For small nonprofit organizations, paying for bookkeeping software seems like a large expense. Luckily, any organization with a 501(c)(3) designation can get QuickBooks Online for just $50 per year through TechSoup. Spending $50 per year will save your nonprofit tremendous time and energy down the road, plus it lets you create professional looking reports from QuickBooks to give to funders. If you have more than a few transactions per month, you’ll want to get started with QuickBooks.
QuickBooks also has the advantage of allowing you to track transactions by program or funding source, which is important as the organization grows. The Plus edition, through QuickBooks, also includes features like multiple users, which is nice so more than one person can log in and see the books. You can connect your bank and credit card accounts and download transactions into QuickBooks.
However, if that $50/year seems like too much, you can still get a full featured accounting software for free through Wave. Wave allows you to track all your income and expenses, scan receipts, and create reports. You’ll only be able to track expenses by expense category, however, so it can get challenging once you need to separate out expenses into different grants, but it would be possible. You could create expenses like “Salary-Smith Foundation” and “Salary-Jones Foundation” and then manually add up all the expenses for one foundation.
There aren’t any free ways to run payroll automatically that I know of. It’s simply too complex. Some organizations with one or two employees get around this by making their employees contractors, but that can get you in trouble with the IRS, as likely that person will clearly meet the definition of employee and should be treated that way for payroll.
QuickBooks does not offer a discount to nonprofits for payroll, so their base price is $35 per month, though you can get discounts when you first sign up. Wave also offers a payroll module for $24 per month. If you are going to pay for one of these two payroll services, I would recommend QuickBooks, as Wave still requires you to manually pay your payroll taxes with the IRS and state, which is an extra hassle.
For a very small number of employees, you could take care of payroll manually, but this requires someone who is extremely attentive to details as it is very easy to make a mistake. I did this for the first few years at Community Crops, and never had to pay any penalties, but I did get a few letters from the IRS saying I made my payment a day or two late and that they wouldn’t charge me a penalty that time.
Here are the basic steps to run your own payroll:
- Have the employee complete W4 and I9 forms.
- Set up a payroll schedule and timesheet process.
- Set up direct deposit for your employees if possible
- Use a payroll calculator such as this one to calculate gross pay and taxes.
- Pay the employees and email them their payroll information.
- Pay federal payroll taxes monthly. (Nonprofit organizations don’t need to pay federal unemployment taxes.)
- Pay state payroll taxes monthly or quarterly as required.
- File quarterly tax returns.
- At the end of the year, create W2s for all employees and file final reports with both federal and state entities.
This doesn’t include more complicated payroll situations like deductions for health care or wage garnishments, or additional types of pay like overtime and tracking paid time off. As I mentioned, the person in charge of payroll has to be very careful, as it is very easy to make a mistake.
For most organizations, manual payroll will wind up be more costly in the long-run. It requires a lot more time than using software and errors can be costly. However, as I said, I did it for a few years for 3 employees. I was thrilled when we decided to contract with an accountant to take care of payroll, however, as running it myself was a huge source of stress every two weeks.