{"id":4223,"date":"2023-08-28T19:12:08","date_gmt":"2023-08-28T19:12:08","guid":{"rendered":"https:\/\/duganlopatka.com\/?p=4223"},"modified":"2023-09-13T16:21:00","modified_gmt":"2023-09-13T16:21:00","slug":"the-dos-and-donts-of-volunteer-labor","status":"publish","type":"post","link":"https:\/\/www.duganlopatka.com\/the-dos-and-donts-of-volunteer-labor\/","title":{"rendered":"The Do\u2019s and Don\u2019ts of Volunteer Labor \u00a0"},"content":{"rendered":"
If you live in the Chicago area, you\u2019ve probably set foot on the Illinois Prairie Path<\/a>.<\/p>\n Spanning three counties, the crushed-limestone trail runs through 61 miles of sprawling neighborhoods, bustling downtowns, peaceful nature preserves, and (yes) prairies.<\/p>\n The Prairie Path is itself an amazing achievement. But you know what\u2019s really amazing about it?<\/p>\n It was built almost entirely by \u2013 you guessed it \u2013 volunteers.<\/p>\n Volunteers are a powerful workforce for the nonprofit industry. They help organizations fill budget gaps, stretch funds further, and ultimately fulfill their mission.<\/p>\n At the same time, tax-exempt organizations that use volunteer labor must be careful not to run afoul of government regulations. There are many rules regarding who can be considered a volunteer and what kind of work they can perform. If an organization misclassifies an individual as a volunteer, they may face costly ramifications, from back wages and employee taxes to attorney fees and other penalties.<\/strong><\/span><\/p>\n In short? Volunteers are great, as long as you use them wisely.<\/p>\n To help you stay on the right side of labor and tax laws, here are some of the biggest Do\u2019s and Don\u2019ts of volunteer labor.<\/p>\n The Department of Labor (DOL) created the Fair Labor Standards Act (FLSA) to set the ground rules for employers, ranging from minimum wage and overtime to recordkeeping and child labor. Volunteers are exempt from these regulations.<\/p>\n Who\u2019s considered a volunteer? According to the DOL, a volunteer is an individual who:<\/p>\n In other words, the DOL defines \u201cvolunteering\u201d the way most of us do.<\/p>\n But there are several nuances to their rules that complicate things. For example…<\/p>\n Many nonprofits make the mistake of having their volunteers participate in commercial activities. For example, a nonprofit museum may have volunteers work at a gift shop, or a public library may have a volunteer serve coffee at their caf\u00e9.<\/p>\n Unfortunately, both organizations would be in violation of government regulations. Although the organizations are nonprofits, entities like gift shops and caf\u00e9s are commercial enterprises. Any individual working at these would be considered an employee or independent contractor and subject to taxation and FLSA rules.<\/p>\n You should also ensure that volunteer activities don\u2019t become commercial enterprises. For example, several nonprofits have run into trouble for using tip jars to raise cash for their volunteers. When the IRS audited them, it was determined that the tips qualified as compensation, the volunteers were technically employees, and the organizations owed back wages and taxes.<\/p>\n Chances are, when you were a child, you sold cookies or popcorn to cover fees for a summer camp or field trip.<\/p>\n Offering volunteers rewards for their work can be a great way to get them motivated. However, organizations must ensure that their rewards don\u2019t turn volunteers into compensated employees or independent contractors.<\/p>\n Innocent as they may be, the examples above \u2013 selling cookies or popcorn \u2013 can lead to tax and labor problems later on. If you set aside money for the benefit of a participant, and the total funds exceed the reporting threshold, then it\u2019s considered taxable income and your organization will have to file a Form 1099-NEC (Nonemployee Compensation).<\/p>\n One way to avoid this is by offering group rewards, rather than individual compensation. If a school runs a fundraiser to pay for a field trip, they can avoid tax problems by combining all the funds into a general pool to pay for the group\u2019s trip \u2013 and potentially find creative, non-financial ways to reward students who raise the most funds.<\/p>\n It can be tempting to ask employees to volunteer their time outside of work. But paid employees and contractors generally cannot be considered unpaid volunteers, even if they are willing to donate additional hours outside their normal workday. Only individuals who receive no taxable compensation or benefits from your organization can be considered volunteers.<\/p>\n We\u2019ll include a bonus \u201cDon\u2019t\u201d here: Don\u2019t use volunteers to perform work that would normally be performed by employees. If a volunteer displaces a regular employee, or performs work that would normally be compensated, they may be considered an employee under the FLSA even if they are uncompensated. <\/em><\/p>\n Your organization may want to give its hard-working volunteers a token of your appreciation \u2013the volunteers who built the 61-mile Prairie Path certainly deserved a commemorative t-shirt or two \u2013 but you should be careful that your gifts aren\u2019t too <\/em>generous.<\/p>\n If the value of a gift exceeds 20% of the fair market value of the volunteer\u2019s services, the volunteer may be considered an employee for tax and labor purposes. In turn, your organization may owe back wages and taxes, and may be subject to other penalties.<\/p>\n In general, you should keep volunteer gifts to a minimum, otherwise they could become gifts that keep on giving.<\/p>\n Under Department of Labor rules, nonprofits can reimburse a volunteer for their out-of-pocket expenses and even pay a \u201cnominal fee\u201d for their services. But you need to ensure that fees are truly nominal \u2013 far below the real value of the volunteer\u2019s work \u2013 and you should never tie their fees to productivity or hours worked, as it will be considered taxable compensation.<\/p>\n One of the best ways to protect your organization from unexpected taxes and penalties is by establishing clear volunteer labor policies and communicating them to your staff.<\/p>\n Here are a few tips:<\/p>\n In most cases, the rewards of using volunteer labor far outweigh the risks of misclassification. (Just ask naturalist May Watts, who spearheaded the volunteer effort to build the Illinois Prairie Path.)<\/p>\n By understanding government regulations and implementing policies aligned with them, your organization can minimize its risk \u2013 and tap into the amazing potential of a volunteer workforce.<\/p>\n At Dugan + Lopatka CPAs, we have partnered with Chicagoland nonprofits for nearly 50 years. Visit our <\/em>not-for-profits page<\/em><\/a> to learn more about our work or explore the wide range of <\/em>outsourced accounting services<\/em><\/a> we offer tax-exempt organizations. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":" If an organization misclassifies an individual as a volunteer, they can face back taxes and hefty penalties. Here are some helpful tips for staying on the right side of labor and tax laws. <\/p>\n","protected":false},"author":7,"featured_media":4241,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[18],"tags":[],"acf":[],"yoast_head":"\nDO Know How the Government Defines Volunteers<\/h2>\n
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DON\u2019T Have Volunteers Participate in Any Commercial Activities<\/h2>\n
Do: Allocate Fundraising Proceeds to Group Rewards<\/h2>\n
Don\u2019t: Use Your Organization\u2019s Paid Employees as Volunteers<\/h2>\n
Do: Be Careful with Gifts<\/h2>\n
Don\u2019t: Use Nominal Fees to Substitute for Compensation<\/h2>\n
Do: Establish Clear Policies and Procedures for Volunteer Labor<\/h2>\n
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Do: Use Volunteer Labor Wisely!<\/h2>\n
\nSpecialized Accounting for Nonprofits<\/h3>\n