Labor Laws and Nonprofits
For-profit businesses are subject to laws regarding working conditions, minimum wages and fair hiring practices. These same regulations apply to NPOs. Before an organization starts hiring employees, it is essential that it spends time studying the laws that govern employer and employee relations. Hiring a lawyer at this stage can help to clarify employer-employee concerns.
Employment Taxes
An NPO may not be required to pay certain employment taxes as a result of 501(c)(3) status. However, it will still be responsible for federal withholdings such as Social Security (FICA), Medicare, and Unemployment (FUTA) tax.[i] These taxes are paid on a quarterly basis.
State employment taxes are very often waived, but as with most regulations involving nonprofits, this waver varies from state to state.[ii] Local income and sales taxes are also usually waived with application, though it is important for the nonprofit to check with local regulations to ensure that it is operating within the law.
[i] “Every employer, including an organization exempt from federal income tax, who pays wages to employees is responsible for withholding, depositing, paying and reporting federal income tax, social security and Medicare (FICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements of if the taxes clearly do not apply.” IRS Publications, online. http://www.irs.gov/pub/irs-pdf/p557.pdf
[ii] “Some states exempt nonprofit organizations from state tax and state employment programs such as unemployment compensation contribution.” Cornell Law School WEX, online. http://www.law.cornell.edu/wex/index.php/Non-profit_organizations#State_Statutes
