Expanding Your Nonprofit’s Benefit Offerings

Kirsch CPA Group

Dec 14, 2022

Many job seekers and others assume that not-for-profit organizations offer fewer or less-generous fringe benefits to employees than for-profit companies. But that’s not necessarily true. According to a recent survey by the Nonprofit Times, 87% of nonprofit employers offer a health insurance plan. But as the Kaiser Family Foundation has found, only 49% of private for-profit companies with three to nine workers offer health insurance coverage to workers.

Larger for-profit companies generally do offer health insurance and other benefits. So your organization may not compete as effectively with those employers. After all, your budget can only stretch so far. But are you offering everything you could? Qualified fringe benefits usually are tax free to participants and tax deductible by the organization providing them. It may be time to review your benefits menu.

Why It Matters

Providing staffers with a robust benefits menu is particularly important now that the job market is tight. Many nonprofits are having a hard time staying fully staffed as workers quit for more lucrative positions. But a comprehensive fringe benefits package can be worth its weight in gold. In fact, a survey by workplace review site Glass Door found that 80% of employees prefer additional benefits to comparable pay hikes. Workers indicate they favor more benefits over higher salaries because benefits provide greater flexibility and job satisfaction in the long run.

Enhanced benefits can help you attract new staffers and hold on to the ones you have.

Your benefits may also enable you to distinguish your organization from others with similar missions. An applicant inclined to work for an organization that supports a worthy cause may opt to accept one nonprofit over another if it furnishes more benefits and more flexibility to use them.

6 Common Offerings

Review your benefits and consider how they compare with what’s typically considered a comprehensive menu:

1. Health insurance. This generally is the most in-demand benefit for prospective and existing employees. Your nonprofit may offer its own employer-sponsored health plan and pay a percentage of the premiums. Or it might pay at least part of the cost of non-employer-sponsored health insurance — for example, for plans offered by state health insurance marketplaces. Note that it’s rare for even for-profit entities to foot entire health insurance bills. You might also want to offer wellness programs that address certain issues such as exercise, illness prevention and stress management. These can be affordable add-ons to your health insurance plan.

2. Retirement plan. For many workers, this benefit is a close number two after health insurance. Your nonprofit could provide a tax-qualified plan such as a 403(b) (usually offered by not-for-profit employers) or even a 401(k) plan. With a 403(b), employees can contribute up to a generous annual limit ($22,500 in 2023, $30,000 for those age 50 and older), and, under certain conditions, your organization can contribute as much as $3,000 a year per employee account for up to five years.

3. Group-term life insurance. Many nonprofit executives expect a generous life insurance benefit. But there can be a high tax price attached to excess coverage. Only the first $50,000 of coverage under a group-term life insurance plan is tax free. For example, if an employee earning $150,000 is covered at three times salary, that person will owe tax on $400,000 of coverage ($450,000 – $50,000). The tax is computed according to an IRS table that bases tax amounts on an insured’s age.

4. Dependent care assistance plan. The first $5,000 of dependent care assistance paid by an employer under a written plan is tax free to employees. To qualify, an employee’s dependent must be:

Under age 13,
Physically or mentally unable to care for him- or herself, or
A spouse who’s physically or mentally incapable of self-care.

But the tax exclusion amount can’t exceed the earned income of the employee or the earned income of the lower-paid spouse, if the employee is married.

5. Personal benefits. Some nonprofits provide personal benefits, such as parental and adoption leave and short-term disability insurance. These can help staffers and their families maintain financial (and psychological) stability during trying times. You might also want to consider training and education reimbursement programs and career advancement initiatives. These can be lower-cost and usually are appreciated by employees.

6. Extra time off. Many employees rank work/life balance as a top priority, and time off can be a way to help staffers achieve this. Your organization may want to grant employees extra time off to handle personal matters or simply to enjoy some R&R. Such benefits usually can be offered as paid time off, personal time, sick leave or vacation time. Some employers even give their staffs “mental health days.”

Falling Short?

After reviewing the above list, you may feel your organization falls short and that adding a benefit or two might help you attract and retain workers. Just know that you must follow certain rules to preserve favorable tax treatments. Contact Kirsch CPA Group to discuss your plans and the potential tax ramifications.

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