There is not a business in this world that hasn't, at some point, sat down to do payroll and thought, "Wait…hang on…this has to be a really different situation. How does any business handle this specific situation?" This certainly applies to nonprofit payroll needs.
Every business has different payroll and accounting needs, but those needs are particularly impactful for nonprofits. The legal requirements and nature of nonprofit organizations force these groups to meet a series of genuinely unique circumstances that do not occur in the for-profit world.
Fortunately, with the proper understanding of these needs and the right tools to meet these accounting and payroll challenges, any Canadian nonprofit can efficiently and effectively handle its payroll needs. As such, let's look at some of the specific payroll challenges that nonprofit organizations face, as well as how customized payroll services for nonprofits can help you meet these issues.
Managing Complex Payroll Structures
For-profit and nonprofit businesses have employees who must be fairly and accurately compensated for their work. However, that is roughly where the similarities end, as many nonprofits have much more complex structures than their for-profit counterparts.
The source of this complexity is multifaceted. First, in many cases, nonprofits deal with an extensive array of volunteers who engage in many of the same activities as paid staff. While there should be a clear line of demarcation that separates what staff and volunteers do, these roles can get co-mingled, leading to questions of, "Who really did what, and how long did they do it for?" The answers to these questions can have payroll implications.
Second, many nonprofits also pay contractors to complete projects. The structure of these contractors' payments can vary, meaning that your payroll or accounting department has to track when they need to make payments, how much they need to pay, and if the workers in question have appropriately completed their assignments. These complexities can be a major source of confusion when paying staff and contractors. As a result, nonprofits need a system that can successfully navigate all of these issues.
Nonprofits often have to segregate funds for explicit uses. The need for this segregation can vary depending on the work done or the nature of the nonprofit. Sometimes, donors will make sizable donations and request that the funds be used for specific projects. As a result, good accounting practices require that the funds not be co-mingled with the general funds of the nonprofit in question. Other times, government funds are made available per project, meaning these funds must be held separately.
This segregation can lead to major confusion in payroll. If an employee works 30% of their time on a segregated project, you will need to "bill" 30% of their payroll. However, nonprofits also need to keep extensive records of this billing and be able to justify any expense.
Again, the technology your nonprofit uses is crucial: You must be able to appropriately bill and segregate funds, track the payments, and justify the cost.
Compliance with Accounting Standards
Every nonprofit must adhere to the strictest ethical and legal standards for accounting. Canadian law is very clear about what is expected of nonprofits. It lists the various forms, reports, and data that must be submitted to the government to maintain nonprofit status.
To that end, a simple Excel spreadsheet that shows who you paid and what you paid often isn't enough. You will require payroll services that:
- Fill in data and reports that meet Canadian reporting requirements, show how much you paid, and satisfy the demands of any collective bargaining requirements.
- Assist with onboarding or termination of an employee.
- Ensure all appropriate record keeping for any future legal or unemployment concerns.
- Give your employees the information they need to file their taxes.
- By maintaining accurate records now, you can save yourself from a world of hurt at a later date.
Integration With Donor Management System
Donor management systems have vastly improved the efficiency of every nonprofit, allowing organizations like yours to track donors, record contacts, maintain key contacts, and display highly useful analytics that will ensure that the potential impact of all donors is being maximized.
However, donor management systems also can be deeply confusing and potentially create silos between the income and expense side of your organization. This begs the question: How does your donor management system integrate with your nonprofit's payroll and accounting components? Is such an integration occurring?
When done right, donor management systems should integrate with payroll and accounting systems. This cloud-based integration will allow you to generate more accurate reports, show the connection between donations and expenses, ensure the accuracy of both data sets, and reduce the potential for errors.
Customized Reporting for Transparency and Accountability
Every major donor and government agency will likely demand transparency, requesting accurate financial statements that show how much money your organization raised and where you spent that money. While expectations within the nonprofit world vary, major donors may want even more detailed information. Furthermore, different nonprofits will have to file different reports with the Canadian government, showing exactly what they did with the funds they raised.
Each nonprofit organization has different needs when it comes to transparency and accountability. Your organization requires a system that can create customized reporting, demonstrate transparency, and show your donors and the government that you are holding your organization accountable to the highest ethical and legal standards. You will need this system to take your back-end data and generate reports based on specific requests. Your reporting systems must be speedy, accurate, and highly flexible.
Meeting the specific needs of a nonprofit payroll can be challenging.
At Enkel, we're here to help. Our mission is to disrupt the standard accounting and payroll services nonprofits contract with, allowing you to seamlessly integrate your broader operations with your payroll needs. We offer payroll services for nonprofits that can help meet regulatory compliance standards and tax reporting requirements while ensuring your team gets paid by their contract.