How To Earn A Salary Running Your Nonprofit I have spoken to many nonprofit founders that have had great success running their programs, but are not applying for grants, let alone paying themselves a salary. Truth is, their hearts may be in the right place, but a nonprofit organization is still a business. It is difficult to sustain a business with no real plan for how to pay its staff. This can result in high-impact programs failing because the founder is burned out. Unless you can afford to work for free, keep reading to learn how to earn a reasonable salary running your nonprofit. A common misconception is that nonprofit means "no profit", which is actually not true. A tax-exempt nonprofit is a charitable (not for profit) organization that:
1. Receives donations that are tax deductible to the donor
2. Doesn't pay taxes on the funds received as long as the funding supports the nonprofits purpose
Just like a for-profit company, nonprofits can have revenue after paying for expenses. The difference lies in what is done with the leftover profits. In a for-profit, the shareholders take whats left over for themselves after paying expenses. A nonprofit organization has a different policy. Individuals who operate the nonprofit can only be payed a set salary that is typically voted on by the board of directors. In the beginning phases of the nonprofit's startup, there may be times when funding is not always consistent. In these times, it is important to remember that as a leader, funding should be directed towards the clients needs before paying salaries to administration. The mission of the organization should always be the forefront goal when discussing budgeting and allocation of funds. With persistence and determination in funding your organization, there will come a time when you can officially be proud to say you've made your passion your paycheck. There is no shame in paying a reasonable salary to yourself for managing the entire organization. If you would feel comfortable asking a donor to assist with an employee's salary, why not ask for pay for the most essential staff member- you? In order to be paid in your organization, you need to structure your board and officers specific to the goals of each individual. Your board of directors is a volunteer position that only requires about 2 to 4 hours a month, with 1 or 2 of those hours being the monthly board meeting. The officers are your staff who run the day-to-day operations of the nonprofit, and are paid a set salary or stipend. The board of directors is responsible for overseeing the organizations and staff's activities and do not get paid. In order to pay yourself, you want to position yourself as an officer of your nonprofit. You can use the title CEO or Executive Director. As the CEO you will typically be paid the highest salary, because you are responsible for the operations of your nonprofit. Avoid adding staff members to your board of directors if possible. Especially for a CEO, it can be seen as a conflict of interest for a salaried position to run the day to day operations and also overlook their own work. HOW TO GET PAID When applying for grants and deciding where to allocate funds, nonprofits must include administrative costs in the budget. This includes rent, utilities, and paying staff to run the organization. The IRS guidelines advises it is encouraged for a nonprofit to pay its essential staff members, but it must pay a reasonable salary. The best way to determine what is considered "reasonable" would be to visit websites like Glassdoor or Indeed.com and find out what other nonprofits are offering to pay employees for similar roles. There are no firm rules for how much a staff member can be paid, but if IRS guidelines for a reasonable salary are violated it could result in individual repercussions as well as revocation of tax-exempt status for the organization. With the proper funding in place, it is likely that a new nonprofit within its first 2 years will have 1 full time employee (most likely the CEO) and pay anywhere from $25,000-$40,000 a year. The remaining employees would be volunteers or receive a stipend (flat payment) for their work. WHERE TO GET THE MONEY You must raise money through your nonprofit to pay for salaries and other administrative costs. You can apply for grants, host fundraisers, and even take on business ventures such as renting property, selling donated merchandise, and making investments. Grants are an important source of funding as well, however the funder can and sometimes will restrict whether the money goes towards administrative costs or just programs and services. When taking on business ventures with your nonprofit, there is one thing you should look out for. Remember the purpose statement you put down on your 501(c)3 application? This is considered the mission of your organization. If your nonprofit receives funding in ways unrelated to its mission it may have what is considered unrelated income that is taxable by the IRS. For example, running a dessert business employing physically challenged elders that the nonprofit aims to serve can be considered related to its mission, but having a food truck ran by other staff members and volunteers may not be considered mission-related. The best way to know for sure would be to consult a tax attorney during the planning stages. After the funding source has generated income, it is recommended that at least 1/3 of all funding is spent on programs and services, while the other portion of the money can cover overhead such as administrative costs. Besides salary, there are other great benefits to working for your nonprofit organization as well. Included in the overhead expenses portion of your budget, your organization can pay for:
your car that you use to conduct business related to your organization
cover travel related expenses such as hotels
cover any work related meals
and even pay for your gas.
With all of this in mind, it is important to have realistic expectations and goals for the growth of your nonprofit. Take into account your organization's mission and work with your board of directors to determine a fair and reasonable salary for all of your day to day contributions. This will allow your organization to remain fruitful with a strong and focused leader in place. Let's Chat! When you're finished reading this article, post your ideal method for earning your first check in Nonprofit For Newbies! This article is just for informational purposes. It is not intended to be legal advice. Check other sources, such as the IRS, and consult with legal counsel or an accountant.