Financial Management

Jay Wilkinson, Firespring

No doubt you’ve heard about this, and like many good nonprofit leaders, have done your best to refute it.

It’s dubbed a myth for good reason. Yet most nonprofits feel pressured to do as much as possible with as little as possible when it comes to running their organization. The Overhead Myth still exists, and donors still scrutinize nonprofits, wondering what percentage of their gift actually goes toward the “cause.” As if dollars that support infrastructure don’t also support the mission.

Independent Contractor or Employee? - For federal tax purposes, there is an important distinction between employee and independent contractor. Worker classification affects how you pay your federal income tax, social security and Medicare taxes, and how you file your tax return. Classification affects your eligibility for social security and Medicare benefits, employer provided benefits and your tax responsibilities. If you aren’t sure of your work status, this brochure can help you determine it.

The federal overtime provisions are contained in the Fair Labor Standards Act (FLSA). Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. The Act does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime is worked on such days.

The OMB Uniform Guidance establishes important rights for nonprofits: "Governments at all levels – local, state, and federal – that hire nonprofits to deliver services are now required to reimburse nonprofits for the reasonable indirect costs (sometimes called “overhead” or “administrative” costs) they incur on behalf of governments when federal dollars are part of the funding stream. The new mandate is embedded in grantmaking rules that the federal Office of Management and Budget (OMB) put into effect at the end of 2014.

Under current law, charitable nonprofits in North Carolina pay sales and use tax on their purchases and can apply for semi-annual refunds of the taxes they pay. A system of sales tax exemption would save nonprofits time and reduce administrative burdens. Bipartisan bills in both the House (H.B. 882) and Senate (S.397) would replace the nonprofit sales tax refund system with sales tax exemption for most 501(c)(3) nonprofits.

This guide offers clarification on how the FLSA generally, and the white collar exemptions specifically, apply to the nonprofit sector. (U.S. Department of Labor)

See also: Breaking down your nonprofit's obligation to pay overtime by National Council of Nonprofits

A sample audit committee description, which includes the purpose and primary responsibilities of its members.

IRS Publication 526, Charitable Contributions - To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Like families, organizations need financial nest eggs for different purposes. One of the main purposes is an operating reserve — sometimes called an operating contingency fund. They are a first line of defense against financial uncertainties ranging from uneven cash flow to cutbacks from major funders. 

© North Carolina Center for Nonprofit Organizations, Inc. From Common Ground, a publication of the North Carolina Center for Nonprofits, www.ncnonprofits.org.