Estimated Reading Time: 11 minutes
Executive Director
Resource Type: Articles
Topic: HR Risk and Employment Practices, Volunteer Risk Management
Nonprofit organizations frequently depend on the service and commitment of volunteers as well as the labor of employees. The skills and talents of both types of workers bring nonprofit missions to life. At first glance, the simple difference between these two types of workers is that employees get paid and volunteers don’t. Yet many nonprofit leaders have discovered that there is more to distinguishing between employees and volunteers than whether an individual receives a regular paycheck. This article explores two subtopics under the umbrella issue of employee versus volunteer status: whether employees may also volunteer, and the consequences of compensating volunteers.
May your nonprofit’s paid employees also serve as unpaid volunteers? Each year the NRMC team receives numerous calls and email messages from leaders who tell us that their dedicated, paid staff are eager to volunteer in the evenings and on weekends. In some cases these willing staff volunteer to work “off the clock,” while in other instances they sign up or formally apply for volunteer roles, such as volunteer ticket takers, coaches or special event staff, or as volunteer mentors in the nonprofit’s mentoring program. But we also receive calls from employees who want to know whether they can be forced to “volunteer” and on occasion from employees who are indignant after having been told that they cannot volunteer their services in the agency where they are employed.
At the time the Fair Labor Standards Act (“FLSA”) was revised in 1985, Congress stated its desire to prevent any manipulation or abuse of minimum wage or overtime requirements through coercion or undue pressure upon individuals to ‘volunteer’ their services. Yet the Department of Labor’s Wage and Hour Division has recognized that a volunteer in a religious, charitable, civic, humanitarian or similar nonprofit is not subject to the FLSA. Volunteers may work for nonprofits without expectation of compensation, and nonprofits are free to recruit and retain true volunteers without undue worry about the risk of wage and hour claims.
According to the Department of Labor, a volunteer is: an “individual who performs hours of service’ for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered. To determine whether an individual is a true volunteer engaged in “ordinary volunteerism,” the Department of Labor considers a number of factors. No single factor is determinative. The factors include:
A volunteer position at your nonprofit is likely to be regarded as “ordinary volunteerism” and safely exempt from the minimum wage requirements of the FLSA if you can answer “yes” to the first four questions and “no” to the final two questions.
If your nonprofit engages both paid personnel and unpaid volunteers and paid employees are eligible to volunteer, consider the following tips to increase the safety of your HR and volunteer management practices.
Many nonprofit organizations offer some monetary benefit to their volunteers, such as stipends, reimbursement for out of pocket expenses, discounts on services, and so forth. “Bona fide” volunteers are those whose compensation is limited to reimbursement for expenses, reasonable benefits and/or nominal fees for services.
There are at least two key issues that arise when volunteers receive payment or benefits from the nonprofit organizations they serve. The first issue is whether the payments or benefits are taxable compensation. The second issue is whether payments to a volunteer jeopardize the worker’s volunteer status.
Taxation of Benefits Provided to Volunteers
In general, a nonprofit employer must treat payments to volunteers the same as payments to employees, which means that income tax and FICA contributions must be withheld. (See 26 U.S.C. § 3402). Living allowances, stipends and in-kind benefits should generally be treated like wages.
Inexpensive items (e.g., a coffee cup, t-shirt, or admission to an event where the volunteer is representing the organization) may be excluded from reportable, taxable income as de minimis fringe benefits (See Internal Revenue Code section 132(a)(4). Additional examples include holiday gifts, light refreshments, occasional personal use of the nonprofit’s office equipment, occasional tickets for entertainment events, and personal use of a cell phone provided primarily for the nonprofit’s business. The more expensive the item or the more frequent its use, the less likely it is to qualify as de minimis benefit. Keep in mind that a de minimis fringe benefit should never be a form of disguised compensation. But, except as specifically provided (i.e., occasional meal money or local transportation fare and reimbursements for public transit passes), a cash fringe benefit (including a gift card) is not excludable as a de minimis fringe benefit. See Regulations §1.132-6(c). For more information on cell phones as taxable benefits, visit: http://www.irs.gov/irb/2011-38_IRB/ar07.html.
In-kind benefits that do not qualify for a tax exemption must be assigned a dollar value for tax purposes. Your nonprofit is responsible for determining the fair market value of the goods it distributes to volunteers and for withholding the tax from a volunteer’s stipend or other income provided. Generally, the fair market value of a benefit is the amount an individual would have to pay for the item at a local store or restaurant. Reimbursements to volunteers are taxable to the same extent as reimbursements to employees. Only if the expense qualifies as a tax deduction for an employee does the volunteer also avoid tax liability. Thus, reimbursement for a volunteer’s purchase of a uniform, required for program participation, would not be considered part of taxable income.
Jeopardizing Volunteer Status
A second issue is whether the payment of a fee, stipend or valuable benefits jeopardizes the legal status of a volunteer. The unwitting conversion of a volunteer to employee status has potential negative consequences for the employer as well as the volunteer. In contrast with their volunteer counterparts, employees are subject to various forms of legal protection, such as the guarantee of a minimum wage under the federal and state wage and hour laws, and protection from illegal discrimination under Title VII. Nonprofit employers should therefore proceed with care when determining the benefits that will be provided to volunteer workers.
Short of changing a volunteer’s status to that of employee, payments to volunteers can also lead to a loss of legal protection for the volunteer. The Volunteer Protection Act specifically protects a volunteer who: (1) performs services; (2) for a nonprofit organization or governmental entity; and (3) either (a) receives no compensation (although reasonable reimbursement for expenses incurred is allowed), or (b) does not receive anything of value in lieu of compensation in excess of $500 per year. Therefore a “volunteer” who receives a stipend of $50 per month, or $600 annually, is not protected under the VPA.
What is Nominal Compensation?
While there is no clear-cut guidance on what constitutes “nominal compensation” to a volunteer, 29 C.F.R. § 553.106(e) provides that “a fee is not nominal if it is a substitute for compensation or tied to productivity.” In addition, Section 553.106(f) of FLSA regulations provides that “determining whether the expenses, benefits, or fees would preclude an individual from qualifying as a volunteer under the FLSA requires examining the total amount of payments in the context of the economic realities of a particular situation.” DOL’s Wage and Hour Division presumes that fees paid to volunteers are nominal as long as the fee does not exceed twenty percent of what an employer would otherwise pay to hire a full-time employee for the same services. See Wage and Hour Opinion Letters FLSA2006-28 (Aug. 7, 2006) and FLSA2005-51.
In a wage and hour case involving a volunteer school golf coach (who also served as a paid safety and security assistant for the same school system), both a U.S. District Court and the 4th Circuit Court of Appeals found that the coaching role was properly classified as a volunteer position. In its ruling the District Court held that the coaching role was different from the plaintiff’s paid position, and that a stipend of $2,114 was nominal. The 4th Circuit Court also appeared to be swayed by the plaintiff’s decision to choose the volunteer coaching role over a part-time paid position due to the satisfaction he derived from his volunteer role. (Source: Purdham v. Fairfax County School Board, 4th Cir., No. 10-1048, March 10, 2011.)
Melanie Lockwood Herman is Executive Director of the Nonprofit Risk Management Center. She welcomes your feedback on this article and questions about NRMC resources at Melanie@nonprofitrisk.org or 703.777.3504.
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