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socrateaser
socrateaser, Lawyer
Category: Tax
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Experience:  Retired (mostly)
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We are a 501(c)7 with a twice a year fundraiser that spans

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We are a 501(c)7 with a twice a year fundraiser that spans several weekends and is very labor (physical) intensive. Due to this there is increasing lack of participation, so we have been looking for ways to provide incentive for members to participate. The idea of paying a stipend to members is being tossed about. It would appear to me that we can do this so long as it is not based on performance (i.e an hourly wage) and is no more than 20% the compensation a professional would receive. I would like to set a minimum hour commitment to receive the stipend, which would probably be a set amount regardless of how many volunteer hours were worked beyond the minimum. Opinions on this please.
Submitted: 1 year ago.
Category: Tax
Expert:  socrateaser replied 1 year ago.
Hello,

There are two issues that I believe are worthy of consideration regarding social club fundraising activities:

  1. To remain tax-exempt, substantially all of a social club's activities must be for a purpose provided under § 501(c)(7). A social club may receive up to 35% of its gross receipts from sources outside of its membership without risking its tax-exempt status. Within this 35%, no more that 15% of the organization's gross receipts are to be derived from the use of the club's facilities or services by the general public.
  2. Rev. Rul. 80-130 provides a flat rule concerning personal services. The rule demonstrates that reasonable pay for reasonable services associated with attracting new members does not risk a loss of exempt status.

 

Within the scope of the two above-stated rules, it is possible to craft a remuneration package. However, to say that paying 20% of what a professional fundraiser would receive, provides valid rule for avoiding a loss of tax-exempt status, is, I believe erroneous (though, you are welcome to show me the legal authority that states this rule, and I'll be happy to reconsider my answer).

 

The proper analysis is not found by reducing the individual member's payment for services, but rather by determining whether or not the organization's gross receipts from fundraising exceed 35% of all gross revenue.

 

Hope this helps.

Customer: replied 1 year ago.

I may not have been as clear in what I am asking as I should have been. I am trying to reimburse our members for their volunteer time in a manner in which they do not become considered employees and thus exposing us to FLSA, tax liability and worker's comp. The extent of this reimbursement would not exceed $50-75 flat rate, and could be paid up to twice a year. I am unsure of the legality of this. The 20% I referred to seems to only come up in regards XXXXX XXXXX fire departments and references the DOL, but I am having a tough time finding it on their website.


 


Thanks.

Expert:  socrateaser replied 1 year ago.

Oh, yes, very different issue.

Federal Dept. of Labor regulations (29 C.F.R. 553.101) define a volunteer, as follows:

 

  • (a) An individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered, is considered to be a volunteer during such hours. Individuals performing hours of service for such a public agency will be considered volunteers for the time so spent and not subject to sections 6, 7, and 11 of the FLSA when such hours of service are performed in accord with sections 3(e)(4) (A) and (B) of the FLSA and the guidelines in this subpart.
  • (b) Congress did not intend to discourage or impede volunteer activities undertaken for civic, charitable, or humanitarian purposes, but expressed its wish to prevent any manipulation or abuse of minimum wage or overtime requirements through coercion or undue pressure upon individuals to “volunteer” their services.
  • (c) Individuals shall be considered volunteers only where their services are offered freely and without pressure or coercion, direct or implied, from an employer.



As you can see from the definition, there is no threshold amount below which a volunteer becomes an employee. Any compensation paid to a person in exchange for personal services risks having the person being deemed an employee under the Fair Labor Standards Act.

Moreover, Wisconsin law would almost certainly require that you carry workers compensation insurance and pay unemployment insurance contributions for your fundraisers -- because they are not professional fundraisers, who engage in this sort of activity for profit, such that they can represent that they are independent contractors, entirely subject to their own control as to the manner and method of their labor.

BotXXXXX XXXXXne, the reason why you can't find exceptions in the law is because there aren't any. If just one person is injured while fundraising, or if someone complains to the IRS or Wisconsin Employment Commission, your organization may be in very hot water.

I realize that this is not what you want to read, but I have been down this road many times, and the government wants its money, and it will strongly contest any attempt to classify workers as other than employees.

 

Note: The U.S. Department of Labor provides this opinion letter concerning volunteer services. The letter discusses certain "nominal" payments which will not trigger employment status among volunteer workers. However, the letter shows that there is no threshold amount and that each circumstance is unique, so no advance guidance can guarantee you protection from liability for creating an employment relationship with your members.

Please let me know if I can be of further assistance.

socrateaser, Lawyer
Category: Tax
Satisfied Customers: 34827
Experience: Retired (mostly)
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