Q: Can I compensate my charitable organization volunteers with a stipend? How Much and How?
A: Yes! But first make sure you follow the Labor Laws of your state.
The factors used by the Massachusetts Division of Occupational Safety (MDOS) generally follow federal law to determine if someone working with a charitable, educational or religious institution can be legally 'unpaid'. These are the factors:
1. The internship is similar to the training which would be given in a educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under the close supervision of the existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.
Q: Can I pay my volunteers a stipend?
You may have heard of people compensating unpaid interns a stipend for work, meals, and expenses. You can do this BUT obviously that is somewhat of a mixed message of (paid / unpaid) so you have to be careful here. It could be considered a "nominal fee" under department of labor rules.
Subsection a of 29 CFR 553.106 states that Volunteers may be paid expenses, reasonable benefits, a nominal fee, or any combination thereof, for their service without losing their status as volunteers.
So what is a nominal fee?
FLSA Opinion Letter 2005-51 make it clear that :
“…a willingness to volunteer for an activity for 20% of the prevailing wage for the job is a likely indicium of the spirit of volunteerism and concurrently that 20% of prevailing wages for similar services is appropriate in dividing between a permissible nominal fee and an impermissible payment.
This 20% figure assumes the following:
• The person is freely volunteering his/her time to the organization;
• The lump sum payment or series of payments is being made without regards to any level of productivity or not tied to any sort of incentive plan. [E.g., payment of an hourly rate or piece rate is suspect.]
What are deductible expenses and are they included in the nominal fee?
The only expenses that will not be considered a part of the nominal fee are those expenses incurred in the ordinary and necessary nature of the organization's business.
Can the employer pay personal expenses?
Yes, but they are included in the 20% nominal fee consideration. Also, reimbursement adds another level of complexity so this practice should be avoided.
Are the nominal fees taxable income to the employee?