When it comes to nonprofits, processing payroll is one of the most important — yet administratively burdensome — ongoing business tasks. The constantly-changing landscape can prove particularly challenging, and ensuring your organization is compliant at all times is critically important.
Below we take a look at some of the common payroll challenges that nonprofit organizations face, as well as tips that will help improve the nonprofit payroll process and ensure corporate time and resources are being used effectively.
Common Payroll Challenges That Nonprofits Encounter
1. Payroll Errors Due to Manual Processes
For many nonprofit organizations, payroll can be one of the most intimidating employer tasks and one of the biggest operating costs, especially when it’s done manually. There are numerous rules and regulations to be aware of, forms to file, and deductions to withhold, and missed deadlines or mistakes can result in financial penalties, and unhappy employees. Given that manual processing of payroll can lead to more errors, it’s surprising how many organizations still rely on physical timesheets and excel spreadsheets!
Common payroll processing errors include:
- Miscalculating Payroll: If your nonprofit organization is using physical timesheets to calculate payroll, you’re leaving it open to human error. With all the payroll data to track time and attendance, vacation pay, overtime, commissions, etc. it’s inevitable that occasionally mistakes will be made.
- Misclassifying Employees: There’s a lot to remember when it comes to nonprofit payroll processing, even more so when it’s done manually. The classification that each of your employees falls under, for example, impacts payroll processing. In the case of contractors, they are usually responsible for their own payroll deductions and require T4As instead of T4s.
- Missing Payroll Deadlines: As is also the case in other organizations, nonprofit payroll must be processed several days in advance to ensure employees are paid on time and deductions are processed without remittance penalties and late fees. Leave it too late and banks won’t have time to process the deposits, resulting in disgruntled employees who might be relying on timely paychecks to meet critical financial commitments such as mortgage payments.
2. Legislation Can Be Complex
Executive Directors of nonprofit organizations must wear multiple hats from leader, manager, fundraiser, and communicator, to planner, strategist, marketer, and bookkeeper. The list is endless. To be effective as the leader of a nonprofit, the Executive Director must wear each hat equally well. Knowing when to take one-off and hand it over to a professional is an important skill in itself.
Nonprofit payroll is one of the tasks that should be taken off the hands of the Executive Director as soon as possible because, if you’re not a Payroll Compliance Practitioner (PCP), it can be difficult to keep up with payroll legislation.
Some of the common complexities that come with nonprofit payroll legislation that the PCP must know include:
- How much CPP and EI to deduct from the pay checks of full-time employees, as well as how much CPP and EI to contribute as the employer.
- How to calculate vacation pay and when to issue termination pay (which can differ from province to province).
- How and when to file the Record of Employment (ROE) of employees who leave.
- How and when to issue T4s (or T4As for contractors) and handle vacation rollover.
Executive Directors already have so much on their plates that adding payroll when they’re not a PCP can be overwhelming.
3. Allocating Employee Wages to Grants
Applying for and receiving grants to fund specific projects that support the nonprofit’s mission is part and parcel of operating a nonprofit organization. Grants received can be used to cover nonprofit payroll expenses for certain members of staff and their work on projects related to the grant, however, it’s important to properly allocate the wages back to specific grant funds.
For example, if your nonprofit organization obtained a grant for a specific project, and you hired an employee to help complete that project in addition to undertaking some of the organization’s administrative tasks, the employee must track their time and activities performed on the grant project back to the specific grant from which their wages will be paid. Time spent on activities unrelated to the grant project would be paid from an alternative fund.
Time and activity tracking and allocation can get complicated if you have multiple employees working on different projects covered by different grants.
Tips To Improve Your Nonprofit Payroll Processing
1. Use Cloud-Based Payroll Software
Ditch the pen and paper, the calculator, even the spreadsheet! Instead, consider using cloud-based payroll software like QuickBooks Online or Payworks to manage your nonprofit payroll. There are many benefits to cloud-based payroll software, one of the major ones being that there’s one central location for all your employee payroll data.
In addition, cloud-based payroll software usually has direct deposit capabilities and can automatically generate employee T4s and ROEs. Some even have the ability to generate and remit payroll taxes directly to the CRA.
2. Use Time Tracking Software
Time tracking software like TSheets or Harvest means you can also ditch the physical spreadsheets and instead, employees and contractors can track their time and submit it electronically, allowing for easier and more accurate tracking of time worked back to a specific project.
3. Hire a Payroll Compliance Practitioner (PCP) to Manage Your Payroll
Some companies might feel that manual payroll is the only option they can afford and that paying for payroll services (whether an accountant, outsourced contractor or payroll software) is something they just can't afford right now.
However, as mentioned, nonprofit payroll can be complex and there are penalties for missed deadlines. It’s one of the critical functions that should be handled by an expert rather than being added to an Executive Director’s already full plate. Hiring a Payroll Compliance Practitioner (PCP) is a smart move. They will be responsible for some or all of the following:
- Recording employee timesheets
- Performing payroll tax calculations on wages, vacation pay, termination pay, and banked time
- Calculating employer health tax and work-safe (WCB)/WSIB filings
- Withholding employee deductions and making government remittances
- Processing direct deposits or paychecks for hours worked
- Submitting T4s for employee income tax filing
- Issuing ROEs (record of employment) for exiting employees
- Preparing bookkeeping entries
4. Outsource Your Payroll
In some cases, hiring a full-time PCP may not make financial sense for your organization. That’s when outsourcing your nonprofit payroll to a service provider like Enkel might make more sense. Not only will you get access to PCPs and experienced payroll professionals who are well-versed in compliance and upcoming legislative changes, but it won’t add to your team headcount, eliminating the need to deal with payroll personnel turnover, training, or vacation coverage.
In addition, we can scale with you quickly and easily to meet your growing organization's needs. Outsourcing payroll to a professional organization like Enkel also reduces the risk of payroll fraud, offering great peace of mind to busy Executive Directors!
Payroll is one of those functions in a nonprofit organization or any organization in fact that you can’t afford to get wrong. Payroll legislation can be complex and to ensure compliance a Payroll Compliance Practitioner should be managing payroll, rather than the nonprofit organization’s Executive Director.
If managing payroll is something you’re looking to outsource, Enkel’s experienced payroll team can work with you to streamline and automate this otherwise burdensome task. We combine the best in payroll technology with our experienced team to ensure timely, accurate payroll processing for our clients.
Learn more about our payroll services.