Nonprofit organizations often struggle recruiting and retaining volunteers, and they try valiantly to come up with creative ways to recognize and reward those individuals who generously contribute their time and talent to the organization. Nonprofits need to be careful that they do not inadvertently create employment relationships or trigger taxable events in this context. Let’s quickly tackle the fundamental questions of what is a “volunteer” and what sorts of volunteer rewards or incentives are OK under the law:
1. What is a “Volunteer”?
According to the U.S. Department of Labor (“DOL”), a volunteer is a person who performs service for a nonprofit organization “without promise, expectation, or receipt of compensation.” Further, volunteer activity meets the following criteria:
· The entity that benefits from the service is a nonprofit organization (including government agencies).
· The activity is provided on something less than a full-time basis.
· The services are not offered as the result of coercion (e.g. court-ordered community service).
· The services are typically associated with volunteer work.
· No regular employees have been displaced by the volunteer.
· The volunteer does not expect to be compensated.
This definition is important because it affects the protections to which a worker, paid or unpaid, is entitled. True “volunteers” are not considered employees and, therefore, are not covered by the federal Fair Labor Standards Act or other employment laws. On the flip side of the coin, paid employees are not entitled to the protections offered by the federal Volunteer Protection Act.
2. What Sort of Volunteer Awards or Stipends are Allowed?
Nonprofits providing stipends to volunteers can be tricky business because by doing so, an organization risks inadvertently converting a “volunteer” into an “employee.” According to the DOL, if a volunteer is paid a stipend of over $500 a year or 20% more than what a typical employee would be paid for the same service, the volunteer must be classified as an employee of the organization.
Nonprofit organizations that do offer volunteer stipends should have proper accounting systems in place to ensure accurate reporting and compliance with applicable law. These rules apply equally to in-kind benefits as well, which must be assigned fair market value. Reimbursements for expenses incurred while volunteering may also be considered taxable income if the organization does not implement an accountable plan requiring that:
· any expenses being reimbursed are incurred for a nonprofit business purpose
· the volunteer adequately accounts for the expenses within a reasonable period of time—no more 60 days after the expense was incurred, and
· the volunteer returns any amounts received in excess of the actual expenses incurred within a reasonable period of time—no more than 120 days after receipt of the excess money.
Volunteer recognition gifts or stipends of limited value, fortunately, are considered a “de minimis benefit” and are not considered taxable income.
If your nonprofit organization decides to offer stipends to volunteers:
· Never pay more than a nominal 20% of what an employer would otherwise pay for the same service.
· Do not offer volunteers the same benefits that paid employees receive.
· Make it clear if a volunteer receives more than $500 a year in compensation, they will be considered an employee and no longer be protected from liability claims by the Federal Volunteer Protection Act.