post was written by Jon Osterburg.
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not for profit organizations.
