Administration of payroll can be a daunting task with complex rules to follow and unpleasant penalties for not following those rules. But when you talk about payroll for a nonprofit organization, things can be even more complicated. There are some practices that are perfectly acceptable for a for-profit company but not for a nonprofit organization.
One practice that is generally frowned on for nonprofits is the awarding of bonuses and commissions. Employees of nonprofits can receive reasonable compensation through a salary and often have benefits provided to them as part of a compensation package. So why is it not okay to provide bonuses or commissions to nonprofit employees? Mainly this is due to the role that bonuses and commissions play in a for-profit business.
Typically, companies use bonuses and commissions to motivate employees to work diligently to increase the company’s sales or profits. Bonuses and commissions are usually tied directly to either the profits of the company or the individual employee’s sales. As the name implies, a nonprofit is not in the business of making a profit for itself, but rather it exists to raise money for a specific external cause. Likewise, employees are not allowed to personally profit from the organization’s success beyond a reasonable compensation as determined by the free market. Thus, it would not be right to use bonuses or commissions to either motivate or reward employees.
These kinds of rules are well-known and understood by the experts at The Payroll Department. If you are responsible for the payroll operation of any organization, be it a for-profit business or a nonprofit charity, you could benefit from the knowledge and expertise of The Payroll Department. We stay abreast of new rules and obscure exceptions so that you can be confident in our ability to promptly, accurately, and efficiently perform all your payroll functions. Talk to Teresa Ray today and find out how The Payroll Department can use their in-depth knowledge of the ins and outs of payroll administration to benefit your business.
-Jennifer of The Payroll Department Blog Team