7 Fringe Benefits for Nonprofit Employers to Offer

Kirsch CPA Group

Dec 02, 2023

One of the biggest challenges facing not-for-profit organizations is finding and retaining top-quality talent. It’s hard enough to overcome the perception — often a misconception — that nonprofits don’t pay their employees nearly as well as for-profit companies. When benefits are factored in, nonprofits can look more attractive. So you may want to review, and possibly spruce up, your benefits menu.

Popular Options

Here are seven popular fringe benefits to consider as part of a compensation package:

1. Health insurance. The Affordable Care Act mandates that employers with 50 or more full-time equivalent (FTE) employees provide a health insurance plan to eligible employees. An FTE employee is someone who works 30 or more hours a week and at least 130 hours per month.

But even if your organization isn’t required to offer health care, you should try to provide group health insurance. Many job candidates won’t accept a job that doesn’t include this mainstay. Typically, employers pay a portion of the premiums and employees pay the rest for medical, dental and vision insurance. You may also choose to offer wellness programs.

2. Retirement plans. Retirement plan benefits usually rank a close second to health insurance in importance for employees. Like businesses, nonprofits can set up a 401(k) or similar plan and provide matching contributions up to a certain percentage of salary. Employees may defer up to $23,000 ($30,500 if age 50 or older) to a 401(k) in 2024.

A 403(b) plan, which only nonprofit organizations can offer, may be even better. These plans allow the same high contribution limits as 401(k)s, but employers can also kick in an extra $3,000 a year for up to five years for qualified employees.

3. Dependent care assistance plans. Many parents with young children are feeling the pinch from rising childcare costs. With a dependent care assistance plan, the first $5,000 paid by the employer is tax-free for employees. Dependents must primarily live with the employee and be:

A child under age 13,
A child or other dependent age 13 and older but physically or mentally unable to care for themselves, or
A spouse who is physically or mentally incapable of self-care.

The exclusion amount can’t exceed the earned income of a single employee or the earned income of the lower-paid spouse if the employee is married.

4. Group-term life insurance. This long-standing fringe benefit still appeals to many entering or already in the workforce. The maximum amount of tax-free coverage on group-term life insurance is only $50,000. So, for example, suppose your organization pays premiums for a staffer earning $100,000 a year in a multiple of three times salary ($300,000). Any excess above $50,000 is taxable under special government tables.

5. Adoption assistance plans. Adopting a child can be a long, expensive process, especially if the child comes from a foreign country. The IRS allows a $15,950 tax credit in 2024 for adoptive parents, subject to a phaseout based on income. But adoption costs often are higher than the credit. A written adoption assistance plan can help pick up the slack. Such plans qualify for income-tax-free treatment if certain requirements are met. For instance, your plan can’t discriminate in favor of highly compensated employees.

6. Educational assistance plans (EAP). Employees often want to further their careers while doing good deeds for a charitable endeavor. At the same time, your organization can benefit if staffers acquire knowledge and new skills.

The first $5,250 of EAP annual payments made on behalf of an employee is tax-free to the employee as long as certain conditions are met. The exclusion is available for tuition, books, equipment, fees and supplies for a course of study with a reasonable relationship to the employer’s business or if the courses are required as part of a degree program. EAPs may pay for graduate studies and courses leading to an undergraduate degree, but not classes about sports, games or hobbies.

7. Work flexibility. The six previously discussed benefits are tangible, but don’t forget intangible benefits. Parents may appreciate being able to follow a different work schedule that allows them to pick up their kids when school lets out. Or employees may value extra time off from work to handle personal matters. These benefits can be shaped in the form of paid time off, sick leave or vacation time.

A Robust Menu

With a good combination of fringe benefits in your compensation package, you may be able to win over even those applicants considering higher-paying positions with for-profit companies. At the very least, a robust benefits menu should enable you to attract more applicants and retain more existing staffers.

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