Nonprofit Payroll 101: How are Nonprofit Employees Paid?

Thursday, August 16, 2018

"If you work for a nonprofit then how do you make money? Isn't it a NON-profit?"

"Where does my money go when I make a donation?"

This is a common question I get and a common misconception by most. I get it though. If an organization is a nonprofit, where does the organization get the money it needs to pay its employees. Aren't all of the dollars raised supposed to be going to the cause? There are a lot of questions that go into non-profit jobs, and I want to set the rec0rd straight for some of you.

Most of you know that I work for a non-profit, and if you didn't, well, I work for a non-profit. :) SURPRISE. 

I work for a local childhood cancer foundation in Las Vegas that has grown near and dear to my heart. I've always wanted to work for a non-profit. Knowing that I work to serve a purpose puts a little more passion into my work. I am working for the community, which is why most people go into the non-profit field. 

If there is one thing I could say about almost every aspect of a non-profit, it would be this:

You have to spend money to make money. 

This sounds entirely counterproductive for a nonprofit but hear me out in these next few paragraphs. 

Volunteers do not staff nonprofits. 

There is this continuous notion that volunteers run a non-profit. In a perfect world, everyone would work 40-80 hours a week to see an organization succeed for a cause but that's just not realistic.  Non-profits rely HEAVILY on volunteers, but there has to be a paid staff to see the organization make an impact. How many of you have ever bailed on a volunteer gig? I'm guilty of it. A paid staff helps with accountability and ensures honesty in the mission. 

However, careers in the non-profit sector make less than their for-profit counterparts because there is another obligation for the money to be raised. For us, it goes to our family programs and services. I would not be doing the job I do if I wasn't on some sort of nonprofit payroll along with it.

Nonprofits get everything for free.

I freakin wish. If nonprofits received everything for free, it would make our jobs SO easy. Nonprofits do have community partners and relationships that can make certain aspects more manageable. But with some businesses out there, non-profits are their biggest client. We plan events, and we host activities, we do everything a corporation does with a 501-c3 document attached to it (a 501-c3 is a form that indicates we are a non-profit and any donations could be tax deductible), why wouldn't they charge us? Sometimes we do get non-profit discounts, and sometimes we do get things for free, but other businesses don't have the means to provide any free or discounted services. You have to spend money to make money, and the show must go on, and we will still need their services regardless, so we have to fork out the money.

Nonprofits have operating costs.

We need to have a place to work which come with rent and utilities, we need promotional materials to market our brand, and we need supplies such as computers, paper, nonprofit software and donor databases, plus other essentials.

A lot of our operational costs are written into grants. Most of the general public dollars that are raised don't necessarily go to the operation of the business. A grant is a sum of money given by an organization for a particular purpose. In grants we can write in we need this much for functionality purposes. Therefore that money HAS to be funneled into the operation of the organization. 

What people should consider when looking into non-profits is their dollar raised ratio. What I mean by that is for every dollar raised, what percentage is directly benefiting the cause and what percentage is going to operational costs. 20% or under in operational costs is a really good ratio. Anything above 30% I would start to wonder and ask to see budgets.

Any other myths I can bust on the nonprofit sector? I'm all ears. Drop me a comment below and lets chat!

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