May a charitable nonprofit give out holiday stipends (not performance-based but based on years of service) to its employees? From what I've read, this kind of stipend is the same as a bonus, and bonuses would need to be performance based and would need to be proposed by the independent board of directors, not by the management. The purpose of the stipend is to recognize folks' general hard work, further morale, and help them over the two weeks holiday break in which they don't get paid a salary.
I don’t see any reason why a charity cannot give a bonus to its employees at holiday time, so long as it is not based on the “profit” or surplus of the organization. I don’t think there is a legal difference between the “stipend” you propose and a “bonus.” They are both extra compensation that has not been part of the basic pay scheme of the employees. They can be based on performance, longevity, or other criteria that are not discriminatory against a protected class of employees. The IRS has no objection to bonuses so long as they are not based on profit and, when taken with the other compensation of the employee, do not create “unreasonable” or “excess” compensation. You usually have a lot of latitude before you reach excessive compensation levels for most nonprofit staff employees.
If the ability to pay the bonus is within the organization’s budget, and if the CEO has the authority to set compensation for staff, you may not have to have formal board approval. But you would probably want the board’s approval if paying the bonus would be an unusual event for the organization. And if total employment costs would exceed the budget as a result of the payments, you definitely want board approval.
Comments
Here's a wrinkle that may not occur to anyone, especially if the organization doesn't do bonuses regularly. Bonuses are subject to payroll taxes and withholding, the same as any other compensation. Speaking from experience here, if the employee receives a check for the full amount of the bonus, it can create a bit of a mess on the payroll end because adjustments need to be made later. For most payroll systems, it works better to inform the employee of the amount of the bonus and the date on which the bonus, less payroll deductions, will show up in the paycheck.
This practice is fairly common - especially in organizations with less than 100 staff. But in all the cases I've seen it is goven as cash payments of $25 - $50 and not included in the employees W-2. The amount is usually based on years of service.
Any "bonus" to managers is usually over $200 and is paid by Payroll; check with taxes wothheld
At my last job before retiring, for the 18 years I was there we budgeted for a Holiday Bonus each year as it had been a long-standing practice. Each employee received the same amount regardless of level of compensation, a deliberate choice reflecting the intent to proportionately benefit lower paid staff more than higher paid ones. Management decided on the size of the bonus; and the Board approved the entire budget. Every few years a board member would ask about the Holiday Bonus (good to know some board members actually looked at budget details) but there was never a vote against it.
Neither the auditors nor the IRS ever raised a question about this practice. And, I should report, the staff was always quite appreciative.
Its just so great to have this useful article.
Add new comment