How Do Charities Pay Employees?
Charities are exempt from many of the tax laws that regular business owners have to pay as a reward for the services they provide for the community. Because they are nonprofit organizations, many people believe that they don't make any profit, and that their employees are all volunteers. This isn't the case. Charities do make money, and they use a portion of this money to pay the salaries and benefits of their workers. Some charities are staffed with volunteers, but most have at least one paid employee.
Charities, also called foundations, usually have large sums of money that they use to fund various nonprofit organizations in their community. The government mandates that to keep their tax exempt status, they must donate at least 5 percent of their assets to the community. If the charity has a particularly good fund-raising year, this simply increases their assets, but the same 5 percent rule applies. Because of this, charities have 95 percent of their assets remaining to pay employees. Depending on the type of charity, payment to staff can be a part of this 5 percent.
It is a myth that charities do not keep any of the money they spend. Like a regular business, they must pay employee salaries and benefits, electric bills and building costs and purchase office supplies like computers. This means that a portion of your donation may go to helping defray the cost of employee salaries, but this is not necessarily the case. Some organizations have capital campaigns to raise money for operating costs, or they hold specific fund-raising events for their business expenses.
Charity volunteers get paid, too, in a way. Donations of time or services are known as in-kind donations and have a reportable cash value. In-kind donations can often serve as tax deductions. Laws governing how charities work differ from state to state. Volunteer time is very valuable and can be factored into an agency's fund-raising. Most charities invest the bulk of their money so that whatever percentage they pay out in salaries, business costs and charitable donations is recovered. This keeps the foundation from running out of money and provides stability for its employees.
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