5 Best Practices for Hiring Your First Employee

By Jordan Craig

Read Time: 3 Minutes

For many nonprofit organizations, paying your first employee is unchartered territory. You've recently done the work to get incorporated in your state and become acknowledged by the IRS as a 501(c)(3). With those steps came a great deal of compliance, and now you are ready to go one step further by hiring someone. In today's blog post, we will cover some best practices for hiring your first employee.

1. Guidelines for paying board members

One of the first questions that I get asked by nonprofit leaders is this: are we allowed to pay board members? The simple answer is yes. It is most common to pay board members first, as they are often doing most of the work initially. 

A nonprofit can pay members of the board for the work they do for the organization, but not the work they do for the board. 

Consider this example. The Secretary on your board is doing a lot of work, and you want to pay this individual. You wouldn't want to pay them for their work as the Secretary (i.e., taking board minutes), but you may consider paying them as an Administrator. Board positions are volunteer positions, but people can be compensated for the work they do for the organization.

2. Keep your board balanced

A good rule of thumb when compensating board members is this - keep your board balanced. The IRS requires that 501(c)(3) organizations maintain a balanced board of directors. That simply means that the majority of the board must remain both unrelated and uncompensated. For instance, say you have a church with three individuals on your board: President, Treasurer, and Secretary. The President also serves as the Pastor and is compensated for this role. However, you recognize that your Treasurer is doing a lot of work, and you want to compensate this person as your Clerk. This additional paid board member would unbalance your board at a 2-1 split. Thus you would want to add two additional uncompensated board members before paying this individual.

3. Identify the need

If you are looking to hire someone, you'll want to identify your needs as an organization and what this role will require. Here are some questions to consider:

• What type of employment position is needed?
• What tasks will the employee be required to fulfill?
• Will that position require supervisory work?
• Will the job require managing a budget?
• What hours will the role require?
• What skills does the employee need to be successful in that position?

Your answers to these questions will dictate the job description and the type of employee you are looking to hire. Your job description should lay out a general overview of the organization and role, hours expectations, requirements for applicants, and a list of the responsibilities.

4. Interview and make the right selection

When making decisions about who to hire for a specific position, the organization, as the employer, has the right to choose the hiring procedure best suited for the job. The hiring process may include multiple interviews, aptitude assessments, and performance reviews of assigned tasks. However, no matter the hiring procedures, employers must be careful to ensure that their hiring process is not predisposed to prefer certain applicants because of their race, gender, national origin, or disabilities. Churches and religious organizations are given some graces concerning hiring on the basis of religion.

When deciding on pay, consider comparable roles in your area, the work this role demands, and the individual's qualifications. Beyond the payment, consider benefits such as paid time off and insurance. As a board of directors, put together a compensation agreement as a formal offer to the individual you seek to hire and have that individual sign the document.

If you need help creating a compliant and generous compensation package for a staff member, we would be glad to help you. Give us a call at 877-494-4655 or click the link below to learn more.

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5. Taking care of payroll

A final step in hiring an individual is running it through a reputable payroll company. These companies will ensure that funds are being distributed properly to your employees so that the appropriate taxes are being paid out. Even housing allowances should be run through payroll. As a person that works with nonprofits every day, the most common compliance issues that I see are organizations that don't run their distributions through payroll companies. Be sure to find a good one and let them do what they do best!

Celebrate Your Growth

Paying your first employee is an exciting step in the life of a nonprofit. You've grown to a point where you are ready to bring on someone, and that's worth celebrating. If our organizations continue expanding, we want to be sure that we are starting compliant and staying compliant.

The good news is, you don't have to figure it out on your own. Our team of church planting specialists is passionate about helping you every step of your journey. To speak to a specialist today about your specific needs, please give us a call at 877-494-4655 or click the link below to schedule an appointment to learn how we can support you and your ministry.

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