How Much Should Nonprofits Pay Employees?

The economics of keeping a nonprofit organization viable are always tricky, especially when it comes to employee wages. Between minimum and living wage ordinances and new overtime regulations, nonprofit organizations nationwide are struggling to ensure their payroll, budget, and rate formulas all add up.

Oftentimes nonprofit organizations are faced with a vexing challenge of allocating finite resources between mission-oriented work and employee compensation. Increasingly, nonprofit organizations are deciding to invest more in their workforce. This is especially true in Minnesota.

Minnesota Case Study

Approximately 7.2 percent of employed Minnesotans work in the nonprofit sector, excluding better-compensated higher education and hospital staff. Historically, these Minnesotan nonprofit employees, and nonprofit employees nationwide, were paid significantly less than their private and public sector counterparts. But for the past twenty years that gap has been closing. According to the most recent data available, nonprofit wages (excluding higher education and hospitals) lag behind for-profit enterprises by 10 percent and government agencies by 5 percent. This gap is as small as it has ever been. Nonprofit experts expect it to only shrink further.

When a legislator attempted to push for an exception for nonprofit organizations in Minnesota’s minimum wage standards, the sector, via the Minnesota Council of Nonprofits, declined. Nonprofit leaders see living wages as a moral imperative that intertwines directly with their larger organizational mission. But nonprofit wages are not only rising for moral reasons, they are rising because in a tight labor market, nonprofits are competing for increasingly coveted talent.

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