If you’re thinking about making your first nonprofit hire – congratulations! This is a HUGE milestone for you and your fledgling organization.
There are a number of common stumbling blocks when you’re first staffing up. One of them is nonprofit pay – how do you decide what you need to offer for any given position? How to classify it? How do you make sure you’re following the rules?!
Read on for the low-down on figuring out how to pay your organization’s new employee!
Clearly define the position for your new nonprofit hire.
As a new nonprofit, you’ll need to make sure you align with federal and state laws that govern wages and hours. It’s easy to make mistakes, and the penalties can be steep. The first step is to clearly define what you’re looking for.
Understand the difference between contractors and employees.
Classification of your team members is important because it informs the taxes that are paid and by whom. If someone is an employee, you take on the responsibility of various payroll taxes. For a contractor or freelancer, you don’t.
But beware -- many employers make the mistake of thinking that they can simply designate someone an employee or contractor. In reality, the IRS sets firm guidelines based on the kind of work someone does for your organization.
Is your employee salaried or hourly?
Whether an employee is salaried or hourly depends on the nature of their work. Salaried employees are referred to as “exempt” and must meet criteria under one of three exemptions: Executive, Administrative, or Professional.
The IRS defines what is included within each exempt category. If the position you’ve created does not meet this criteria, then you’ll pay your employee hourly.
Internships, stipends, commissions – oh, my!
Alternate classifications and ways of paying employees are possibilities, as well, and they each come with their own pros and cons.
For example:
- Most internships are now required to be paid or offer legitimate college credit.
- Stipends can only be offered under very specific circumstances.
- Commission-based pay is tricky in the nonprofit sector, and it’s considered unethical for fundraisers.
When in doubt, make a call to your state’s labor department. They’ll be able to answer any questions you have about your nonprofit’s unique situation.
Determine an appropriate rate of pay.
Pay rate is a critical part of retaining talented employees in the nonprofit sector. When determining a salary or hourly rate for a new employee, you’ll want to take several things into account:
- Geography. Where an employee lives is perhaps the biggest factor in determining what you’ll need to pay to make a position attractive. Larger cities command higher pay.
- Qualifications. Typically, requiring more expertise or education will come with a higher price tag. Be mindful of what’s actually necessary for the position.
- Position Responsibilities. The more responsibility an employee has, the higher their pay will need to be. Consider what they’ll be managing, and if they’ll need to develop programs from scratch.
- Comparable Roles. State associations of nonprofits often have lists of going rates for the most common types of positions. Organizations like GuideStar.org also publish compensation reports and guides.
Remember the benefits package.
Don’t forget to include a benefits package! Things like paid time off (PTO), health insurance, retirement accounts, professional development funds or tuition reimbursement, and fringe benefits like professional memberships or discount programs can go a long way toward making a position appealing – even if you can’t match the highest salary out there!
