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payroll for your non-profit oh your head's hurting already isn't it but it's an important topic you've got questions about and so today we're going to battle through the pain and explore what it looks like to pay people in your non-profit [Music] hi I'm Greg McRae founder and CEO of foundation group and welcome back to our 501c3 University Channel where we strive to make non-profit issues understandable so you need to pay some people eh well maybe you've run your non-profit solely on volunteer energy for a while now and you really need some paid helpers or maybe you're one of those who are starting a non-profit that will need to pay some people right out of the gate But whichever it is let's dive in payroll for non-profits is a pretty complex issue in most of the same rules that apply to for-profit businesses will they apply to non-profits but some are different and if that isn't complicated enough many non-profits seem bound and determined to create their own rules and exceptions that are categorically Incorrect and destined to get them in hot water with the IRS and or their state now there's three primary principles to always keep in mind when dealing with non-profit payroll and we're going to get into all three they are number one compensation must be reasonable number two due diligence must be performed and three all decisions must be made at arm's length one thing I want to cover really quick before we get into each of those is the question of employee versus contractor and we've covered this topic at length a while back and we'll link that video below this is a biggie and we deal with this question from clients on a weekly basis and that is should I pay my staffers as employees or as independent contractors well 95 percent of the time the answer is going to be as employees why chances are you the employer have control over how the worker does their job chances are pretty good too that you control how much you're paying them and they cannot take a financial loss by working for you say by under bidding the job like a contractor might and finally do they have benefits like PTO Insurance Etc like I said we've covered this extensively so go check it out okay on to our three principles first up is reasonable compensation now the IRS requires the pay of non-profit employees from the lowest level worker to the highest paid executive to be reasonable but what does that even mean this is a classic example of where the IRS makes a rule then does a terrible job of defining what it means they don't draw any bright lines but kind of expect you to subjectively figure it out this is your lucky day and I'm going to help Define it for you this concept of reasonableness basically means that you can justify the rate of compensation you're paying someone in other words it isn't excessive because it matches well with the job description and the skill set that the employee has how do you know it matches well well because you are preferably your board or compensation committee as researched comparable positions in comparable organizations and a comparable geographic area is that enough comparables for you one question I've been asked before is how some of these big non-profits like say the Red Cross or even universities pay these huge salaries to their key people I mean if you checked out the pay compensation for SEC football coaches lately how is a 10 million dollar salary reasonable the answer again is comparability the IRS doesn't necessarily limit the amount it's the expectation that it is comparable and justifiable given the overall landscape for that role so you might have guessed that we've already sort of jumped into number two and that's due diligence this goes back to what I've said on many videos before document document document in the very unlikely event that the IRS ever challenged the reasonableness of anybody's pay on your team you'll have the documentation you need to support the pay package you're giving that per person so where do you come up with this stuff well there's several places you can start number one job boards what's the going rate for similar positions in your area right now jump on indeed or zip recruiter and look around and don't think you only have to Benchmark other non-profits you're in competition for the same potential candidates so don't limit your comparables number two is the IRS now this one may be harder to find information on non-executive team members but for executive staff you can go to .irs.gov EO and look at any non-profits form 990 filing the pay packages for executives are public information and often found on the form 990. this is a good source of due diligence if you're specifically looking at non-profit compensation and finally the Department of Labor publishes numbers annually about such things you'd be surprised what a simple Google search could turn up our third principle is arms length decision making so what exactly does that mean arm's length decision making when it comes to paying employees means that people with a conflict of interest aren't directly involved in the compensation decisions now this may be someone who's on the board but is also going to be an employee well that person cannot come up with their own pay package nor cast a vote concerning that they need to recuse themselves same is true for someone who may be on the board but the organization is going to hire that person's wife or son they too would need to recuse themselves this one really isn't that hard people just don't like it those in leadership with a financial self-interest or who are closely associated with a potential new hire must stay out of the compensation decisions regarding that person for better understanding of conflict of interest and how that's a constant theme in your non-profit check out our recent video on the topic about six policies your organization must have we're going to link that below there's much more that can be said about this but I think this short video gives you the basic idea if you need to hire staff remember they are probably not contractors their pay needs to be reasonable you need to research your PayPal packages and keep related parties out of the decision-making process get these things right and you're going to be just fine that's it for today now go serve your community hey do me a favor and don't navigate away just yet we would really appreciate it if you would hit the like button below as it really helps get our content recommended to more people subscribe if you haven't already as we have great content coming your way on a regular basis finally you can click the little bell icon to be notified of new content when we post it to learn more about Foundation group you can visit us on the web at .501c3.org thanks and we'll see you next time [Music] thank you [Music]