Volunteer work is critical to the nonprofit sector. Without volunteers, many organizations would not be able to run their programs effectively. This being the case, it is crucial for nonprofits to understand how federal and state laws define the term “volunteer,” so unpaid workers are not inadvertently classified as employees under the law.
The Fair Labor Standards Act
On the federal level, workers are generally classified under the Fair Labor and Standards Act (FLSA). The U.S. Department of Labor (DOL) has published a fact sheet to delineate how the FLSA applies to nonprofit organizations. Nonprofit charitable organizations are generally not covered under the FLSA unless the organization engages in ordinary commercial activities such as operating a thrift store or providing services for a fee.
To determine whether a nonprofit is covered under the FLSA, the DOL will review the nonprofit’s activities that are performed for a business purpose and compete with for-profit businesses. Charitable and other activities furthering the nonprofit’s exempt purposes are generally not considered under the analysis.
The DOL summarizes its policy on volunteering as follows:
“The FLSA recognizes the generosity and public benefits of volunteering and allows individuals to freely volunteer in many circumstances for charitable and public purposes. Individuals may volunteer time to religious, charitable, civic, humanitarian, or similar non-profit organizations as a public service and not be covered by the FLSA.
Individuals generally may not, however, volunteer in commercial activities run by a non-profit organization such as a gift shop. A volunteer generally will not be considered an employee for FLSA purposes if the individual volunteers freely for public service, religious or humanitarian objectives, and without contemplation or receipt of compensation . . . In addition, paid employees of a non-profit organization cannot volunteer to provide the same type of services to their non-profit organization that they are employed to provide.”
Accordingly, under the FLSA, volunteers should not be tasked with work that would otherwise be done by paid employees.
The Internal Revenue Code
Nonprofits that are tax-exempt must also follow the rules for volunteers under federal tax law. Generally, work performed that is substantially uncompensated qualifies as volunteer labor. “Compensation” is interpreted broadly to mean both monetary and nonmonetary payments. Under this definition, a worker who obtains goods or services at a reduced price in return for their services may be considered to be compensated.
For compensation to exist in this context there must be a “but-for” connection between the payment and the services. Meaning, the payment would not otherwise be given but for the provision of services. However, de minimus compensation may be permitted, such as giving out free ham during the holidays.
Overall, the IRS will consider the totality of the circumstances when determining whether compensation has been paid. Best practice is to keep benefits to volunteers at a minimum to ensure proper classification as a volunteer.
State Wage and Hour Laws
State law may also distinguish between volunteer and paid labor. Arizona statutes do not explicitly define “volunteer,” however Arizona generally follows the FLSA rules for classifying workers. In contrast, Washington law defines “volunteer” as a person who donates labor to another by their own free choice. There, if a volunteer receives something of monetary value in exchange for work, they are likely to be covered under Washington’s worker’s compensation laws.
Conclusion
Proper classification of volunteers is important because if it is found that an individual has been misclassified, that individual could seek remedies available under state and federal wage and hour laws, including but not limited to back pay, liquidated damages, and attorneys’ fees. Additionally, penalty fines may be imposed on organizations found to have been misclassifying workers.
Nonprofits should develop robust onboarding and oversight policies and procedures to effectively manage and guide volunteer engagement. This includes comprehensive screening, onboarding, and supervision of all volunteers. Finally, nonprofits can minimize risk of misclassification by deploying volunteers to work on noncommercial activities and activities that would not otherwise be done by paid workers.
Kyler Mejia is an attorney (bar admission pending) with Caritas Law Group, P.C. Kyler counsels nonprofit and socially responsible businesses on corporate, trademark, tax, and fundraising matters nationwide and advises donors concerning major gifts. To schedule a consultation, call 602-456-0071 or email us through our contact form.