How Do Nonprofits Pay Their Employees?

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One of the biggest misconceptions about nonprofit companies is that they are run by volunteers. Not only are nonprofits staffed by paid employees but the organizations also have a net worth like any other company. How do you know if a company is a nonprofit? Check to see if it falls under a 501(c) tax classification.

How Nonprofits Pay Their Employees

Like any business structure, nonprofits have bills to pay. One of those expenses does, in fact, include their employees' salaries. The only stipulation put forth surrounding wages is that the employees must receive "reasonable compensation." To find out what this entails, exactly, you can look at similar positions within other companies. The Bureau of Labor Statistics is a reputable place to find this information.

Are Officers of a Nonprofit Paid?

While employees of a nonprofit are paid, its board members are not. Why is this important? The board members are the ones who determine the salaries of the organization's officers. Officers include these titles: president, vice president, treasurer, executive director and chief executive officer.

Salaries of the officers pretty much follow the same protocol as those of regular employees. Again, reasonable compensation comes into play. Reasonable compensation takes into consideration the net worth of the nonprofit, what other nonprofits are paying, what census data is reporting and sourcing statistics from the Labor Department. Another important element is making sure the CEO, for example, plays no role in the Board of Directors. Nor can the CEO have any sort of relationship to a member of the board.

How Do You Make Money in a Nonprofit Organization?

Nonprofits do pay the people who work for them, so you may be wondering how they obtain the money to do so.

Most nonprofits earn their money, rather than rely on donations. The most common way of doing so is by charging a "fee for service." For example, a museum may charge an entrance free, or a music school has a fee for piano lessons.

Another way to go about charging a fee without attaching a specific dollar sign is by suggesting a donation. So rather than charging an admission fee, for example, there would be a box with a suggested donation amount (or range).

Nonprofits do rely on donations, both private and corporate. In addition, seeking out grants to apply for is a way to obtain funding. Additionally, nonprofits can have membership dues. Another way to raise money is hosting various fundraisers throughout the year to supplement the earnings. A couple of ways to find success in a fundraiser event is either by charging by the seat (or table) or by hosting an auction where goods and services have been donated.