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 a full understanding of the uniqueness of non-profit payroll and the right tools to meet these accounting and payroll challenges, any Canadian nonprofit can efficiently and effectively handle its payroll. Let's look at some payroll challenges nonprofit organizations face and how customized payroll services for non-profits can help your organization 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, the similarities end here, as many nonprofits have much more complex structures than for-profit businesses.
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. Payroll systems designed for nonprofits should include modules to log volunteer hours. This helps recognize volunteer contributions and can be useful for grant applications and reporting requirements where volunteer hours must be quantified.
Non-profits often have a mix of paid staff, volunteers, and sometimes contract or part-time workers. Managing a diverse workforce requires a payroll system that can differentiate between these groups, particularly in documenting and managing volunteer hours and reimbursing out-of-pocket expenses without affecting tax status. The structure of these contractors' payments can vary, meaning that the 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 these requirements.
In addition, nonprofits must adhere to the Canada Revenue Agency (CRA) regulations, which include deducting Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and withholding income tax from employee pay. Compliance becomes more complex if the organization operates across different provinces, as each province has additional labour and employment standards requirements.
Segregating Funds
Nonprofits often have to segregate funds for specific 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 nonprofit's general funds. 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. Salaries and wages in non-profits are often funded through grants that require strict accounting and reporting. Payroll systems must be able to track and report payroll expenses accurately against specific grants or projects, ensuring compliance with funding stipulations. 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 a nonprofit uses is crucial: it 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 strict ethical and legal standards for accounting. Canadian law is 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. As a registered charity, the nonprofit has additional reporting requirements to maintain its charitable status in Canada. This includes keeping detailed records of all compensation and ensuring that no part of the charity's revenues are payable to, or otherwise available for the personal benefit of, any proprietor, member, shareholder, trustee, or settlor.
To this end, a simple Excel spreadsheet that often shows who the organization paid and what it paid isn't enough. It 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 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 an organization. This begs the question: How does a donor management system integrate with a nonprofit's payroll and accounting components?
Donor management systems should integrate with payroll and accounting systems. This cloud-based integration allows for more accurate reports, shows the connection between donations and expenses, ensures the accuracy of both data sets, and reduces the potential for errors.
Customized Reporting for Transparency and Accountability
Every major donor and funding agency will demand transparency, requesting accurate financial statements that show how much money an organization raised and where it spent that money. 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. Nonprofits require a system that can create customized reporting, demonstrate transparency, and show donors and the government that the organization is accountable and maintains the highest ethical and legal standards. Organizations will need this system to take back-end data and generate reports based on specific requests. Reporting systems must be speedy, accurate, and highly flexible.
Final Thoughts
Meeting the specific needs of a nonprofit payroll can be challenging. 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.
Ready to learn more? Check out our payroll services, or contact us today.
