Key Takeaways:
- Knowing when to hire your nonprofit’s first employee comes down to three factors: work, money, and support.
- Not all nonprofit work requires an employee. Volunteer recruitment can handle many basic tasks, but leadership and specialized work often signal it’s time to hire.
- Nonprofit employees cost 1.25 to 1.4 times their salary when you factor in payroll taxes, benefits, equipment, and workspace.
- New nonprofit employees need more than a job description; they need a board, a network, and systems that set them up to succeed without burning out.
At some point, nearly every growing nonprofit hits the same wall. The volunteers are stretched thin, the founder is working nights and weekends, and the mission that started as a passion project now demands more than anyone can give on a volunteer basis. So the question becomes: is it time to hire?
It’s one of the most common questions Olivia Froedge of Charitable Allies hears from nonprofit leaders, and it was the focus of a recent episode of the 501c Suite podcast. The answer isn’t always obvious, but it comes down to three factors: work, money, and support. Here’s how to think through each one.
Factor 1: Work — What Kind, and How Much?
The first signal most nonprofit leaders notice is that there’s simply too much work for volunteers to handle. But before you post a job listing, it’s worth asking: what kind of work is actually piling up?
There are three broad categories of nonprofit work, and each points toward a different solution.
Volunteer-appropriate work includes things like data entry, handing out donated goods, or answering emails on the organization’s behalf. These tasks can absolutely be handled by trained volunteers putting in a few hours a week. If this is the bulk of what’s overwhelming your team, you may not need an employee yet. Many nonprofits overlook the value of administrative volunteers. However, they can be a powerful and low-cost solution.
Leadership and high-level work is where it gets more nuanced. If your nonprofit needs someone to build systems, launch a new program, or manage other people and processes, that’s typically employee-level work. If board members have bandwidth to step in, great. But if not, this is a strong signal that a hire is on the horizon.
Specialized work (social services, healthcare, grant writing) often carries regulatory requirements. Social workers need active licensure. Nurses need credentials. Grant writers may need to be registered as fundraisers in certain states. For specialized roles, many nonprofits start with part-time arrangements (10–15 hours a week) before committing to a full-time hire, which can help manage costs while still meeting the organization’s needs.
The key question to ask: Is the work that’s overwhelming us the kind of work a volunteer can do, or does it require accountability, expertise, or full-time attention? That answer tells you a lot about whether you’re ready to hire.
Factor 2: Money — What Will It Actually Cost?
Money is often where nonprofit leaders hesitate, but it’s too important to dance around. Hiring your first employee is a significant financial commitment, and it almost always costs more than people expect.
Understanding the True Cost of a Nonprofit Employee
The salary number on the job posting isn’t the full picture. Nonprofits should plan for employees to cost 1.25 to 1.4 times their base salary when all employment-related expenses are factored in. That means a position with a $65,000 salary will realistically cost between $81,000 and $91,000 per year.
Why? Because employment costs include:
- Payroll taxes: including the employer’s share of Social Security (a common misconception is that nonprofits are exempt from payroll taxes; they are not)
- Benefits: health insurance, dental, vision, and retirement contributions
- Equipment: computers, phones, or specialized program materials
- Workspace: whether that’s office rent, co-working fees, or a stipend for remote work
Finding Comparable Rates (Comps)
Before you can budget, you need to know what the position should pay. Salary comps are your best starting point. A few places to look:
- State nonprofit associations, many of which publish annual salary surveys.
- Recruiting firms that specialize in the nonprofit sector often publish compensation data.
- Regional nonprofit support organizations. For example, in Indiana, Charitable Advisors publishes an annual salary survey that breaks down compensation by organization size and revenue.
When reviewing comps, make sure you’re comparing apples to apples: similar role, similar organization size, similar cost of living. What an executive director earns at a $50 million nonprofit will look very different from what that same title earns at an organization bringing in $250,000 a year.
Pay People What the Work Is Worth
There’s an open secret in the nonprofit sector: nonprofit workers are often underpaid. It’s worth pushing back on that trend. Underpaying employees leads to burnout, turnover, and ultimately higher costs because replacing a good employee is expensive. If waiting an extra month or two means you can offer a salary closer to market rate, that patience is usually worth it. Nonprofits are absolutely allowed to pay people well, and they should.
Benefits Options for Small Nonprofits
Full benefits packages can be out of reach for early-stage organizations. A few options to know about:
- 403(b) retirement plans: the nonprofit equivalent of a 401(k), allowing employees to invest pre-tax dollars for retirement
- QSE-HRA (Qualified Small Employer Health Reimbursement Arrangement): for organizations with fewer than 50 employees, this allows the nonprofit to reimburse employees for healthcare expenses (including their own insurance premiums) up to a set annual cap, without the cost of a traditional group health plan
- PEO (Professional Employer Organization): PEOs can help small nonprofits offer benefits with the same discounts insurance companies often offer larger organizations.
You’re not legally required to offer benefits, but not offering them makes recruiting harder. A QSE-HRA or PEO is often a workable middle ground for nonprofits that can’t yet afford full health coverage.
Is Your Funding Sustainable Enough?
Once you know what the hire will cost, the next question is whether your funding can carry it. Sustainable funding means more than having enough money today; it means having enough confidence in your revenue streams over the next 12–18 months.
A few things to consider:
- Don’t build a hire around a single grant. If a grant ends and you have no other funding lined up, you may be forced to let that employee go.
- Diversified revenue is your best foundation. A mix of individual donations, corporate gifts, grants, and program service revenue spreads the risk.
- Factor in what the employee will generate. A fundraiser or grant writer may bring in revenue that more than covers their salary. If so, build a realistic (not optimistic) projection of that into your analysis.
Factor 3: Support — Is This Person Set Up to Succeed?
This is the factor that often gets overlooked, but it doesn’t make it less important.
Hiring an employee is a responsibility. The question is not only, ‘Can we afford this person?’ but ‘Can we actually support them?’
A new nonprofit employee needs:
- A board that’s engaged and onboarding-ready. The board votes on the hire, the job description, and the compensation. And early on, an engaged board who can answer questions and welcome someone is a real asset for someone new to the role.
- Mentorship or peer support. No one has all the answers. A connection to a more experienced nonprofit leader can help a new employee navigate challenges without burning out. Even a networking group within your local area with other nonprofit leaders can be a valuable resource to get feedback from people who’ve been in those shoes.
- Clear expectations. What are this person’s responsibilities? What still belongs to volunteers? What does the board still own? Getting that documented isn’t bureaucracy; it’s respect for the person’s time and role.
- Resources. Free educational content (like this podcast), legal guidance, and peer networks all help new nonprofit leaders stay grounded and keep growing.
Nonprofit burnout is real, and a significant driver of it is isolation, the feeling that you’re solving hard problems alone. Building a support system around your first hire isn’t optional; it’s part of what makes the hire succeed.
When You’re Ready: The Mechanics of Hiring
Once you’ve worked through all three factors and decided it’s time, there are practical steps to make the hire legal and sustainable.
Federal and State Paperwork
- EIN (Employer Identification Number): If you have 501(c)(3) status, you already have one. If not, apply through the IRS before anything else.
- Bank account in the nonprofit’s name: Payroll must flow from an organizational account, not a founder’s personal account.
- Federal and state employer tax accounts: Nonprofits should pay the employer share of Medicare and Social Security, and most states have their own payroll tax requirements. Every state’s system is slightly different, so look into your specific state’s requirements or consult an employment attorney.
Payroll Options
You have three main routes for handling payroll:
- PEO (Professional Employer Organization): Outsources HR and payroll functions. Some PEOs work with organizations as small as one employee. Higher cost, lower administrative burden.
- Payroll software: A wide range of tools can automate payroll processing and handle some quarterly employer tax filings. A good middle ground for most small nonprofits.
- In-house processing: Possible but complicated, especially for a first hire. Generally not recommended unless you have someone with strong payroll and tax expertise on staff. Remember: if you’re hiring your first employee, payroll shouldn’t only be touched by just that employee. They’ll need at least one other person involved like a board member.
Whatever route you choose, make sure you’re set up to issue W-2s to your employee each year for their personal tax filing.
The Board Vote
Nonprofit governance is a little different from the for-profit world. Your board will vote on:
- The job description and responsibilities.
- The compensation package.
- Who is selected for the role.
If you’re hiring someone currently on your board, they must recuse themselves from all votes related to their employment. If you’re hiring someone with a financial relationship to a board member (family, business partner), that board member must also recuse themselves. Having the decision documented in your board minutes is your record of doing things right. On the bright side, in the future, nonprofits don’t have to follow this process for each new hire. Key hires like executive leadership, are usually chosen through this method.
The Bottom Line
Hiring your nonprofit’s first employee is a major milestone, and it deserves thoughtful planning. Before you post a job listing, work through these three questions:
- Is there enough of the right kind of work to justify a part-time or full-time hire?
- Do we have sustainable funding to cover the true cost of employment, not just the salary?
- Can we set this person up for success with real support from the board, a mentor network, and clear expectations?
If the answer to all three is yes, congratulations. That’s worth celebrating. Then move forward with the right paperwork, a payroll solution that fits your budget, and a board vote that’s properly documented.
If the answer to any of them is “not yet,” that’s useful information too. It tells you what to build before the hire: more volunteers, more funding relationships, more governance infrastructure. And it helps you make a hire that actually sticks.
Learn More and Stay Connected
If you’re looking for reliable answers to your nonprofit’s most important legal questions, visit charitableallies.org for free resources, guides, and case studies designed to support nonprofit sustainability.
Subscribe to 501c Suite so you never miss an episode, and share it with a fellow nonprofit leader or board member who could use a trusted legal ally.
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