Just because people get on board with working for nonprofit organizations doesn’t mean they’re willing to work for free. There’s a difference between being a volunteer and a crucial member of a nonprofit organization.
Various employees and executives, in particular, are responsible for the performance of these mission-driven organizations. Based on their performance, experience, and other factors, they’re entitled to receive compensation for their work.
However, properly rewarding someone for their work in a nonprofit organization is easier said than done.
The Nonprofit Compensation Policy is a document detailing the compensation structure inside a nonprofit organization for employees of all levels. It’s not a mandatory policy, but it can be beneficial in establishing clear rules for the distribution of monetary rewards and assets within an institution. It can also help ensure the organization and its members won’t run into issues with the IRS. Moreover, it provides transparency as to a nonprofit’s inner workings, which can help improve the public’s perception.
Depending on your state, you may also know a Nonprofit Compensation Policy as an:
You may need a Nonprofit Compensation Policy if the board has approved a compensation structure and philosophy.
Another reason to draft a Nonprofit Compensation Policy is to reward key employees based on performance and contributions. In some cases, this document enables specific compensations, thereby helping an organization with employee retention.
Depending on how you draft it and whom it targets, a Nonprofit Compensation Policy can also be used for recruitment purposes, improve employees’ work-life balance, and even influence the public’s perception of the organization.
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Drafting and implementing a Nonprofit Compensation Policy can have severe legal and financial ramifications on the organization and its board members. Therefore, it’s essential to understand state and federal laws and IRS regulations regarding nonprofit organizations. This makes drafting a policy and determining what’s acceptable as compensation difficult without legal aid.
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Depending on your organization’s size, industry, and various state laws, you may request other information.
While the Nonprofit Compensation Policy is a significant act, signing it doesn’t have to be witnessed and notarized. It’s enough for the board of directors and executives to sign the policy to enforce it.
You should create multiple copies after receiving your Nonprofit Compensation Policy. Share it with the board members, keep a copy at headquarters, and submit it to the IRS and other authorities if federal, state, or county laws request the document.
The two documents contain entirely different topics. A Nonprofit Compensation Policy deals with performance and experience-based compensation and rewards. The gift acceptance policy is similar in that it’s optional but only covers rules for giving and receiving gifts.
There’s no legal timetable or internal organization schedule to follow. Arguably, reviewing the compensation structure at least once a year should be enough to enable the board of directors to make informed decisions on potential changes.
Similar to gift policies, the Nonprofit Compensation Policy is often made public. This can help gain trust and reputation and keep donors apprised of what’s happening inside the nonprofit organization.
Since this isn’t a legally mandated document, nonprofits can choose not to create one. An organization’s size has no bearing on the need to draft a compensation policy.
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