NONPROFIT VOLUNTEERS AND STIPENDS: Can You Pay Your Volunteers?

Volunteers are an integral part of many nonprofit organizations. Some dedicate hundreds of hours each year to supporting a nonprofit’s mission. As a result, many nonprofits look for ways to recognize volunteers through gifts, stipends, gift cards, and other benefits. But can a nonprofit legally pay its volunteers? The answer is more complicated than many nonprofits realize because paying volunteers can affect employment status, liability protections, and taxes.

The topic of this article explores the often-asked question: Can our organization pay its volunteers, and what are the ramifications of doing so? Please note that the information that follows is meant to be educational only and does not constitute legal advice. If your nonprofit is considering stipends, gift cards, or other forms of volunteer compensation, contact us today for specific guidance.

Is the Individual a Volunteer or Employee?

Before providing compensation, a nonprofit should determine whether the individual qualifies as a volunteer.

The U.S. Department of Labor (“USDOL”) defines a volunteer as “an individual who performs hours of service…for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered.”[1] Similarly, Minnesota law, under Minn. Stat. § 177.23, subd. 7(7), states that an employee does not include “any individual who renders services gratuitously for a nonprofit organization.”

In general, a person is more likely to be considered a volunteer if:

1. They provide services without expecting to be paid or otherwise compensated:

2. They are not replacing a paid employee;

3. They volunteer on a part-time basis; and

4. They are not pressured or required to volunteer.

If these factors are not present, the individual will likely be considered an employee rather than a volunteer.

Why does this matter? If a volunteer is treated as an employee, the nonprofit may become responsible for minimum wage requirements, payroll taxes, workers’ compensation obligations, and other employment-related laws.

Can a Volunteer be Paid?

Under Minnesota laws, no. However, under federal laws, in some circumstances, yes.

Federal law generally allows nonprofits to reimburse volunteers and provide a nominal fee without jeopardizing volunteer status.[2] 

Common reimbursements include:

1. Transportation to and from the volunteer location;

2. Dry cleaning expenses for a required uniform; and

3. Costs for supplies.

Under federal laws, a nonprofit may also provide a nominal fee to volunteers. However, the fee cannot be a substitute for compensation, and it cannot be tied to productivity.

The USDOL determines whether a fee is nominal based on the economic realities of the situation. Factors include:

1. Whether the fee varies based on the number of hours worked, productivity, or performance; and

2. Whether the fee exceeds twenty percent (20%) of what the nonprofit would otherwise pay someone to perform the same services.

Examples:

The following examples are generally more likely to be permissible under federal laws:

• Reimbursing mileage incurred while volunteering;

• Reimbursing the cost of supplies purchased for a volunteer event; or

• Providing a small, fixed stipend that is not tied to hours worked or productivity.

The following examples are generally more likely to create legal concerns:

• Paying volunteers an hourly rate;

• Paying based on the number of clients served or tasks completed; or

• Providing bonuses based on performance.

Does it Matter How a Volunteer is Paid?

No.

Whether a volunteer is paid by check, cash, gift card, free participation where otherwise a fee is required, or any other thing of value received for services rendered, the payment is still considered compensation. The legal analysis focuses on the substance of the payment rather than the method used to provide it.

What Are the Risks of Paying Volunteers?

Compensating volunteers can create risks beyond employment law.

Federal and state laws provide certain liability protections for volunteers serving nonprofit organizations. These protections may be limited or lost when volunteers receive compensation.

Under the federal Volunteer Protection Act of 1997, volunteers are generally protected from liability in the performance of their volunteer work, if they:

• Perform services;

• For a nonprofit organization or government entity; and

• Either:

  • Receive no compensation (except reasonable reimbursement for expenses incurred); or

  • Does not receive anything of value in lieu of compensation in excess of $500 per year.

Similarly, Minnesota law, under Minn. Stat. § 317A.257, limits liability for individuals serving nonprofit organizations without compensation.  Reimbursement for expenses or a per diem amount of less than $55 per day of volunteer work are generally excluded from the definition of compensation.

As a result, even permissible compensation may jeopardize a volunteer’s liability protections under federal and Minnesota law.

What About Taxes?

Most volunteer compensation is taxable income. Cash payments, stipends, gift cards, and other cash-equivalent benefits will likely need to be reported by the volunteer for tax purposes. Because the tax treatment of volunteer compensation is complex and fact-specific, volunteers should consult a tax professional before accepting compensation.

Expense reimbursements are generally not taxable income if the nonprofit uses an accountable plan. An accountable plan is a reimbursement plan that requires volunteers to provide receipts to substantiate expenses incurred during the course of volunteering. Click here for more information on accountable plans.

What to Do Instead

In most cases, nonprofits can recognize volunteers without creating the legal risks associated with compensation.

Small, infrequent tokens of appreciation are generally a safer option, provided they qualify as de minimis gifts.[3] Examples include:

1. Hats;

2. T-shirts;

3. Tote bags;

4. Calendars; and

5. Other modest promotional items.

Volunteer appreciation events are another effective way to recognize volunteers. Appreciation dinners, social gatherings, game nights, and similar events help volunteers feel valued while avoiding many of the legal issues associated with direct compensation.

The Bottom Line

A volunteer is just that—a volunteer.

Before compensating a volunteer, nonprofits should ask:

1. Could this payment cause the volunteer to be treated as an employee?

2. Is the payment truly nominal, or does it resemble wages?

3. Could the payment affect the volunteer’s liability protections?

4. Are there tax consequences for the volunteer?

Although volunteer compensation may sometimes be permitted, the risks often outweigh the benefits. In many cases, nonprofits are better served by reimbursing legitimate expenses and providing modest tokens of appreciation rather than paying volunteers for their services.

Volunteer compensation rules are highly fact-specific, and a well-intentioned payment can have unintended legal consequences. Please contact us today for assistance.

[1] See also https://www.nonprofitrisk.org/resources/articles/employee-or-volunteer-whats-the-difference/.

[2] H.R.3530 - Fair Labor Standards Amendments of 1985; See also 29 C.F.R. § 553.106(a)-(d); U.S.C. § 203(e)(4)(A); 29 C.F.R. § 553.106(a) (“Volunteers may be paid expenses, reasonable benefits, a nominal fee, or any combination thereof, for their service without losing their status as volunteers.”); 29 C.F.R. § 553.106(e) (“Individuals do not lose their volunteer status if they receive a nominal fee from a public agency.”).

[3] The IRS has stated that items valued at more than $100 could not be considered de minimis gifts, but it is best practice to stay well under that threshold.