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How Much Can I Pay Myself if I Start a Nonprofit Organization?

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Antoine

Launching a nonprofit organization can be incredibly rewarding, but it can also be a lot of work. While you are passionate about your mission, unless you are moonlighting with another job, you are going to have to pay yourself enough to live.

Yet, striking the right balance - especially when you are the one deciding how much you get paid - is difficult. Startup nonprofit are not typically overflowing with money, so you may be wondering how do these nonprofits pay their employees in the first place. In this article, we explore how to reconcile any feelings of confusion you have around procuring your own salary.

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can-i-pay-myself-in-a-nonprofit-organization-from-passion-to-paid

From Passion to Paid: Can I Pay Myself in a Nonprofit Organization?

The answer to this question is unequivocally yes! You are doing work, and workers should get paid! When your nonprofit is brand new, you often cannot afford to hand out salaries to anyone, even yourself. But at some point this has to change - at the least so you do not jeopardize your own financial situation. 

So how do you get started? 

When is the Right Time To Start Getting Paid? 

The first thing you must determine is when paying yourself a salary will become possible, and what circumstances will make that possible. Your organization must reach a point where you can expect to have money coming in beyond what is needed to cover program expenses. You will have to examine both your budget and revenue forecasts to see what is available.

can-i-pay-myself-in-a-nonprofit-organization-from-passion-to-paidTrish is contemplating if it's time to start paying herself...read on, Trish!

Finding the Revenue

How does your nonprofit bring in money? Grants? Donations? Memberships? Do you sell services or products? How steady is your income? What funding is left over after you spend it on sustaining your programs? 

The difficult thing about finding the funds to pay nonprofit employees is that early organizations do not typically have a steady income. Even established organizations that do have regular cash flow are still subject to the whims of the standard donation cycle - unless they rely on memberships or grants, which generally offer more stability. The donation cycle is quite cyclical. Rather than money coming in at a steady pace, most of it arrives during the holiday fundraising season in November and December. 

The kind of uncertainty that comes with not knowing how much revenue your charity will make through donations means that you have to leave a lot of wiggle room in your budget. By having a thorough fundraising plan, however, you can usually ensure that you do not miss a paycheck.  

You can apply for grants to pay nonprofit employees. A lot of grantors restrict their funding, only allowing you to use it for operational costs. However, there are some without these restrictions. You may have to do the initial research on this yourself, but as your organization grows, you can hire a grant writer to take on this project. They can then keep a fairly steady flow of revenue through grants to make paying salaries simpler. 

The Benefits of Being a Salaried Employee of Your Nonprofit

One of the issues a lot of nonprofit founders struggle with is feeling guilty for taking money away from their mission to draw a salary. But try to shift your perspective. All the big nonprofits that are doing important work are where they are at because they invested in their mission by paying people to take on some of the high-level work. Here are some of the benefits to getting paid as a founder or executive director:

  • Getting paid will help decrease chances of burnout. If you are paid for your work with your nonprofit you can make it a priority, rather than a side activity that drains you. 

  • You will be able to focus more of your time on your mission, and therefore see greater results. 

  • You will set your nonprofit up for a sustainable future by investing in a steady, paid workforce. You need a dedicated and long-term staff to grow.

  • Experienced grant makers are not impressed with nonprofits that underpay their workers or that are run solely on a volunteer basis. You want these grant makers to be pleased, as they can offer a solid source of income for many nonprofits. 

Pro Tip: The bottom line is that an investment in human capital is also an investment in your nonprofit organization. Do not be afraid to invest in yourself or the people that make furthering your mission possible. 

can-i-pay-myself-in-a-nonprofit-organization-how-much-does-a-founder-get-paid

How Much Does a Nonprofit Founder Make? 

There is no hard and fast rule for how much a nonprofit employee can make. The IRS offers guidelines, but not regulations. There are a lot of variables, including your organization's size, net income, and location.  

IRS Guidance

The best place to start is to check out what the IRS has to say about nonprofit executive compensation. The regulations state that a nonprofit director may be paid a reasonable compensation for services rendered. But what does that mean exactly? The IRS tends to judge reasonableness by comparing it to salaries from similar organizations. 

Comparing salaries on this basis can be difficult to do. However, it is best to follow "safe harbor" procedures as you decide on an amount so that you do not end up facing fines or other punishments if it is deemed that you are being paid too much for your work. 

How To Find Salaries of Nonprofit Employees 

To find salaries of nonprofit employees, begin by doing some research on what other nonprofits in your area pay. You can make some calls to these organizations to ask, or search their job ads. You could even use Google. Simply type in what you want to know, such as "salary for program manager nonprofit," plus your location to get results. 

GuideStar publishes a Nonprofit Compensation Report that can be helpful to consult, while a Compensation Survey is available through the Association of Fundraising Professionals. Or you can check to see if your state has a nonprofit association - they may have salary information posted on their website.  

When you have a good idea of the going rate, you can then decide how much to start paying yourself. 

can-i-pay-myself-in-a-nonprofit-organization-convincing-the-board

Convincing the Board

Now it is time to negotiate with your board of directors. Sometimes, especially in the first few years of a nonprofit’s existence, the members can be reluctant to approve a salary for the executive director. Try to approach one member who you have a solid working relationship with. They can help you build a financial plan and presentation to show everyone else on the board that paying you is the right choice. 

can-i-pay-myself-in-a-nonprofit-organization-convincing-the-boardOliver is having a chat with his board members – it looks like it's going well!

Once they're on board - no pun intended - they can take it from there. Though your input is valuable, they need to draft the compensation policy for you so that the IRS and other outside parties don't see it as a conflict of interest.

can-i-pay-myself-in-a-nonprofit-organization-irs-disclosure

IRS Disclosure

When you earn a salary as a director at a nonprofit organization, you are required to disclose it to the IRS on Form 990. Your nonprofit will also have to report the amount of money spent on fundraising, programs, and administration. Finally, you will have to report the salaries of the five highest-paid employees as well as any contracts being paid over $50,000. Failure to report annually can lead to losing your tax exempt status.

can-i-pay-myself-in-a-nonprofit-organization-final-thoughts 

Final Thoughts 

Creating a salaried position for yourself as the founder of a nonprofit may require some careful thinking, and even bold action. Remember that you are working hard for your cause, and that this work deserves compensation. Be ready to defend your position. Do the research to find out what is reasonable, and present it with confidence to your board of directors. After all, you want to set a precedent for paid positions if you expect your nonprofit organization to grow and thrive far into the future. 

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FAQ

💡Can I pay myself in a nonprofit organization?

Absolutely. Fair work deserves fair compensation. You will just have to be sure that what you are being paid is considered "reasonable compensation" by IRS standards to avoid penalty. Find out more. 

🔑 How does the founder of a nonprofit get paid?

Find the funds first by taking a look at the nonprofit revenue. Then do some research into what comparable nonprofits are offering their founders. Finally, put together a solid plan to present to your board of directors to get this salary approved. Find out more. 

Organization & HR
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Antoine
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