How Do Nonprofit Organizations Pay Their Employees?

06.05.2025

The term “nonprofit organization” is a misnomer of sorts. It implies that these types of organizations earn no revenue since they don’t rely on commercial sales, leaving their employees with empty pockets.

However, nonprofit organizations (NPOs) are no different from traditional brick-and-mortar retailers or multinational corporations because they, too, must cover overhead costs and compensate their employees.

NPOs wield budgets to foot the bill for day-to-day operational costs or to execute expansion projects. They also manage payroll to ensure their employees collect the base wages, employee benefits, and even stock options they’re entitled to. And you won’t find a single NPO that lacks a human resources (HR) department—they, too, are responsible for hiring, training, and retaining talent.

Where nonprofits differ from their “for-profit” counterparts is how they earn revenue. Since NPOs don’t rely on commercial sales as their primary revenue source, they must obtain funds from different sources. These organizations use alternative methods to pay employees, carry out compensation practices, comply with legal requirements, and meet transparency expectations.

Yes, Nonprofit Employees Are Paid Employees

Nonprofit doesn’t mean pro bono (working for free). Whether it’s the likes of UNICEF or the World Wildlife Fund, employees at NPOs command salaries and benefits for their given positions and duties. Nonprofits abide by the laws of the land regarding matters of fair compensation (i.e., minimum wage, overtime pay). They are subject to the same quality indexes as for-profit organizations for professional development and workplace culture. And like commercial companies, the roles offered at NPOs include part-time and full-time positions, offering different pay grades, opportunities for advancement, and more.

Types of Paid Roles at Nonprofit Organizations

Program Staff—Social workers, case managers, and educators are all program staff whose job is to provide the foundational services and programs the organization offers.
Fundraisers and Development Staffers—Anyone bearing the title Development Director, Grant Writer, or Donor Relations Manager, for example, is considered a fundraiser or development staffer, responsible for obtaining funding and maintaining donor relationships.
Leadership and Executive Roles—C-level positions such as CEO, CFO, CCO, and others are categorized as leadership roles. These roles involve overseeing the nonprofit organization’s strategy, financial, and creative efforts.
Administrative and Operations Staff—Administrative Assistants, HR managers, IT Specialists, and Office Managers keep the organization running smoothly and problem-free.

The salary for these roles, like those found in for-profit organizations, varies based on the conditions surrounding the position. They include:

Organization Size and Budget—As you’d expect, larger nonprofit organizations in terms of size and budget can offer employees higher salaries compared to smaller ones. In other words, the difference between a $200,000 Executive Director job and a $70,000 one could boil down to the nonprofit's size.
Mission and Program Focus—Fields such as healthcare and education require nonprofit employees to possess particular skillsets that may take years of training to develop, which may result in higher salaries. Nonprofit roles in art or community-focused niches may provide more moderate earnings.
Geographical Location—The general rule that bigger markets equal more earnings applies to nonprofits as well—urban, metropolitan locales, for example, tend to pay bigger payouts than remote or rural regions.
Funding Profile—NPOs that secure funds from various sources (i.e., grants, donations) simply have more money to work with, and can therefore pay higher wages to their workforce. The opposite is also true—reliance on a singular or limited source of revenue may diminish what employers can pay and what employees can earn.

Where the Money Comes From

The sources from which NPOs can raise funds are as numerous as the revenue streams available to for-profit companies. Each has its characteristics and caveats, and choosing one over another depends on the organization’s current financial standing, mission, and brand.

Donations

Individual Donors—For many nonprofits, donations from individuals in one-time gifts, annual appeals, or special campaigns serve as the lifeblood of their funding. They can come from modest, grassroots donors or affluent entities known for philanthropic contributions.
Major Gifts—People with significant profiles or celebrity status, such as entertainers, entrepreneurs, and political figures, may donate large sums of money, often as one-time contributions that can underwrite whole initiatives. High-profile examples include Michael Bloomberg donating $1 billion to Johns Hopkins University or Oprah raising over $80 million to support schools, women’s shelters, and Habitat for Humanity.
Recurring Giving—Some donations come from parties willing to provide funds at regular intervals, such as monthly, quarterly, or biannually. This gives the recipient a predictable income stream and allows them to manage their payroll and operational budgets better. Although not as common as one-time donations, recurring contributions are becoming more prevalent.

Grants

Foundation Grants—Many NPOs receive grants from private or community foundations, either on a restricted basis (intended to fund specific projects) or an unrestricted basis (can be used for any number of business functions). Operating grants allow nonprofit organizations to remain agile and deploy funds for payroll, rental fees, and other costs.
Government Grants—Nonprofit organizations can also acquire government grants from local, provincial, or federal entities to fund certain initiatives and engagements. In many cases, an NPO can use an allotted amount of a particular government grant to pay staff, especially when labor is vital to rendering services.
Corporate Grants—Sometimes, grants come from the business world, especially from enterprises that operate corporate social responsibility (CSR) programs. Corporations usually disperse grants to nonprofit organizations with similar values and vetted interests in causes.

Earned Income

Program Fees—Nonprofits aren’t restricted to grants and donations; they can create and provide services to generate revenue. Educational workshops, counselling, tutoring—the list of potential services is numerous, and nonprofits use them to cover staff salaries, among other costs.
Product Sales—Many people are surprised to learn that nonprofit organizations can (and do) sell products to generate revenue. These may include merchandise, publications, edible goods, and more to fund payroll and operating expenses.
Consultation and Contract Services—NPOs in some fields may offer unique expertise that lends itself to consulting or contract services, which government agencies, organizations, or corporations may need. Of course, these services come at a cost, and nonprofits use their earnings to fund their business costs.

Other Funding Methods

Membership Dues—NPOs that belong to certain groups can also collect funds dispersed among members from shared dues. This includes trade associations, professional societies, and even art foundations.
Sponsorships—Businesses can provide sponsorships to nonprofit organizations to fund special events, exhibitions, and programs, as well as payroll and operational expenses. Sponsorships are especially common among arts and cultural organizations.

How Salaries Are Set in the Nonprofit Sector

Understanding how NPO employees get paid is a two-part question. The first deals with how nonprofit organizations acquire funds, which we explained above.

The second part deals with how they establish salaries. They use similar metrics and benchmarks corporations use to determine employee compensation (with minor variations).

Market Standards

Just like your traditional salaried role at a for-profit company, employers at NPOs heavily determine salaries based on the market landscape. For starters, that means looking at the typical compensation range for a given position at various nonprofit organizations, which is crucial because competitive salaries also matter in this space. They also consider standard hierarchies, ensuring that positions requiring more in-depth expertise (i.e., executive directors, finance managers) receive earnings that suit their talents and the role's demands.

Tools for Assessing Comparable Salaries

To cover their bases, most nonprofit organizations will use a set of tools to solidify their payoff decisions. These tools include a mix of industry publications, websites, and other guides to help them set annual salary ranges. They include the likes:

GuideStar—Details the Nonprofit Compensation Report, which contains industry standards derived from data obtained in IRS Form 990 filings to establish nonprofit salaries.
Glassdoor—A popular website listing crowd-sourced salary information for all organizations, including nonprofits.
Annual Salary Surveys and Professional Associations—NPOs can also obtain salary insights from industry and regional surveys that supply detailed information about appropriate compensation.

Leadership Compensation Scrutiny and Reasonableness

Compensation for leadership roles takes on a greater resonance at a nonprofit organization. The salaries for these positions within an NPO must match the pay grade of said position in other organizations, to remain competitive and ethical, but of course, without being excessive. To do so, board members must review and record procedures for establishing executive salaries, typically relying on particular compensation studies and comparison data to rationalize their choices.

Payroll Sustainability and Mission Alignment

When deciding employee compensation, nonprofit organizations must demonstrate how their payroll is sustainable and supports their mission. The organization’s compensation procedures should align with its values and long-term financial health. That entails a combination of competitive salaries and ethical and responsible allocation of donor funds so employee pay doesn’t undermine the organization’s initiatives.

Salary Bands and Equity-Focused Pay Structures

Many nonprofits rely on salary bands or pay grades to create equitable and transparent compensation. These arrangements can standardize pay for comparable roles and limit disparities created by negotiations or biases. Many NPOs are implementing equity-focused structures to narrow pay gaps and foster fair treatment for all staff members.

Cost-of-Living Considerations

There’s also the matter of cost-of-living. This is highly dependent on geographical location, and it’s a key deciding factor to help NPOs determine the salary for a given role.
Nonprofits operating in high-cost, metropolitan markets should offer higher salaries than those in more rural or suburban settings, where living costs are lower.

Also, with the advent of the WFH movement spurred on by the COVID-19 pandemic, nonprofits must consider remote nonprofit workers, including their location and working conditions.

Premiums for Fundraising, Finance, and Tech Roles

Some roles, most notably those in the fundraising, finance, and tech spaces, typically command a higher pay grade due to the increased demand yet limited supply of such talent. For instance, CFOs and tech specialists at nonprofit organizations earn significantly more due to scarcity. The same rings true for fundraising professionals whose tasks directly influence a nonprofit's revenue, making them more well-compensated.

Legal and Ethical Considerations in Nonprofit Compensation

Nonprofit organizations are subject to various legal and ethical considerations when establishing salaries. These “codes,” if you will, create standards that ensure nonprofit employees receive not only the compensation to which they’re entitled but also in a manner that honors their rights.

IRS Requires Reasonable Compensation

Nonprofit employees must receive reasonable compensation. The term “reasonable” means that their salary should mirror what would be given to identical roles at identical companies under similar circumstances. If the wages are excessive, the CRA may administer excise payroll taxes on employees and managers who knowingly approved the inflated salary, and can even remove the nonprofit's tax-exemption status. That’s why its crucial for board members to use comparability metrics such as those provided by salary surveys and IRS Form 990 forms from peer organizations to provide a rationale for a given salary.

Executive Compensation Must Be Reported on IRS Form 990

NPOs must publicly disclose the salary ranges of their highest-ranked executives, employees, and paid staff members on the IRS Form 990, which the public can access. This data should also include salary, benefits, and compensation details reports. Reviewing these datasets is essential to helping nonprofits determine employee compensation while maintaining transparency.

Boards Are Responsible for Approving Top Salaries

An NPO's board of directors, or conversely, a compensation committee, is responsible for signing off on executive compensation packages to guarantee that they’re fair, reasonable, and ultimately compliant with laws and ethics.

Some Funders Limit Grant Dollars Used for Salary

Some funders, most notably government agencies, might restrict how much money nonprofits can use from a grant to allocate for salaries and compensation. These restrictions may vary considerably, and so do the rules behind them. However, nonprofit members responsible for managing these funds need to monitor and document how fund restrictions are to remain compliant and avoid penalties or revocations.

Nonprofit Watchdogs Rate Transparency and Financial Health

Specific organizations such as the BBB, CharityWatch and Wise Giving Alliance monitor the nonprofit space, checking that organizations are accountable, transparent, and financially healthy. They, too, may analyze IRS Form 990 details, governance protocols, and financial stability to grade a nonprofit. Ideally, all nonprofits will want to attain the highest grades, which signals to donors that the organization can be trusted and adequately managed.

Nonprofit Employees’ Compensation is Paramount

Employees at nonprofits receive no less consideration than their for-profit counterparts when it comes to compensation. They, too, are entitled to particular salaries, benefits, and other “package deals”, even if their organization doesn’t earn revenue directly by selling products or services. As discussed throughout this post, the difference lies in how nonprofits obtain funds to provide employees with salaries.