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Run the Payroll Fee Auditor →Blog · Payroll Management · Nonprofit
Nonprofits & Religious Organizations: Payroll Compliance Guide (2026)
Payroll compliance for nonprofits rests on the federal rules that reach this industry specifically, 4 of which are cited on this page, plus the deposit and filing duties every employer carries. BEG runs nonprofit payroll for $45 per employee per month inside the payroll software you already use, all-inclusive, live in 3 to 5 business days.
The rules that reach nonprofits specifically
Nonprofit charitable organizations are not covered enterprises under the FLSA unless they run ordinary commercial activities, such as a gift shop or fee-based services, with at least $500,000 in annual sales or business done. Employees working in the charitable activities can still be covered individually if they engage in interstate commerce, such as interstate phone calls or shipping.
Individuals may volunteer for religious, charitable, civic, humanitarian, or similar nonprofit organizations without becoming FLSA employees when they volunteer freely for public service and without expecting compensation. Volunteers generally may not work in a nonprofit's commercial activities such as a gift shop.
Paid employees of a nonprofit cannot volunteer to provide the same type of services they are employed to provide. Volunteers typically serve part time and do not displace regular employees or perform work that regular employees would otherwise do.
Program staff and case managers classified as exempt executive, administrative, or professional employees must be paid on a salary basis of at least $684 per week ($35,568 per year). Employees below that level are owed overtime for hours over 40 in a workweek.
The duties every employer carries
Federal income tax withholding, Social Security and Medicare, FUTA, deposits on the monthly or semiweekly schedule the lookback period sets, quarterly Form 941, annual W-2s and, for nonprofits paying contractors, 1099-NEC at the $2,000 threshold in force for tax years after 2025. A late deposit starts at a 2 percent failure-to-deposit penalty and climbs to 15 percent.
Salaries and wages charged to federal awards must be based on records that accurately reflect the work performed and that support the distribution of an employee's pay among activities when the employee works on more than one federal award or on both federal and non-federal activities. Budget estimates alone do not qualify as support for the charges.
The rules behind this page, with sources
General information, not legal advice. Every rule below was read on the agency page linked next to it.
- Nonprofit charitable organizations are not covered enterprises under the FLSA unless they run ordinary commercial activities, such as a gift shop or fee-based services, with at least $500,000 in annual sales or business done. Employees working in the charitable activities can still be covered individually if they engage in interstate commerce, such as interstate phone calls or shipping. [DOL Fact Sheet #14A]
- Individuals may volunteer for religious, charitable, civic, humanitarian, or similar nonprofit organizations without becoming FLSA employees when they volunteer freely for public service and without expecting compensation. Volunteers generally may not work in a nonprofit's commercial activities such as a gift shop. [DOL Fact Sheet #14A]
- Paid employees of a nonprofit cannot volunteer to provide the same type of services they are employed to provide. Volunteers typically serve part time and do not displace regular employees or perform work that regular employees would otherwise do. [DOL Fact Sheet #14A]
- Program staff and case managers classified as exempt executive, administrative, or professional employees must be paid on a salary basis of at least $684 per week ($35,568 per year). Employees below that level are owed overtime for hours over 40 in a workweek. [DOL WHD, Earnings thresholds for the EAP exemption (29 CFR 541.600)]
- Salaries and wages charged to federal awards must be based on records that accurately reflect the work performed and that support the distribution of an employee's pay among activities when the employee works on more than one federal award or on both federal and non-federal activities. Budget estimates alone do not qualify as support for the charges. [2 CFR 200.430(g)]
Read the full guide to the payroll compliance library, and the rest of the nonprofit payroll library.
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Frequently Asked Questions
Nonprofit compliance: DOL Fact Sheet #14A
Nonprofit charitable organizations are not covered enterprises under the FLSA unless they run ordinary commercial activities, such as a gift shop or fee-based services, with at least $500,000 in annual sales or business done. Employees working in the charitable activities can still be covered individually if they engage in interstate commerce, such as interstate phone calls or shipping.
Nonprofit compliance: DOL Fact Sheet #14A
Individuals may volunteer for religious, charitable, civic, humanitarian, or similar nonprofit organizations without becoming FLSA employees when they volunteer freely for public service and without expecting compensation. Volunteers generally may not work in a nonprofit's commercial activities such as a gift shop.
Nonprofit compliance: DOL Fact Sheet #14A
Paid employees of a nonprofit cannot volunteer to provide the same type of services they are employed to provide. Volunteers typically serve part time and do not displace regular employees or perform work that regular employees would otherwise do.
What does managed payroll cost for a nonprofit?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Grant-funded payroll allocation, clergy housing allowance and FUTA exemptions are configured at setup, not billed as add-ons.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries including Nonprofits & Religious Organizations. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Authoritative source: U.S. Department of Labor: Wage and Hour Division
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