Our 501(c)(3) human service organization, which I founded in 2010, is operated as a business so that we are accountable for our expenses and rely solely on client fees to sustain us. Given this model, are there incentives (financial or otherwise) that may be provided for our regional managers? All our managers are independent contractors who work for our agency on a part-time as-needed basis. Our work is a court ordered service, and pretty consistent and growing over the years.
From an economic point of view, the IRS permits bonuses based on revenue, but not on “profit.” The IRS view is that raising revenue is okay, but that cutting costs to create a greater profit is not okay. They think that cutting corners is not consistent with providing the best possible charitable services for the clients of the organization. The only limit on bonuses is the basic limit on reasonableness of total compensation. You could pay your managers a higher rate if they provide more services or (to use a lawyers’ term) originate more business for the organization.
I am not a Human Relations expert, but the management literature I read normally says that compensation is not the primary incentive to take or hold a job. Things like respect, responsibility, opportunity for growth, inclusion in decision-making, and other “soft” characteristics of the job are often more important than pay itself, so long as the pay is reasonably competitive. You can obviously give out fancy titles, but I would recommend that you seek professional management advice to see if there are ways to make working for your organization even more attractive than it is now.
(I would also recommend that you check with an employment lawyer, if you haven’t done so recently, to be sure that your managers are really independent contractors and not employees with another title. The penalties for failing to withhold from employees can be significant if you have made a wrong call.)
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