Nonprofit organizations face many of the same challenges as for-profit businesses, but usually with more limited resources. Over the past decade, the number of nonprofits has increased by 30%: there is currently one nonprofit for every 175 Americans. This means funding is more strained and uncertain than ever, and competition for talented nonprofit leaders is even stronger.
Nonprofits are passionate about their mission, but they don´t always make adequate investments in the infrastructure needed to support their goals. To accomplish their mission, nonprofits and charitable organizations have to maximize their people and their processes. As such, there are a few unique needs related to Human Resources and payroll that nonprofits face.
Nonprofit Staffing Needs
Employees are arguably the most valuable assets in any company, and even more so in nonprofit organizations. Yet, 67% of nonprofits don’t have a formal recruiting strategy. With small budgets and fewer resources available, nonprofits often struggle to attract and retain the right talent to advance their mission.
High competition
The growing number of nonprofits means more organizations are competing for experienced managers and staff. At the same time, many people who aspire to be nonprofit leaders struggle with barriers such as lower earning potential, lack of mentorship, a strain on their work/life balance and overwhelming fundraising responsibilities.
Unique skills
Many nonprofit organizations require unique skill sets to accomplish their mission. Nonprofits can have a difficult time filling positions for healthcare, education, the arts or environmental issues. With roughly half of organizations struggling to hire qualified talent for critical positions, nonprofits must wage the “war for talent” in their search for the specialized skills they need.
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- Lack of HR Resources
- Employee job application
- Reference and background checks
- Offer of employment
- Job description
- Form W-4
- State W-4 equivalent
- Form I-9
- Employee benefit enrollment or declining forms
- Annual performance evaluations
- Interim evaluations or disciplinary forms
- Exit interview
- Payroll for NonProfits and Tax Compliance
- Non-cash gifts of nominal value (such as a holiday ham): should not be counted as taxable wages
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- Nonprofit HR Solutions & Payroll Services
- Compliance management
- Intuitive payroll systems
- Tax filing
- Timekeeping and scheduling solutions
- Reporting across multiple locations and organizations
- Tracking training and certifications
- Streamlining the hiring process
- Managing benefits enrollment
- Record retention
Compliance challenges
Staying in compliance with government regulations is a major challenge for most businesses, and nonprofit organizations are no exception. This issue is compounded by the fact that they typically have smaller or non-existent HR departments, leaving them to figure out DOL, EEOC, IRS and PPACA requirements on their own. With so many compliance challenges, partnering with an HR and payroll company—that can provide compliance expertise, alerts and guidance—can be invaluable. In addition, these companies can offer sample HR policies, compliance checklists and other tools to help nonprofits manage their risks.
Employee process efficiency
Nonprofits tend to have big goals but small budgets. As such, they are required to do more with less. Streamlining certain administrative processes like hiring, benefits enrollment and payroll processing can free up more time for value-added tasks.
Recordkeeping
Like any business, nonprofits are expected to retain certain employee records, such as:
Note that this is not an exhaustive list. Having one online system to store all employee information and records can be enormously helpful in the necessary task of record retention.
As 501(c3) organizations, most nonprofits have to deal with special payroll and tax circumstances. And the IRS is cracking down on nonprofit tax filings. Many organizations face special requirements that can be challenging to manage without the right technology and expert support. Leveraging a payroll provider can help nonprofits manage payroll challenges and ensure their taxes are filed correctly.
FICA taxes
Nonprofits that pay an employee less than $100 in any calendar year don’t need to withhold FICA taxes for that employee. They must pay both the amount of FICA tax withheld from employees’ wages and the organization’s match of that amount.
FUTA taxes
According to the IRS, “Religious, educational, scientific, charitable, and other organizations described in section 501(c3) and exempt from tax under section 501(a) are not subject to FUTA tax and do not have to file Form 940.” Once a nonprofit has received a favorable determination letter from the IRS, they are not required to pay federal unemployment taxes. However, states have different rules about whether nonprofits should pay state unemployment taxes—nonprofits should check the rules in each state where they have employees.
Volunteer compensation
Occasionally, nonprofit organizations will reward their volunteers with a present or a gift card. But there are rules about what should be counted as taxable wages:
Cash items and other taxable fringe benefits (such as a gift certificate): should be counted as taxable wages
The challenge of managing the unique payroll and tax needs of a nonprofit business has led many to outsource payroll processing and tax filing. This ensures that employees get paid and taxes get filed correctly and on time, every time.
Payroll and tax issues, staffing challenges and HR management are all significant to nonprofits. If your organization is struggling to fulfill its mission, it may be time to consider partnering with an HR and payroll company like Paycor. Allow us to help you with:
Paycor has nearly 30 years of experience serving the nonprofit community. Our dedicated team of sales and service consultants understand your needs and we’ve developed solutions tailored to your business.
Sources: Nonprofit HR, National Center for Charitable Statistics, Inc.com, Manpower, Internal Revenue Service, HR.com, Charles Read
This article is intended as a general overview and should not be considered legal advice.