Are you are trying to figure out a salary scale for your NGO staff? If YES, here is how much nonprofit CEOs / employees earn monthly and how they are paid.
In order to carry out the mission for which they are established, nonprofit organizations have to make use of volunteers from time to time. However, a nonprofit organization is also a business and as such, there is a need for it to employ its own qualified staff who they can always count on to operate and maintain the nonprofit organization.
Since nonprofits exist to benefit the needy and proffer solutions to charitable causes, it seems contradictory to pay money to the staff rather than supporting the organization’s cause directly. While the staff keeps the organization operational so that it can continue its mission, it’s not an easy task to determine a pay level that attracts qualified candidates while not spending precious funds in overpaying salaries.
State law (which governs the nonprofit incorporation) and the IRS (which regulates the tax-exempt status) allow a nonprofit to pay reasonable salaries to officers, employees, or agents for services rendered to further the nonprofit corporation’s tax-exempt purposes.
Most nonprofit organizations today have their own staff in addition to volunteers who help them to further their mission. Some have thousands of employees, while others employ a couple of key people and then rely on volunteers for most of the essential work. Hiring any employee triggers a host of legal requirements, from filing with the state to report a “new hire,” to determining the appropriate wages/compensation, to calculating “withholdings” from compensation for tax purposes. It is up to the management of the nonprofit to determine when it needs to hire employees, how many they will need and for what jobs.
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How to Determine Pay for your NGO Staff
When compared to the salaries of for profit businesses, the nonprofit pay scale is quite modest. Sometimes, though, organizations get into trouble because a staff member, usually the CEO or Executive Director, is paid an excessively high salary. Large salaries in the millions often occur at large institutions such as medical centers or universities.
There is no laid down rule for compensation in a nonprofit organization; however, the IRS can penalize both an organization and an individual for excessive pay. You should however realise that “excessive pay” is a relative term and there is no amount that suits all situations. For example, a staff member earning $100,000 annually from an organization with a budget of $120,000 probably needs to worry, but someone earning $100,000 from a nonprofit with a $10 million budget probably doesn’t.
In the event that a nonprofit does over-pay a staff member, it may have to pay an excise tax and could even lose its tax-exempt status.
How Much Do Nonprofit CEO’s Earn?
A chief executive officer (CEO) of a nonprofit organization is responsible for overseeing the company’s functions and employees and/or volunteers. Depending on the nature of the nonprofit organization, they may also be tasked with ensuring that the finances are in order on a daily, weekly, or monthly basis.
Although non-profit organizations usually have specific employees to oversee incoming and outgoing money, the CEO will be the highest-level employee who oversees such actions.
The CEO of a nonprofit is also tasked with Driving strategic planning, business development, and fiscal operations; Establishing positive relationships with stakeholders and other business leaders and; Determining overarching goals and initiatives.
Even though nonprofit CEO’s play a very important role in making the world a better place, they still earn less than their for-profit counterparts. On the average, a nonprofit CEO makes about $123,362 a year ($10,280 per month), according to the 2016 Charity CEO Compensation Study by Charity Navigator.
You should note that this figure represents a median amount and as such, it can be skewed by extremely high or low numbers. It also doesn’t account for traditionally small, cash-strapped organizations or emerging startups.
How Much Do Nonprofit Pay Its Employees?
All employers of labor, including nonprofits, are required by federal and state laws to follow wage and hour laws that require employers to pay minimum wage. The compensations must be reasonable yet, not excessive. It is helpful to know what the “going rate” is when you are hiring a new staff member by reviewing “comparability data”, salary and benefits information from other nonprofits in the same or a similar geographic area, with a similar budget and mission focus.
Many state associations of nonprofits collect salary and benefit information via regular surveys, and produce state-specific reports that allow you to compare compensation of similar organizations, by job titles/responsibilities. These data may be free to members as a benefit of membership in a state association of nonprofits. There are also national compensation surveys available for purchase.
Employees must be paid the legally mandated minimum wage, which can differ from state-to-state; there is also a federal minimum wage rate. Employers should pay whichever is higher. If employees (not independent contractors – it’s important to know the difference!) work over 40 hours in a work week, be aware that the nonprofit may owe those employees overtime compensation.
According to payscale.com, Program Managers for nonprofits earn about $50,000 ($4,166 monthly), Program Coordinates earn about $39,172 ($3,326 monthly), Human Resource (HR) Managers earn $64,000 ($5,333 monthly) while Grant Officers earn about $49,675 ($4,139 monthly).
Can We Pay Nonprofit Employees a Bonus?
Bonuses are considered to be part of the overall compensation received by an employee. However, you should note that compensations (including bonuses) that are based on incentives are carefully scrutinized by the IRS to make sure that there is no form of foul play.
How to Pay Your Nonprofit’s Staff
Payroll for nonprofit organizations can be quite a complex issue already. There are certain rules and exceptions that are different than what applies to for-profit payrolls.
Payroll classification: often times, people wonder if they should pay their staff as employees or as independent contractors. The truth still remains that 95 percent of the time, it is best to pay your staff as employees, regardless of any other extraneous information that gets tossed into the mix.
It is a widely-held belief that an employer has the choice under which status to pay its workers. The most common justification is the savings the nonprofit organization will experience if it doesn’t have to cover payroll taxes.
The problem is that it’s not your choice. Even if your staff agrees to be treated as a contractor, it is still contrary to IRS and state laws. The IRS, in determining whether or not a worker is a contractor or employee, looks at several factors such as;
- Behavioral: does the company have control over what the staff does and how the staff does his or her work?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, et al.)
- Type of relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, et al.)? Will the relationship continue and is the work performed a key aspect of the business?
Paying your employees as contractors when they are actually not contractors can have a lot of undesirable consequences.
If the IRS reclassifies your workers from contractors to employees, your nonprofit organization will be held liable for both the employer’s and employees’ share of payroll taxes (Social Security and Medicare), plus very expensive penalties and interest. Then the state comes along to take their chunk. This type action, especially if it applies for a couple of years can close down your business.
Type of payment: here, this means straight salary or wages versus bonuses and commission. The IRS calls the latter non-linear compensation and is not encouraged in a 501(c)(3) setting.
When a for-profit organization does this, it does not raise any eye brow. However, for nonprofits, the IRS considers this an open door to unreasonable compensation. For example, ABC Foundation hires three employees to help manage their fundraiser. These employees will be paid a small base salary in addition to a percentage of the money that will be raised from the event. This may sound fair to some people, but not to the IRS.
As far as they are concerned, nonprofit employees should be paid according to the job description of the position. Not only is non-linear compensation usually unreasonable by IRS standards, it also opens the door to potential fraud, or at least improper conduct, as the employees have everything to gain by pushing the limits on fundraising.
- Avoid High Staff Turnover
A lot of nonprofits suffer from the issue of offering pay that’s considered too small by many. Nonprofits should avoid overpaying or underpaying their staff. The former could get you into trouble and the latter will hamper your ability to recruit the best employees.
The turnover of nonprofits hangs at about 20 percent and this is related to the fact that a lot of nonprofits have been unable to pay “living wage” to their employees.
The management of nonprofit organizations that have employees have realized that they compete with for-profit organization for talented workers and as such, offering the right remuneration can make a lot of difference when it come to attracting and retaining qualified employees or, in contrast, suffering from high turnover and/or not being able to retain talented employees.
While it’s another myth that “good benefits makes up for low compensation,” generous benefits are definitely an important factor in hiring talented employees. Make sure that your nonprofit’s staff receives compensation that is in line with salary surveys of similar groups. Factor in the cost of living in your area, the size of your budget and the type of service your organization provides.
Additionally, be sure to adhere to your state’s minimum wage rules and stay up with federal legislation such as the new rules governing overtime pay. You can search for job titles and related salaries in any geographic area, free of charge to get a clearer picture.
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