Q- Our volunteers regularly go above and beyond. Can we give them a stipend to say thank you for their services to our organization?
A - Volunteers are the lifeblood for so many nonprofits. It is natural to want to recognize their service to your organization with a cash gift or stipend. However, before a nonprofit makes any payments to its volunteers, it is important to understand the potential legal issues this can raise. These issues include state and federal wage and hour law liability, tax liability as well as impacts to volunteer liability protections.
Volunteer vs. Employees
“The line between employee and volunteer status is often a thin one.[1]”
When giving stipends, nonprofits must be careful not to inadvertently create the expectation that their volunteers are being paid for their services. If the volunteers expect payment, the nonprofit risks changing the relationship from “volunteer” to “employee” by operation of the law. Employees expect to be paid. Volunteers do not.
Why does this matter?
Employees are entitled to minimum wage, employment benefits, protections and rights under state and federal law. If volunteers are considered employees by law, the organization would become liable for minimum wage payments, overtime, and other statutory employment benefits.
But we know that other nonprofits pay their volunteers stipends all the time.
Federal and state agencies do allow for the payment of a “nominal fee” to volunteers as long as it is not a substitute for compensation and is not tied to productivity. The agencies presume the payment is nominal if the amount paid to the volunteer is under $500 or does not exceed 20% of what it would cost to hire a full-time employee to perform the same tasks.
If your nonprofit decides to pay its volunteers a stipend, please keep the following in mind:
1. The federal Volunteer Protection Act (a federal law which offers limited liability for certain torts for individuals volunteering for nonprofits) applies to paid volunteers up to a $500 cap.
2. Massachusetts passed a law in 2024 that allows nonprofits to pay volunteer board members up to $500 for serving on a nonprofit board without losing the personal civil liability protections afforded by Massachusetts General Law Chapter 231, Section 85W.
What about taxes?
There are also potential tax consequences to keep in mind. Volunteer recognition gifts such as t-shirts, mugs, and small holiday gifts (a/k/a “de minimus benefits”) are not taxed. Cash gifts including gift cards are taxable as income. Volunteers who receive stipends must be treated the same as paid staff, and payroll tax contributions (FICA) must be withheld from their pay. Finally, any payments made to volunteers greater than $600 need to be reported on the IRS Form 990.
We hope this article is helpful to you. We recommend that nonprofits who decide to pay their volunteers a stipend consult with their tax professionals and our attorneys at Elizabeth Reinhardt & Associates before doing so.
[1]MA Department of Labor Standards Opinion Letter MW-2002-021 “Applicability of M.G.L. c. 151 to Volunteer Work” (August 9, 2002).