Nonprofits often rely heavily on volunteers, interns, and employees to advance their mission, and each comes with its own set of legal obligations. From liability and compensation to workplace protections, a proactive approach to managing these individuals not only safeguards the organization’s tax-exempt status but also helps maintain a healthy, positive work environment. Here’s what you should know:
Volunteers and the Volunteer Protection Act
Volunteers are a lifeline for many nonprofits, dedicating time and skills without financial compensation. The Volunteer Protection Act (VPA) encourages community participation by providing legal protection for individuals volunteering in nonprofit settings, shielding them from liability in certain cases. This protection applies as long as the volunteer’s actions are free from criminal misconduct, gross negligence, or recklessness, reducing liability risk for both the volunteers and the nonprofit. However, for this protection to be effective, clear communication about role expectations is essential. Training and outlining responsibilities help volunteers understand the scope and limitations of their roles, reinforcing both safety and legal compliance.
The VPA also permits limited expense reimbursements, such as for travel costs, as long as these remain within reasonable limits. Going beyond necessary reimbursements, however, may lead to IRS scrutiny if volunteers are misclassified as employees. By maintaining a strict uncompensated status, with only minimal expense reimbursements, nonprofits can avoid these issues while still respecting the contributions of their volunteers.
Interns: Ensuring Proper Classification and Compensation
Interns can bring enthusiasm and skills to a nonprofit, and in return, gain valuable work experience. However, nonprofits need to be cautious when classifying internships as unpaid. According to Department of Labor guidelines, unpaid internships are permissible only if they primarily benefit the intern, mirroring a learning experience akin to academic training. The Department of Labor uses a seven-factor test to determine if an internship qualifies as unpaid, covering areas such as training relevance, educational alignment, and whether the internship displaces paid employees.
The DOL’s seven-factor test includes:
- The internship provides educational training that complements academic learning.
- The internship benefits the intern, rather than providing primary benefit to the organization.
- The intern does not displace paid employees and works under close supervision.
- The employer gains no immediate advantage from the intern’s work.
- The intern is not necessarily entitled to a job upon internship completion.
- Both parties understand the intern will not receive payment.
- The internship aligns with the intern’s educational commitments and does not interfere with academic responsibilities.
Failing to meet these criteria may necessitate classifying the intern as a paid employee, requiring minimum wage and legal protections. Misclassification can lead to fines and penalties, so evaluating intern roles for compliance is critical.
Employees: Meeting Employment Standards
For paid employees, nonprofits must comply with federal and state employment laws to protect both the organization and its staff. This includes adhering to wage and hour requirements, offering applicable benefits, and conducting regular performance evaluations. While nonprofit employees may be motivated by a commitment to the mission, they are still entitled to wage and hour standards, including minimum wage, overtime, and anti-discrimination protections. Nonprofits are subject to the same employment regulations as for-profit entities, and failure to comply with these standards can result in costly fines and legal repercussions.
In addition to federal guidelines, nonprofits should familiarize themselves with state-specific requirements, such as workers’ compensation and unemployment insurance, to ensure compliance and protection for both the organization and its employees. Conducting performance evaluations, providing clear job descriptions, and establishing policies that cover employee conduct can further contribute to a productive, legally compliant work environment.
Compensation for Board Members and Founders
While nonprofits are driven by mission rather than profit, questions around compensating board members and founders often arise. Navigating this area correctly is essential to maintain compliance with IRS regulations, protect the organization’s tax-exempt status, and avoid conflicts of interest.
Can Board Members Be Paid?
Generally, board members in nonprofits serve on a volunteer basis, reflecting their commitment to the mission without personal financial gain. However, compensating board members is allowed in specific circumstances if it aligns with the organization’s bylaws and does not jeopardize its tax-exempt status. If a nonprofit decides to compensate board members for their time, travel, or expertise, it must ensure that payments are reasonable and directly related to their contributions. Excessive or unnecessary compensation may invite IRS scrutiny and pose conflicts of interest, potentially harming the organization’s reputation and compliance standing. To avoid issues, nonprofits should consult with legal and financial advisors to establish a clear, documented compensation policy for board members, as well as any reimbursable expenses they may incur.
Founder Compensation: What’s Permissible?
Unlike board members, a nonprofit’s founder often assumes a more active, day-to-day role, particularly in the organization’s initial stages, which can justify reasonable compensation. Founders may receive a salary for work that goes beyond volunteer oversight and involves operational responsibilities, provided the compensation is comparable to similar roles in the sector and adheres to IRS guidelines. Determining appropriate founder compensation involves conducting a salary review, often through research or consulting nonprofit salary surveys, to ensure the amount is fair and not excessive.
It’s also crucial for a founder’s compensation to be approved by independent board members who have no financial interest in the decision, which helps prevent conflicts of interest and ensures transparency. This careful approach protects the nonprofit from potential IRS penalties, safeguarding its tax-exempt status by ensuring all compensation aligns with the organization’s mission and legal obligations.
Safeguarding the Organization with Policies and Training
Having comprehensive policies for managing volunteers, interns, and employees is essential for nonprofit compliance and risk management. Policies should include guidelines on volunteer roles, intern training, and employee conduct, along with essential legal protections, such as non-discrimination and harassment prevention. Conducting regular training ensures that all contributors understand their roles, rights, and responsibilities, reducing misunderstandings that could lead to legal issues.
These policies also create a framework for addressing any potential challenges that arise, allowing the nonprofit to handle situations professionally and in alignment with best practices. Regularly reviewing and updating policies as laws and organizational needs change is equally important, as it ensures the nonprofit remains compliant and prepared.
Effectively managing a diverse team of volunteers, interns, and employees not only supports the nonprofit’s mission but also mitigates legal risks. Clear role definitions, adherence to employment laws, and proactive training contribute to a positive and sustainable environment. By ensuring that volunteers, interns, board members, founders, and employees are appropriately classified and compensated, nonprofits can safeguard their operations, uphold their tax-exempt status, and build a compliant, mission-driven workplace.
