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Compliance for Showing Appreciation to Volunteers

Jean-Smith-headshotVolunteers are a crucial part of most nonprofit organizations, and many program and fundraising activities would not get accomplished without them.  However, the Department of Labor does regularly raise a couple of issues that you should be well-versed in to ensure compliance:  employees who also volunteer, and payments/gifts to volunteers.

According to the Department of Labor, a volunteer is defined as someone who “donates their services, usually on a part-time basis, for public service, religious, or humanitarian objectives, not as employees and without contemplation of pay.”  In order to be considered “ordinary volunteerism” that is exempt from Fair Labor Standards Act and minimum wage requirements, the volunteer cannot be pressured to offer services freely or displace a regular employee.

So, what happens if you have an employee who wants to work “off the clock” to volunteer for a fundraising event or to help in program activities normally staffed by volunteers?  Although some organizations don’t allow this in order to clearly separate the two activities, it’s perfectly acceptable to allow employees to volunteer.  Just remember, that a good employee today could become a disgruntled employee tomorrow.  That individual may claim they were forced to volunteer and weren’t paid for the hours worked.  To avoid this potential issue, it’s always smart to follow a few best practices:

  • Have written job descriptions for employee positions and separate written volunteer agreements – Job descriptions should not include any duties that are normally done by volunteers, while volunteer agreements should specifically state that volunteer service is separate from employment status and includes no compensation.
  • Maintain separate manuals for personnel policies and volunteer policies – Consolidating the policies into one handbook blurs the lines between employees and volunteers. Employee volunteers should follow the appropriate policy based on the role they are performing at the time.
  • Ensure volunteer service is truly voluntary – Employees should not feel forced to volunteer at events and should be fully aware of the difference between employee and volunteer status.
  • Don’t ignore “off the clock” hours – If a nonexempt employee stays a couple extra hours to finish a project, but does not include that time on their timecard, you could be in violation of wage and hour laws. This time is part of their employee duties, and they should be paid for all hours worked.

The other situation to address is payments to volunteers.  Organizations like to show their appreciation by providing monetary or noncash “gifts” to their volunteer base. This helps build camaraderie and encourages them to return.  The risk to consider when “paying a volunteer” is that the payment is considered compensation and turns the volunteer into an employee or an independent contractor.  The organization will then be subject to all related employment laws – minimum wage requirements, payroll taxes, unemployment, retirement benefits, etc. that would apply to your regular employees (or 1099 reporting for an independent contractor).  So, what can you pay a volunteer?

  • Reimbursement of costs incurred – Volunteers who travel between sites or incur expenses for supplies can be reimbursed for these costs just as employees are. Receipts should be turned in and follow the normal control process in place at your organization.
  • De minimis fringe benefits – Although there is no specific dollar threshold, this includes items that are small enough to be administratively impractical to track. For example, meals provided while volunteering, a ticket to a community event, a small holiday gift, or a token shirt with the organization’s logo are great appreciation gifts that don’t violate any employment laws.  Note that cash and gift cards (regardless of how small) are never considered de minimis fringe benefits and are always taxable to the individual.
  • Nominal compensation – Although this will not affect volunteer status, the amounts are taxable to the individual. For example, schools often pay a small stipend to volunteer board members for board meeting attendance, and this amount is reported as wages on Form W-2.  As with de minimis fringe benefits, no bright-line test exists to determine what is nominal, so judgment must be used.  If you exceed amounts that are reasonably considered to be nominal, you may have just turned your volunteer into an employee.

Your volunteer base is incredibly important to the ongoing success of your organization.  Be sure to brush up on the rules so you are not in danger of crossing the line between employee and volunteer status.  Contact any of our tax-exempt specialists if you have additional questions.

 

Jean Smith

Jean Smith

CPA, Partner at Ketel Thorstenson, LLP
Jean joined Ketel Thorstenson, LLP in August of 1994 with the motivation to make the audit experience a positive one for clients. In November of 2005, she was named a Partner in the firm. She specializes in audits of non-profits, financial institutions, tribal organizations, and closely held commercial entities.
Jean Smith

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