Yes, You Can Work for a Nonprofit and Make Good Money

Updated: Dec 1, 2020

Unlike businesses that can use profits to increase individual earnings, nonprofits must use their profits to carry out their charitable mission - hence the name "nonprofit."

While this does mean that nonprofits should gear most of their funds towards mission-related programs, it does not mean that executives and staff cannot be compensated well.

From overtime hours required to plan fundraising events to the emotional impact of solving critical community issues, nonprofit employees work hard. Burnout is not uncommon within this sector. For these reasons, not only do nonprofit executives and staff deserve to be compensated well for the complex operations they manage, they are legally allowed to receive reasonable and competitive salaries, earn bonuses, and accept other financial rewards.


Before we take a look at how to properly determine executive compensation, let's first look at an example of an executive who was compensated improperly.

According to a 2020 fraud investigation, the National Rifle Association allegedly tripled the Chief of Staff's salary in less than three years. This rapid salary increase presented red flags to the IRS that the organization might have used public funds for insider benefits. If the investigation concludes the excess compensation was fraudulent, the organization could be penalized with an excise tax and could even lose its tax-exempt status.

To avoid excess compensation mishaps, nonprofits should determine reasonable and competitive salaries for Chief Executive Officers, Chief Financial Officers and other executives using these processes listed in the Governance, Management and Disclosure section of Form 990, Return of Organization Exempt from Income Tax:

  • Review and approval by independent persons

  • Comparability data

  • Contemporaneous substantiation of the deliberation and decision

For best practices, nonprofits should also implement the processes listed in Form 990, Schedule J, especially for employees with a base compensation greater $150,000:

  • Form a Compensation Committee

  • Hire an Independent Compensation Consultant

  • Compare Form 990 of other organizations

  • Create a written employment contract

  • Utilize a compensation survey or study

  • Require the approval by the board or compensation committee


Nonprofit officers and employees can also receive bonus compensation so long as the bonus is reasonable and in furtherance of the organization's exempt purpose. The IRS provided a 12 factor test in its training materials to guide nonprofit determination of bonus compensation. The Association of Corporate Counsel summed up the 12 factors as follows:

"A 501(c) can award bonus compensation if the employee's total compensation package:

Nonprofits that provide bonus compensation should comply with this list to prevent loss of funding or exempt status. Take the Florida Coalition Against Domestic Violence (FCADV) for example. In 2020, FCADV lost several funding sources because of excess bonus compensation paid to their CEO. In addition to unreasonable yearly bonuses, the CEO received almost $5 million in paid time off. The media and public believed those funds could have been better used to serve domestic violence victims.

Note, although certain incentive-based bonuses are allowed, they are heavily scrutinized by the IRS. Any incentive based bonus should be disclosed on Form 990 with an explanation of why the bonus is reasonable and how it furthers the organization's exempt purpose.


Nonprofit executives and employees should receive retirement, health and other reasonable employee benefits. It is common and acceptable for executives to receive a more favorable retirement plan than staff due to experience, qualifications and workload. For instance, larger nonprofits tend to offer top executives the 457(f) retirement plan and provide staff with the 403(b) retirement plan.

One of the most important benefits to provide to all employees is health insurance. The Affordable Care Act made adjustments to employer-paid health insurance to which all nonprofits must comply. Health insurance benefits are important to retain employees as well as sustain their cost of living.


To prevent turnover, adequately funded nonprofits should pay staff a reasonable and competitive salary. Many states nonprofit associations have salary guides nonprofit leaders can use to determine a reasonable and competitive salary for staff. Nonprofit leaders should keep in mind that the organization benefits when it retains top talent, and if it is within the budget, they should pay staff a salary that can compete with for-profit counterparts.

Some nonprofit compensation policies tie executive compensation to staff compensation for accountability. For instance, an accountable compensation policy might state that the Executive Director's salary cannot be more than 5 times greater than that of the lowest paid staff.

Having said that, employees seeking a position within a nonprofit should keep in mind that most nonprofits receive funds via public support, and thus have limited budgets. Even nonprofits with robust funding often have restricted assets that limit the amount of funds they can allocate to compensation. For this reason, nonprofit staff are often willing to sacrifice pay for meaningful work. According to, some nonprofit employees are willing to take a pay cut as high as 17.8%.

The IRS has strict rules around nonprofit compensation to prevent private benefit and private inurement. When funds are not used for private benefit, resources are directed towards mission-related activities that can critically transform and uplift our communities. When nonprofits pay executives and staff a reasonable salary that is not excessive, they display a dignified use of funds and value for their employees.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. This information is not endorsed by eBay. You should consult your own tax, legal and accounting advisers before engaging in any transaction.

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