Article

Compensation - Determining Reasonable Compensation

Human Resources

Reasonable Compensation

 

Reasonable compensation is defined as “the amount that would ordinarily be paid for like services by like organizations in like circumstances.” [1] This regulation reinforces that nonprofit organizations cannot use money raised from public sources except to further the purpose of the organization. It cannot be used to over-compensate a few individuals. Salaries must be reasonable for the services rendered to the organization. The amount paid should take into account the nature of the duties, the background and experience required, and how much it would cost to hire a third party (contract service) to perform those duties. [2]

 

Reasonable compensation can be established by comparing this job to comparable jobs in the region in which the organization is located. Salary surveys are a good source of information. For example, the Economic Research Institute compiles data from nonprofit filings and publishes comparison statistics by type of organization and position. It also may be possible to obtain information about specific local charitable organizations with comparable positions. Public charities, unlike private businesses, must disclose salary information.

 

Salary is the major portion of compensation, but benefits are included when the total compensation package is analyzed. Other typical benefits may include discounted insurance (health, life, accident, disability, long-term care, and/or professional liability,) access and/or contributions to retirement accounts or investment planning, and paid time off (sick leave, vacation, personal time.)

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[1] U.S. Internal Revenue Code, Regulation 1.162-7(b)(3)

[2] Wright, Jean, and Jay H. Rotz, Fair Compensation.  Retrieved April 22, 2008, http://www.irs.gov/pub/irs-tege/eotopici93.pdf

 

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DISCLAIMER

 

The contents of this document were developed under a grant from the U.S. Department of Education to the Georgia Department of Labor/Tools for Life Program. These contents, however, do not necessarily represent the policy of the U.S. Department of Education or the Georgia Department of Labor, and the reader should not assume endorsement by the federal government or the State of Georgia.

 

 

 

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Title: Compensation - Determining Reasonable Compensation
Module: Human Resources
Author: P. Redmon
Audience: Implementer
Sub Title:
Procedure:
Organization Source: Pass It On Center
Last Reviewed: 10-25-2009 7:03 PM