Many nonprofits hire employees as staff to provide programs, conduct fundraising, maintain accounting, file taxes, and other services.  The nonprofit has the same legal obligations to its employees as any private business corporation, such as prohibitions against discrimination and harassment.  The nonprofit corporation is also obligated to report employee’s income and make withholder payments to the Federal and State governments, and is responsible for State unemployment insurance taxes, workers’ compensation insurance, State disability insurance, payment of the employer’s portion of Federal social security (FICA), Federal unemployment tax (FUTA), and Medicare.  The nonprofit must also comply with standard employment terms and conditions including minimum wage, overtime, and break periods. The following forms must be filed with the Federal and State governments:

  • Employee’s Withholding Certificate (W-4) and California Form DE-4
  • Corporation Federal Quarterly Withholding Returns (Form 941E) and bank deposits of withheld income taxes and social security taxes
  • Annual Federal Wage and Tax Statement (W-2)
  • California Employer Registration Form
  • California Income Tax Withholding Form SE-44
  • California Quarterly Unemployment and Disability Insurance 
  • Annual Federal Unemployment Tax Return

It is important that the nonprofit correctly classify employees for purposes of Federal and State wage-and-hour laws.  For independent contractors, the corporation must file IRS Form 1099 and California Form DE-542 if the contractor is paid more than $600.00.  

As a practicality, the nonprofit should obtain Directors and Officers Insurance, which will protect the individuals from civil claims and employment lawsuits.  An Employment Practices Liability Insurance (EPLI) policy covering employment-related claims may also be obtained.  


Want to know more about nonprofit organizations? Contact a business attorney at The Sterling Firm. We have an attorney experienced in providing counsel to nonprofits. We can help! Call now to speak with an attorney!