Changes in Nonprofit Compensation Rules for January 2025 and the Need for Even More Change This Year

Ideally, nonprofits should have up to 2 years’ worth of operating expenses in the bank. Nonprofit corporations must submit their financial statements, which include the salaries of directors, officers and key employees to the IRS on Form 990 as mentioned above. Both the IRS and the nonprofit corporation are required to disclose the information they provide on Form 990 to the public. Your nonprofit’s budget will be different, depending on the size, income and expenses of your organization. Below is an example of a nonprofit budget to give you an idea of what you need to do. This budget includes expected income, expenses, and funding for a small nonprofit organization.

• Once the organization sets its priorities, it conducts research on comparable organizations and roles.
• A bookkeeper can help you set up the right documentation and tracking procedures so you categorize everything consistently and are not stuck trying to figure it all out come tax time.
• One way to explore revenue models is to conduct a “competitive analysis.” Pull the publicly available Form 990s of nonprofits in your community that are similar to yours in size and/or mission.
• Preparing a separate labor budget at the front end of the budget building process will enhance planning and improve management of the organization’s workforce.
• You can build out the line items in greater detail as you develop your budget, but beginning with these will give you a good start.

Divide annual costs out by month.

For specific types of nonprofits, other skills and professions may be in high demand. Medical professionals may be some of the most highly paid employees in the medical services nonprofit. Top-tier fund-raisers might receive top pay when bonus structures are included in the mix. Working in the nonprofit sector often requires balancing passion for the cause with the need for fair compensation. Nonprofit organizations strive to offer competitive salaries within their financial means to attract and retain talented professionals. Our line of credit ensures that you have a constant cash flow accounting services for nonprofit organizations for the smooth operation of your nonprofit.

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You’ll want to calculate your total compensation as a percentage of your total expenses. Keep in mind that total compensation includes all your expenses for salaries, wages, benefits, and other compensation. For instance, you might have contractors that you are hiring versus employing because of the size or https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ the longevity of the need for that service. Whatever your combination may be, you’ll want to make sure you’ve added up all of your compensation expenses, and then you’ll divide that number by your total expenses.

How Does the Founder of a Nonprofit Get Paid?

Planning Tip – One roadblock to setting the salary budget for the next fiscal year is addressing how future potential salary increases for cost-of-living, performance, and promotions will be distributed. The following labor budget worksheet example is provided for demonstration purposes. Notice the percentage of time and effort allocations and how they are separate from the salary column. It’s mandatory for nonprofits to use funds in accordance with their mission.

In the absence of a standard definition, let’s consider a small organization as having 20 or fewer staff members and a large organization as having 100 or more. Private equity, venture capital and real estate or infrastructure are also popular assets, making up as much as half of alternative investments made by large endowments. In this article, we lift up Habitat for Humanity of Ohio and the $25 million investment secured from the state of Ohio as an advocacy and development success story. The Nonprofit Impact Matters report is designed to be read in Full Screen Mode. When the PDF opens, please click View and then select Full Screen Mode. John CenaJohn Cena sets a ‘herculean’ record with 650 wishes granted through Make-A-Wish Foundation.

What Are Administration Costs

Organizations should continue to focus on cost of labor and not cost of living. Cost of living is the market value of goods, such as housing, food and fuel. Cost of labor is how expensive it is to hire people in an area—not how expensive it is to live in that area. Organizations should keep in mind that inflation is short-term while base pay increases are more permanent. Inflation has been low for the last decade with most salary budget increases trending above the inflation rate. Employers experienced a similar situation and set of choices in 2008 with the Great Recession.

These programs often have templates that you can use, which can make the process of creating a budget much easier. This includes estimating the amount of money you expect to receive from donations, grants, fundraising events, and investments. Charity Navigator only rates organizations with $1 million or more in revenue for two consecutive years. On the other end of the spectrum, if you’re spending more than 25% of your total income on fundraising and administration, your donors may be turned off and stop giving, which means your programs may suffer. By following these steps, you can create a budget that effectively supports your nonprofit’s mission and ensures responsible financial management.

Check out Charity Watch, an independent charity watchdog that helps donors decide how and where to make their donations. How can the organization safeguard confidentiality of individual salaries? Simple, just erase the salaries in the first two columns and what is left is time and effort allocations.

The gender pay gap is declining—slowly

That’s why it’s so important that you identify any industry norms specific to your niche, and that you not only calculate this ratio, but document and track its trends throughout the history of your organization. Doing so will empower you to more objectively answer the hard questions about staffing whenever the need arises. An organization should strive for a fundraising efficiency that is greater than one, however, the best ratios are around 4.0.