Nonprofit Employee Benefits: The Complete Guide for Employers

There's a common misconception about nonprofit employers: "They don't offer employee benefits, instead relying on the goodwill of their employees and volunteers to keep their cause going."

In reality, there are ~2 million nonprofits in the US alone. Most of them have countless similarities to your standard for-profit company, including employee benefits.

If so many nonprofits offer competitive benefits, how on Earth can mine do the same? In today's article, we'll break it down for you.

What makes nonprofit employee benefits different?

Nonprofits share lots of the same goals as their for-profit counterparts. And, despite their tax-exempt status, they're required to follow the same regulations regarding pre-tax vs. post-tax benefits and taxable vs. non-taxable fringe benefits.

So, what's the difference?

  • Lower compensation levels. Nonprofits generally offer inferior total compensation compared to for-profits because they operate with limited budgets and place a significant portion of their funds towards their mission-related activities. If they don't generate much revenue for themselves (instead relying on donations and grants), this is even more the case.
  • Fewer compliance resources. Like for-profits, they have to consider the impact of working hours on benefits like retirement and health plans. This means, generally, that nonprofits opt for less complex benefit packages overall.

Of course, this doesn't apply to all nonprofits. Large nonprofits—especially those with commercial ventures linked to their mission (e.g., a hospital)—provide high-quality benefits.

It also doesn't mean nonprofits can't offer competitive benefits. Au contraire, plenty of nonprofits provide a broad range of benefits to their employees.

As with any company (profit or not), creating an impactful employee benefits package is easier than you think.

  1. Determine how much you can afford.
  2. Figure out what matters most to your employees.
  3. Administer them using a tax-compliant platform to keep admin costs low.

It's that simple.

Affordable Care Act (ACA) compliance for nonprofits

Nonprofit organizations need to comply with the Affordable Care Act just like for-profit companies.

Under the ACA, nonprofits with fewer than 50 full-time equivalent (FTE) employees—those clocking in 30 or more hours weekly, or at least 130 hours monthly—don't need to offer medical coverage. This offers some flexibility for smaller nonprofits that don't have the resources of larger entities.

Once an organization crosses that 50-employee threshold, it steps into the category of an Applicable Large Employer (ALE). That means they're required to offer health insurance or face significant fines ($2,970 per full-time employee, minus the first 30, in 2024), aligning them with their for-profit peers in terms of healthcare obligations.

Despite these requirements, a few incentives encourage health benefit offerings.

Notably, nonprofits...

  • with 25 or fewer FTE employees
  • and average annual wages under $56,000
  • that also pay at least half of their employee health premiums

...may be eligible for the Small Business Health Care Tax Credit.

This is particularly beneficial for eligible nonprofits that obtain their benefits through state health exchanges (e.g., the State of California's Covered CA for Small Business). It's a strategic approach for nonprofits to offer team benefits while managing costs.

Nonprofits also need to adhere to Federal COBRA administration, ERISA notices and disclosures, Section 125 non-discrimination testing, and several others. Given they might not have the luxury of a dedicated benefits administrator, partnering with a knowledgeable broker and using 100% tax-compliant software is a make-or-break.

Nonprofit employee benefits packages, simplified

Like we mentioned, nonprofits offer many of the same employee benefits as any other company. You have to apply them in a different context, though.

Here's a look at the most essential ones and how they fit into a nonprofit benefits program, specifically:

Group health insurance

Most of the time, nonprofits offer employees group health insurance because it's the most practical and cost-efficient way to provide health coverage.

With a group health insurance policy, the employer and employees share the cost. Nonprofit employees can purchase health insurance at a lower cost because the risks are spread across a pool of insured individuals. For the company, it's much cheaper that way.

They also typically come with more extensive coverage options. And you could supplement your group plan with a Health Reimbursement Arrangement (HRA), which adds more value to workers while creating a more competitive benefits package.

Group health insurance also carries appealing tax advantages. Employers can deduct 100% of their contributions to insurance premiums. And employees can make pre-tax contributions to their own health insurance plans, which decreases their taxable income.

Paid time off (PTO)

Although most states don't require you to offer PTO as a benefit, you'll never find top talent (or retain employees) without it.

You wouldn't even be able to compete! Nonprofits offer more PTO 17.5 days of PTO on average, which is more than any other sector of the labor market.

PTO grants employees personal time for:

  • Vacation
  • Sick leave
  • Personal time (appointments, kids' extracurricular activities, etc.)

As a nonprofit, it's in your best interest to extend this to an employee giving program. Offering additional PTO for volunteering and philanthropy activities will reinforce your organization's mission and values. Plus, it'll improve your potential for investment, grants, and donations.

Retirement benefits

As a nonprofit, there are two main types of retirement benefits you might offer: 401(k), 403(b), and SEP plans.

  • 401(k) plans are similar to any other company's retirement plan. Employees can contribute a pre-tax portion of their income towards savings.
  • 403(b) plans are tax-sheltered annuities (TSAs). They're only available for select tax-exempt nonprofits and government agencies. Like 401(k) plans, employees make contributions (through salary deferrals).
  • SEP (Simplified Employee Pension) plans are solely employer-funded. They allow you to contribute to a traditional IRA (SEP-IRA) for your employees.

In the case of both 401(k) and 403(b) plans, employers can match employee contributions.

The primary advantage of a 401(k) plan is its adaptability. Should your organization transition from a 501(c)(3) nonprofit to a for-profit status like a C-Corp or S-Corp, you can maintain a 401(k) throughout the change. This isn't possible with a 403(b), which is specific to certain nonprofit statuses.

403(b) plans stand out for their simplified compliance obligations, as they aren't subject to many of the IRS's annual nondiscrimination tests that apply to 401(k) plans (except safe harbor plans). Certain public sector nonprofit employees, like healthcare workers and librarians, find a 403(b) more suitable than a 401(k) for retirement planning.

Incentives and bonuses

Bonuses and incentives encourage employees to do a great job.

They also gets them to stay. Out of 200,000 employees who partook in a recent survey, 79% cited "lack of appreciation" as a reason for leaving their jobs.

While they're far more common in profit-driven companies, nonprofits can (and should!) use them too.

Here are some examples of bonuses and incentives that work well in a nonprofit setting:

  • Spot bonuses for meeting fundraising goals
  • Rewarding employees for securing new grants or donations
  • Performance-based bonuses tied to achieving organizational milestones or objectives

You might also include non-monetary rewards, like extra PTO days or charitable giving opportunities.

Unique fringe benefits

All the above is what we call "table stakes" for a benefits package. It's in your best interest to offer unique employee benefits that go above and beyond (if you want to retain your best employees, that is).

Depending on the nature of your nonprofit organization, your industry, and what's important to your employees, the exact fringe benefits you offer will vary wildly.

Here are a few of our favorites for nonprofits:

  • Flexible work arrangements, like remote work (if possible), unlimited PTO, and flexible schedules
  • Health and wellness stipends to support your employees' mental and physical health
  • Professional development benefits, such as tuition reimbursement, college grants, scholarships, or conference attendance.
  • Employee referral bonuses to bring more great employees without incurring massive hiring costs.
  • Family stipends to support your employees' childcare, adoption, or eldercare needs.
  • Workplace giving programs, including matching donation contributions.

The great thing about these benefits is how easy they are to set up and low-cost to maintain.

For example, offering a flexible work arrangement only requires you to set up expectations and guidelines for employees. Health and wellness stipends can be as simple as setting an annual budget per employee (usually around $100 to $250 per month, or $1,200 to $3,000 per year).

Plus, these are the benefits that improve your employees' quality of life while reinforcing your organization's values and making it seem like a great place to work.

Do nonprofit employee benefits the easy way with Compt.

Don't spend your limited resources on setting up a complicated benefits program. Offering fringe benefits is effortless using the Compt platform.

  1. Set up your program with eligibility, budget, and approval rules.
  2. Onboard qualifying employees with a few clicks.
  3. Release the benefits through payroll (we integrate with your payroll provider!).
  4. Tax compliance on autopilot!

Request a demo to see how it works.

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