Protecting Volunteers — and Your  Nonprofit — From Liability

Volunteers are integral to today’s nonprofits. Here are three steps you’ll want to take to protect them and your organization from liability:

1. Avoid creating taxable income for your volunteers,

2. Protect them from liability from law-suits, and

3. Distinguish between employees and volunteers.

Step No. 1: Avoid Creating Taxable Income for Your Volunteers
You may unintentionally create taxable income for your volunteers if you provide benefits, services or compensation to them to defray all or some of their volunteering costs. To avoid this pitfall, you must carefully keep track of reimbursements for:

• Out-of-pocket expenses,

• Travel expenses,

• Living  allowances,  and

• Stipends.

You must also look at fringe benefits you provide.

Reimbursements. Reimbursements to vol-unteers for out-of-pocket expenses incurred while they perform services for your non-profit organization do not constitute taxable income to them as long as the reimbursements do not exceed their actual expenses. Living allowances, stipends and other payments not exceeding their actual expenses are treated like reimbursements and are also excluded from their taxable income. But reimbursements in excess of actual expenses are considered tax-able income.

Furthermore, volunteers may deduct only unreimbursed expenses as charitable dona-tions on their tax returns.

Volunteers are responsible for maintaining records of actual expenses to support excluding reimbursements from their taxable incomes. Your organization should also keep accurate records of the actual costs your vol-unteers incur and require receipts, mileage records and other documentation before you reimburse them. Explain to volunteers both verbally and in writing that your reimburse-ment policy guards against unintentionally creating taxable income for them.

Fringe benefits. Bona fide volunteers may sometimes exclude from income some fringe benefits that you provide. Prime examples are board members covered by your organiza-tion’s directors’ and officers’ liability insur-ance. Because this coverage would be a deductible expense for an employee under the IRS Code, it qualifies as a working-condition fringe benefit for bona fide volunteers. There-fore, because the directors are placed on an equal footing with paid employees for this singular purpose, they do not have to report this fringe benefit as income.

Step No. 2: Protect Your Volunteers From Liability
Many nonprofit organizations rely on volun-teers to provide the services that allow the organization to achieve its exempt purposes. This may include unpaid directors and offi-cers and people directly serving the public. In today’s litigious society, you will want to understand and minimize risks your volun-teers and organization face.

Nonprofit organizations and their representa-tives can be sued for virtually all the same reasons as for-profit companies. While few lawsuits against volunteers — including direc-tors and officers — are successful, the risk still exists.

For example, personal injury lawsuits can be filed if an injury occurs in connection with any of your organization’s events, such as trade shows or conventions. Likewise, your organization or its representatives could be sued for breach of contract. Other common lawsuits against nonprofits are employment related, such as discrimination, wrongful ter-mination or harassment. In addition, board members can be held liable for violating three fiduciary duties:

• The duty of care. They are obliged to act with the care that an ordinarily prudent person would exercise in a like position and under similar circumstances.

• The duty of loyalty. They are obliged to put the organization’s interests first.

• The duty of obedience. They are obliged to act in accordance with both the organi-zation’s mission and applicable law.

State and federal statutes, your internal poli-cies and insurance afford your volunteers some protection against costly litigation.

Protection under state and federal law. The Volunteer Protection Act of 1997 pro-tects volunteers to some degree from civil liability. The act was designed to help reduce the cost of liability insurance and protect volunteers from lawsuits when they did not break a law or engage in misconduct. States can opt out of the federal statute if legisla-tures restore state laws on civil liability for volunteers.

Previously, every state and the District of Columbia had at least one law limiting the liability of some types of volunteers. The laws varied widely from state to state as to who was covered and under what conditions.

Some state laws applied only to volunteers of 501(c)(3) organizations, such as public chari-ties, educational institutions and religious organizations.

Other state laws applied to any tax-exempt nonprofit organization. Some specified the types of volunteers covered, such as sports volunteers, fire fighters or medical-service providers. Still others limited the scope of protection by requiring such conditions as a specific level of safety training or a specific amount and level of insurance. And many laws contained specific exceptions, such as claims resulting from the negligent operation of a vehicle.

But the laws don’t protect volunteers guilty of gross negligence, recklessness, or willful and wanton misconduct — such as theft, assault and battery, or other criminal acts. Volunteers remain fully liable for any such harm they may cause.

If volunteers are an important part of your organization’s operations, you need to inves-tigate applicable statutes by contacting your governor’s office of volunteerism or appro-priate legal counsel. Carefully analyze the statutes to determine which volunteers are covered and any special conditions and exceptions.

Although state laws may immunize your vol-unteers, your organization can still be held liable for their actions. State laws don’t pre-vent costly lawsuits or bar employment-related claims. Strong internal policies and sufficient insurance are essential.

Internal policies. Your internal policies can affect the protection available to volunteers. First, if your organization can afford it, amend your bylaws to include a broad indemnification provision protecting volun-teers from claims exceeding insurance limits.

Second, establish written policies and proce-dures that document the proper way to con-duct your operations and communicate these policies to your volunteers. Make sure your officers and directors have sufficient facts to make informed, reasoned decisions. And adopting sound employment practices is essential.

Third, implement preventive techniques to control the risks of injury to or by your vol-unteers. Create a safer environment by identi-fying operational areas that expose your volunteers to potential harm.

Finally, your organization should develop a risk-management policy approved by top management. Identify all risks associated with your operations and develop strategies to mitigate those risks before claims arise. And regularly review the policy to keep up with changes that your organization experiences.

Insurance. State laws and internal policies do not replace complete insurance coverage. Your organization should carry appropriate levels of general liability insurance that spe-cifically covers volunteers.

Carefully review your directors’ and officers’ liability insurance to see that it meets your needs. Negotiate with the carrier to cover not just your directors and officers but also your other volunteers.

And, if your volunteers use your vehicles or their own on the organization’s behalf, deter-mine whether your auto insurance covers them and act accordingly.

Step No. 3: Distinguish Between Employees and Volunteers

A nonprofit school for special-needs children plans several weekend field trips for its stu-dents, supervised on a volunteer basis by parents and school staff. Are all of these people bona fide volunteers? Must the school pay employees who volunteer to supervise?

Who is a bona fide volunteer? Volunteers are people who donate their time and talents for public service, religious or humanitarian objectives, not as employees and not with expectations of pay under Internal Revenue Code 162. The total value of benefits related to volunteers’ services must be substantially less than the total value of their services

provided to the exempt organization or government employer. Generally, labor laws and regulations do not apply to bona fide volunteers.

The U.S. Department of Labor has specifi-cally determined that people who voluntarily work with retarded or handicapped children or disadvantaged youth qualify as volun-teers. Therefore, the school is not required to pay parents who volunteer. They are bona fide volunteers because the school neither employs them nor pays them for the time they devote to field trips.

But can school employees also volunteer their services for field trips? Do they also qualify as bona fide volunteers? Generally, they do not if the services they volunteer to provide are related to the kind of work that the school normally pays them to do.

Exempt or nonexempt. The school, just like any other employer, must classify each employee as either exempt or nonexempt. If employees are paid an hourly wage for every hour they work, they are subject to the minimum-wage requirements of the Fair Labor Standards Act (FLSA) and classified as “nonexempt.” If they are paid a salary regard-less of how many hours they work in a pay period, they are classified as “exempt.” Exempt employees include executives, administrators, teachers and other profes-sionals. They may “volunteer without pay” because their “volunteer” activities are con-sidered an extension of the work for which they are ordinarily paid. Therefore, the FLSA permits administrators and teachers to super-vise field trips without additional compensa-tion for those hours.

A test for nonexempt employees. On the other hand, nonexempt employees may not voluntarily perform services that are identical or similar to those for which they are nor-mally paid. For example, the school must pay its bus drivers if they volunteer to drive the buses on weekend field trips.

When nonexempt employees volunteer to perform services not related to their paid work, you should apply this six-prong test to determine whether the FLSA requires you to pay them for their additional services:

1.    Will the employee perform the activity without expecting any form of pay or other substantial benefit?

2.    Are the services performed without employer coercion, threat of penalty or promise of benefits?

3.    Are the activities performed predomi-nantly for the employee’s own benefit?

4.    Is the activity conducted at times other than during the employee’s normal working hours?

5.    Is the time spent performing the volun-teer activity insignificant when compared with the employee’s normal working hours?

6.    Is the volunteer position one that would not be filled by a person paid to perform the activity if a volunteer were not available?

If you answer “yes” to all these questions, employees may volunteer without violating the FLSA. But if any one of the answers is “no,” your organization must pay the employees for time worked.

Protect yourself. Clearly — in the case of the nonprofit school — parents, administra-tors and teachers may volunteer without subjecting the school to liability for unpaid time under the FLSA. But nonexempt employees must not perform any activity for which they are normally paid, and all six prongs of the test must be met. The executive director should consider each situation indi-vidually to ensure that a mutual under-standing is reached to prevent any law violations.

The Three-Step Course
Following these three steps can help your volunteer department set a course to avoid confusion that can lead to liability for you and your volunteers. If you have any ques-tions in these or other areas, please call us. We would be glad to help your organization  fulfill its mission.