INSIGHT

Building a stronger nonprofit: HR strategies that support mission success 

Monica Frame, Stacy Litteral • October 14, 2025

Services: Compensation Consulting, HR Strategy Industries: Nonprofit

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Running a nonprofit comes with unique challenges that for-profit organizations rarely face. You’re managing tight budgets, navigating complex compliance requirements, and competing for talent with organizations that can often pay more. Yet your mission depends on building a strong team and maintaining the systems that support them. 

HR strategies for nonprofit organizations 

The good news? Strategic HR practices can help you overcome these obstacles while staying true to your mission. Here’s how to build a people function that strengthens your organization from the ground up. 

The compliance foundation you can’t afford to ignore 

Let’s start with the less glamorous but critical aspects of nonprofit HR: compliance. While it might seem like just another administrative burden, getting this right protects your organization and frees you to focus on your mission. 

Payroll and tax withholding 

Even with tax-exempt status, you must withhold federal income tax, Social Security, and Medicare from employee wages. The requirements vary by state and can change frequently, making a robust payroll system essential rather than optional. Modern systems handle these calculations automatically, reducing your risk of costly errors. 

One often-overlooked opportunity: some nonprofits may qualify for a reimbursement method for state unemployment taxes instead of the standard approach. This self-insured arrangement can offer significant savings, though it comes with specific eligibility requirements worth exploring. 

Worker classification matters more than you think 

Properly classifying workers as employees, contractors, or volunteers isn’t just good practice—it’s legally required. Misclassification can result in substantial financial penalties and back taxes. California nonprofits should be especially vigilant, as the state Employment Development Department (EDD) has ramped up random audits. If you receive an audit notice: 

• Respond quickly 
• Request an extension if needed (they’re typically granted) 
• Gather all relevant documentation immediately 
• Identify a responsible party to manage all communications with the auditor 

Don’t overlook employment law basics 

Your compliance checklist should include: 

• Labor law posters: Required whether you have a physical office or remote team 
• Wage and hour rules: Automated systems can help calculate overtime correctly 
• Anti-discrimination policies: Clear documentation protects both your organization and your team 
• Employee record retention: Organize and store records securely, ideally in digital format 

Why HR systems are worth the investment 

If you’re managing HR manually or spreading responsibilities across multiple staff members (the CFO who is “playing HR on TV,” as one client put it), you’re likely spending more time and money than necessary. 

Today’s HR systems are more affordable and easier to implement than ever before. They can automate: 

• Onboarding workflows 
• Benefits administration 
• Payroll processing 
• Time tracking and overtime calculations 
• Compliance requirements 

For small nonprofits (1-20 employees), solutions like iSolved offer comprehensive functionality at reasonable price points. The right system doesn’t just save time—it reduces risk and allows your team to focus on mission-critical work. 

Getting executive compensation right 

Executive Director compensation is highly visible. It appears on your Form 990, which means employees, board members, donors, and the public can access it. That visibility makes thoughtful, well-documented compensation decisions essential. 

The documentation you need 

Your board should maintain clear documentation showing how executive compensation was determined. This typically includes: 

• Well-sourced benchmark data from reliable surveys 
• Peer organization comparisons with rationale for organizations included 
• Strategic goals and growth trajectory considerations 
• Performance evaluation results tied to compensation decisions 
• Compensation philosophy explaining your approach 

This documentation isn’t just about compliance—it demonstrates good governance to funders and builds trust with your team. 

Developing a compensation philosophy that works 

A compensation philosophy sounds formal, but it’s really a straightforward statement about how you approach pay. It should: 

• Align with your organizational values 
• Explain how you determine compensation
• Build transparency and trust 
• Guide budget planning 

Beyond base salary 

When negotiating with candidates or discussing raises with current employees, remember that total compensation extends well beyond base pay: 

• Benefits: Medical, dental, vision, and life insurance 
• Professional development: Learning opportunities and skill-building 
• Time off: Vacation and sick leave, especially above statutory minimums 
• Work experience: The intrinsic value of mission-driven work 

That last point deserves emphasis. People choose nonprofit work because they believe in the mission. While you may not be able to match corporate salaries, you can offer meaningful work that makes a real difference—something that has tremendous value even if it’s hard to quantify. 

Benchmarking best practices 

When researching market compensation, quality matters more than quantity. Look for: 

• Company-sourced data rather than crowdsourced employee submissions 
• Adequate sample sizes (at least 5-10 data points, ideally more) 
• Relevant industry comparisons (not all nonprofit data is comparable) 
• Recent data from annual surveys 
• Clear methodology without AI-generated gap filling 

You don’t need the most expensive salary survey. Free and moderately priced options exist, though more comprehensive paid surveys typically offer richer data. The key is understanding what you’re getting and whether it truly reflects your organization’s market. 

Do you need a formal salary structure? 

Not every nonprofit needs a complex job architecture. Consider implementing formal pay ranges when you have: 

• Frequent requests for pay transparency 
• Confusion about compensation decisions
• Multiple levels and career paths 
• Regulatory requirements for pay disclosure 

For smaller organizations, simpler approaches work well: 

• Group ranges by level (all senior managers in one range) 
• Department-based ranges 
• Individual job ranges when you have single-person functions 

The goal is clarity without unnecessary complexity. 

Performance evaluation: The board’s responsibility 

Your board should conduct a comprehensive evaluation of your executive director annually. This evaluation should include: 

• Goal achievement: Progress on strategic objectives 
• Leadership assessment: How effectively they lead the organization 
• Financial oversight: Budget management and resource stewardship
• Stakeholder engagement: Relationships with board, donors, and community 
• Program impact: Results and outcomes achieved 

The evaluation process 

A thorough evaluation takes time but doesn’t have to be overwhelming: 

1. Establish criteria (ideally when the ED is hired or at the start of the year) 

2. Collect feedback from board members, staff, and key stakeholders over 2-4 weeks 

3. Enable anonymous input so people can provide honest feedback 

4. Include self-assessment from the executive director 

5. Have a two-way dialogue focused on growth and future goals 

6. Document outcomes and schedule regular check-ins 

The conversation matters more than the paperwork. This should be a dialogue about strengths, opportunities for improvement, and priorities for the coming year. 

Moving forward with BPM 

Strong HR practices aren’t separate from your mission—they’re fundamental to achieving it. By building solid compliance foundations, investing in the right systems, approaching compensation thoughtfully, and keeping your mission at the center of everything, you position your organization for sustainable success. 

The work you do matters. Making strategic investments in your people function helps you do more of it. 

Need help developing HR strategies that support your nonprofit’s mission? BPM’s team works with nonprofits to build practical, mission-aligned HR solutions. Contact us to discuss how we can support your organization’s unique needs.