Explore Nonprofit Payroll Management for Your Organization 

To be tax-exempt under section 501c(3) the IRS states an entity must be “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes. Tax-exempt organizations do not seek commercial or monetary profit for private interest, and they do not benefit from any net earnings. All funds collected by nonprofits go towards the organization’s purpose. Other forms of tax-exempt classifications include 501(c)(4), which covers social welfare organizations and 501(a) represents other nonprofit organizations.

Even if your organization is tax-exempt, you are still liable for payroll taxes. Nonprofit organizations must withhold federal income taxes, Social Security, and Medicare. They are also liable for federal unemployment taxes, organizations under the 501c(3) are not liable for Federal Unemployment taxes

Nonprofit operations greatly differ from for-profit organizations in how they gain profit and how they run their HR operations. Some of the HR challenges that are specific to nonprofits include:
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• Cost Effective: Due to limited funding, nonprofits must keep overhead cost low. So, it may seem costly to think about utilizing a payroll and HR provider, however, providers like Greenshades have no surprise fees and can be a cost-effective solution. You also can save money by reducing the risk of costly fees and penalties that can come from incorrect calculations or missing important deadlines.
• Employee Classification: With both volunteers and normal employees it is important that they are classified correctly. Nonprofits may have employees who want to volunteer at special events, so it is important to understand the FLSA guidelines to understand the distinctions between volunteers and employees.
• Compliance: As a nonprofit begins to grow there are federal, state, and local laws that they must follow. Laws such as ACA require employers with more than 50 full-time employees to be offered health insurance. The FLSA requires employees to meet minimum wage requirements and be paid the correct overtime pay. Nonprofits must monitor the revenue and employee headcount to be sure they adhering to laws and regulations.

Employers can hire volunteers who offer uncompensated service or hire employees who must be paid at least minimum wage. Most nonprofit revenue comes from donations, grants, or selling goods or services and this revenue is used to pay employees. Like other employees, nonprofit employers provide benefits packages and fair compensation to their employees.