Sometimes people think the term "nonprofit" means that the organization or the people doing the work can't make any money. But this isn't the case--nonprofits should make money and employees can be paid a salary. This includes the founder if the founder is performing mission-related work as an employee of the organization.
Although nonprofits can pay salaries there are some important considerations:
Follow state and federal guidelines
Nonprofit organizations must follow the same federal and state wage, hour, and labor laws that all employers must follow. These laws vary by state so refer to your state’s employment laws.
Salaries must be reasonable and not excessive
In order to maintain your organization’s tax-exempt status, the IRS requires that nonprofit salaries should be “reasonable” and “not excessive.” The IRS defines “reasonable” compensation as “the value that would ordinarily be paid for like services by like enterprises under like circumstances.”
At a minimum, employees must be paid minimum wage, keeping in line with federal and state minimum wage laws (whichever is higher).
For setting salaries above minimum wage, look to the labor market to benchmark a reasonable amount. Be sure to factor in your geographic location, organization size, job description, and the qualifications and experience required for the position in order to find comparable salary ranges. Some ways you can do this are to:
- Find job postings for similar organizations or positions and see what they are paying
- Look at nonprofit salary surveys
- See if your state nonprofit association publishes a salary and benefit report
- For leadership positions (such as CEO or executive director) look at our Nonprofit Compensation Report, which provides compensation data by title, location, budget size, cause area, and gender.
Salaries are public record
Nonprofits that file Form 990 or 990-EZ are required to report the compensation of its highest paid staff members. Since this information is public record, potential donors can look to see if staff salaries are reasonable and compare how much the nonprofit spends for programs versus salaries.
Finding the funding to pay for salaries
Finding funding for any purpose, let alone salaries, during the start-up phase can be challenging. Most funding during this time will come from the nonprofit’s founders, board members, volunteers, community members, or other interested parties.
Learn the steps that organizations can take to bring in their first dollars and begin to fundraise for their future with the video First Fundraising Strategies for Startup Organizations:
Learn more about finding funding during the incorporation process: Can I get funding for my nonprofit while I am in the process of incorporating or getting tax-exempt status?
Once your nonprofit has its tax-exempt status and is established, it should seek additional revenue streams. Nonprofits typically get funding from a number of sources including:
- Fees for goods and services (also called earned income)
- Individual donations and major gifts
- Corporate contributions
- Foundation grants
- Government grants and contracts
- Membership dues and fees
It is best practice for your organization to diversify its revenue stream and include funding from multiple sources. Your nonprofit’s revenue streams should be detailed in your nonprofit’s business plan. Learn more
Your nonprofit should also have a fundraising plan to ensure that you are raising funds from multiple sources. Learn more: Where can I learn more about fundraising planning?
If you are starting a nonprofit organization in order to pay yourself a salary, there are much easier ways to earn a living that still allow you to make a difference. Instead, consider applying for jobs at existing nonprofits. Learn more: Where can I learn about job openings and working in the nonprofit sector?
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