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Payroll Outsourcing for Nonprofits: Finding a Provider that Aligns with Your Mission

Unlike corporate organisations, nonprofits operate in a completely different manner. On one hand, you want to focus on your mission. Yet, there is still the HR administration aspect where you need to employ and pay staff to help run your mission and activities. How should you start while still complying to the core requirements as a nonprofit organisation?

What is a nonprofit organisation?

A nonprofit organisation is defined as a legally constituted organisation whose main purpose is to support or engage in activities of public or private interest without any commercial or monetary profits.

Understanding payroll needs of a nonprofit organisation

Generally, payroll processes operate the same way as that of for-profit business. However, there are some differences depending on the structure at the nonprofit organisation and the type of workers that are employed. For instance, a nonprofit organisation may employ a mix of full-time employees, part-time employees as well as volunteers. This is where there are certain differences in terms of the payroll process.

Tax exemptions are one of the key differences between a nonprofit organisation vs a for-profit business. This also depends on the type of nonprofit entity that is being registered within the country. For instance, tax exemptions for nonprofit organisations vary depending on whether the organisation is registered as a society, charitable trust or public company limited by guarantee. The regulations around tax exemptions also vary across countries, hence it is best to do some research before registering your entity.

Payroll for nonprofit full-time workers is also dependent on whether a minimum wage applies to the country that you are operating in. Commissions and bonuses are typically avoided as these are often tied to performance and can be linked to fraudulent activity. Volunteer compensation can be a little tricky as this depends on the organisation’s culture and also market practices in the country. If you decide to compensate a volunteer, the amount must be nominal i.e. insignificant and irregular. Paying a volunteer on a regular basis and a significant amount can raise a red flag, and result in classifying the volunteer as a full-time employee.

Given the varying payroll requirements of a nonprofit organisation, it is not surprising that most nonprofit organisations outsource their payroll to a third-party payroll vendor to navigate these payroll complexities. Here are some key features to look out for when deciding on a payroll vendor for your nonprofit organisation.

Alignment with your mission and values

Determining a payroll outsourcing provider isn’t always about finding the most cost-effective option. You should also consider whether the provider aligns with your nonprofit’s values and mission and choosing the wrong one can hurt your nonprofit’s reputation.

It is helpful to understand what your potential payroll vendor stands for. Are they known for their charitable activities or partner with other nonprofits? You can always do some background on the potential payroll vendor to evaluate their values and mission, and whether it aligns with your nonprofit’s mission.

Provision of payroll expertise in nonprofit environment

Aside from the payroll vendor’s alignment with your nonprofit’s mission and values, the payroll vendor should also be familiar with managing payroll for nonprofit organisations. After all, there are multiple tax exemptions and tax filings to be aware of, along with managing the types of compensation payments for each unique employee group. The payroll vendor should be well-versed in navigating the payroll complexities of nonprofit organisations.

Robust data security and compliance

Similar to for-profit organisations, data security and compliance should not be overlooked. Nonprofits often collect and store sensitive data, including personal data pertaining to their beneficiaries, employees and volunteers as well as confidential financial information. Mishandling of these information can create an avenue for fraudulent activities. When evaluating the potential vendor for your nonprofit, always seek clarifications and familiarise yourself with their data security policies and processes. Likewise, the potential payroll vendor needs to be familiar with the applicable payroll regulations, such as tax requirements, overtime rules, and minimum wage laws in order to remain compliant. Choosing a provider that is compliant with all relevant payroll regulations ensures that your nonprofit meets all legal obligations and avoids hefty penalties.

Payroll can be an even more complex affair for nonprofits. Outsourcing your nonprofit’s payroll is a viable solution to freeing up valuable time and resources without compromising on compliance and accuracy. Start by doing in-depth research on reputable payroll vendors and narrow the list based on your nonprofit’s needs. Take the time to understand their offerings, and it can eventually save you and your team a lot of time, money and resources.


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