Free Payroll Tool
See what your payroll provider really charges
Most providers hide per-run and add-on fees. Audit your real cost per employee in about 30 seconds, free.
Run the Payroll Fee Auditor →Blog · Payroll Management · Nonprofit
Nonprofits & Religious Organizations: Payroll Setup Guide (2026)
Setting up nonprofit payroll means the standard registrations, an EIN, state withholding and unemployment accounts, new hire reporting, plus the nonprofit specifics: pay codes for grant-funded payroll allocation and clergy housing allowance and a documented classification for program staff and case managers. 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.
Step 1: accounts and registrations
Every nonprofit starts with an EIN, a withholding account in each state where someone works (unless that state has no wage tax), an unemployment insurance account in each of those states, and access to each state's new hire directory. New employers deposit federal employment taxes monthly during the first calendar year because there is no lookback period yet.
Step 2: classify program staff and case managers before the first check
A volunteer is generally not an FLSA employee if the person volunteers freely for public service, religious, or humanitarian objectives without contemplation or receipt of compensation. Volunteers typically serve part time and do not displace regular employed workers.
Step 3: build the nonprofit pay codes
Grant-funded payroll allocation, clergy housing allowance, FUTA exemptions and volunteer to employee transitions each become a pay code with its own taxability and overtime treatment. Building them before the first run is cheaper than correcting a quarter of 941s afterward.
An organization exempt from income tax under section 501(c)(3) is also exempt from FUTA, and the exemption cannot be waived. Nonprofits that are not section 501(c)(3) organizations are not exempt and report FUTA on Form 940.
Step 4: set the records up to be kept
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.
A minister's rental allowance qualifies for the exclusion only if the employing church designates it by official action taken in advance of payment. The designation may be evidenced in an employment contract, in minutes or a resolution of the church, or in its budget.
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.
- A volunteer is generally not an FLSA employee if the person volunteers freely for public service, religious, or humanitarian objectives without contemplation or receipt of compensation. Volunteers typically serve part time and do not displace regular employed workers. [DOL Fact Sheet #14A]
- An organization exempt from income tax under section 501(c)(3) is also exempt from FUTA, and the exemption cannot be waived. Nonprofits that are not section 501(c)(3) organizations are not exempt and report FUTA on Form 940. [IRS, Exempt organizations: What are employment taxes?]
- 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)]
- A minister's rental allowance qualifies for the exclusion only if the employing church designates it by official action taken in advance of payment. The designation may be evidenced in an employment contract, in minutes or a resolution of the church, or in its budget. [26 CFR 1.107-1(b)]
Read the full guide to how to set up payroll for a new business, and the rest of the nonprofit payroll library.
Managed Payroll, Handled.
BEG manages payroll at $45 per employee per month, all-inclusive. Get an instant cost comparison for your business.
Frequently Asked Questions
What registrations does a new nonprofit need before running payroll?
An EIN, a state withholding account and a state unemployment account in every state with an employee, and new hire reporting access. State registrations are the slow step and can take weeks, so they start before the first hire date.
How are program staff and case managers classified at setup?
A volunteer is generally not an FLSA employee if the person volunteers freely for public service, religious, or humanitarian objectives without contemplation or receipt of compensation. Volunteers typically serve part time and do not displace regular employed workers.
What records must a nonprofit keep from day one?
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.
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
From the blog