Can Nonprofits Have Employees and Volunteers? What Founders Need to Know

Starting a nonprofit means wearing a lot of hats. At some point, you'll need help, and you'll face a practical question: Can you bring on paid staff? Can you rely on volunteers? And what's the difference, really?

The good news is that nonprofits can absolutely have both employees and volunteers. In fact, most growing nonprofits rely on a mix of the two. But how you classify, compensate, and manage each group matters. Getting it wrong can create legal and tax problems you don't want to deal with.

This guide breaks it down in plain language so you can make confident decisions for your organization. If you want to make sure you're building on a solid compliance foundation, the Nonprofit Compliance Checklist: What Every Founder Needs to Know is a great place to start.

Can Nonprofits Have Employees and Volunteers?

Quick Answer

Yes. Nonprofits can legally hire paid employees and engage volunteers at the same time. Employees receive wages and are subject to payroll taxes and labor laws, just like at any other organization. Volunteers contribute their time without compensation. The IRS and federal labor law treat these two groups very differently, so proper classification from the start protects your organization and the people who support it.

The Difference Between Employees and Volunteers

This sounds simple, but the line can blur fast, especially in small or early-stage nonprofits where people wear many hats and relationships are personal.

An employee works for your organization under your direction, on a regular basis, in exchange for pay. A volunteer freely gives their time to support your mission without receiving compensation in return. That distinction, pay versus no pay, is the most important factor the IRS and the U.S. Department of Labor use to classify workers.

Why does it matter? Because employees are covered by federal and state labor laws. That means minimum wage requirements, overtime rules, payroll tax obligations, and workplace protections all apply. Volunteers are generally not covered by those same rules, but that doesn't mean there are no guidelines at all.

What Makes Someone an Employee?

If someone performs services for your nonprofit and you pay them for that work, they are almost certainly an employee in the eyes of the law. This is true even if you call them a contractor, a stipend recipient, or anything else.

The IRS uses a set of factors to determine worker classification. These include how much control your organization has over how and when the work is done, whether the worker uses their own tools and sets their own hours, and whether the relationship is ongoing. You can review the full framework in the IRS guidelines on worker classification.

If a worker is classified as an employee, your nonprofit must:

• Withhold federal income tax, Social Security, and Medicare from their paychecks
• Pay the employer's share of Social Security and Medicare taxes
• File quarterly payroll tax returns with the IRS
• Follow applicable state payroll and labor laws
• Issue a W-2 form at the end of each year

Misclassifying an employee as an independent contractor or volunteer is one of the more common and costly mistakes nonprofits make. If the IRS audits your organization and finds misclassification, you could owe back taxes, penalties, and interest.

What Makes Someone a Volunteer?

A volunteer is someone who gives their time freely, without receiving wages or a salary, because they believe in your mission. The Fair Labor Standards Act (FLSA) recognizes that volunteers play a unique role in nonprofit and community organizations and generally does not require nonprofits to pay volunteers minimum wage as long as the arrangement is truly voluntary.

There are a few important rules to keep in mind:

Volunteers cannot replace paid employees. If someone is doing work that a paid staff member normally handles, regularly and under your direction, they may need to be classified as an employee regardless of what you call them.

You can offer modest benefits without creating an employment relationship. Things like meals during a shift, a small gift card at the end of a project, or reimbursement for out-of-pocket expenses are generally fine. However, if the compensation starts to look like a regular wage, the IRS may reclassify the person as an employee.

Volunteer agreements are a good practice. While not legally required in most cases, having a written volunteer agreement helps set expectations, documents the nature of the relationship, and can protect your organization if a question arises later. The National Council of Nonprofits offers useful guidance on volunteer management best practices.

Paying Employees at a Nonprofit: What the IRS Expects

One of the most common myths about nonprofits is that employees can't be paid, or that salaries must be kept extremely low. Neither is true. Nonprofits can and should pay fair, competitive salaries to attract and retain qualified staff.

What the IRS does require is that compensation be "reasonable." That means pay should reflect what similar organizations pay for similar work. If compensation looks excessive compared to the market, the IRS may view it as private inurement, which is a direct threat to your tax-exempt status.

For a deeper look at how this works, Nonprofit Executive Compensation: What the IRS Expects walks through the standards in detail. If you're a founder wondering whether you can pay yourself, Can a Nonprofit Founder Be Paid? answers that question directly.

To set reasonable compensation, many nonprofits conduct salary surveys, review IRS Form 990 data from similar organizations, and document their decision-making process. Boards should approve executive salaries formally and keep records of that approval.

Can You Pay Volunteers? Sort Of.

Paying volunteers is a contradiction in terms, but there are gray areas worth knowing about.

Stipends are small, flat payments that some nonprofits offer to volunteers, particularly in programs like AmeriCorps. A stipend is not meant to be a wage. It's meant to help cover basic costs so that financial need doesn't prevent someone from participating. However, if a stipend starts to look like regular pay for regular work, the IRS and Department of Labor may view the person as an employee.

Expense reimbursements are generally fine. If a volunteer drives to a community event and you reimburse them for gas, that's not income. If you cover their travel, meals, or supplies for mission-related work, that's also typically acceptable. Just keep records.

Interns and student volunteers are a common situation for nonprofits. Unpaid internships are legal under specific conditions, mainly that the experience is educational and primarily benefits the intern rather than the organization. The Department of Labor outlines these criteria clearly in its guidance on internships.

Staying Compliant: What You Need to Track

Whether you're managing employees, volunteers, or both, keeping clear records protects your organization. Here's a practical overview of what to stay on top of:

For employees, make sure you have:

• Signed offer letters and job descriptions
• I-9 employment eligibility verification forms
• W-4 withholding forms
• Payroll records and quarterly tax filings
• Documentation of board-approved salaries for executives

For volunteers, maintain:

• Signed volunteer agreements
• Logs of hours and activities
• Records of any reimbursements or stipends provided
• Background check records where applicable

Understanding the broader legal landscape for your nonprofit is also important. Laws for Nonprofit Organizations: What You Need to Know covers key federal and state requirements that affect how nonprofits operate day to day.

Good documentation also supports your nonprofit management practices and makes annual reporting, including your Form 990, much easier to complete accurately.

Final Thoughts

Running a nonprofit with paid staff and dedicated volunteers is completely normal, and it's one of the things that makes the nonprofit model so powerful. You can build a team that's driven by both purpose and professionalism.

The key is knowing the difference between employees and volunteers, paying people fairly and legally, and keeping the records that show you're doing things right. When you get the classification right from the start, you protect your staff, your volunteers, and your mission.

If you're still building the foundation for your organization, How to Form a Nonprofit Organization in 8 Steps is a practical guide to help you move forward with confidence.

Beacon is here to help you build something that lasts.