The Value of Nonprofit Labor and Why It Matters to the Nonprofit Sector

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By Dr. Alicia Schatteman

Volunteers are important to almost all nonprofit organizations because they extend the work of paid staff or in some cases, are the only way that services can be provided since there are not enough resources to hire any staff.  About 77 million people volunteer each year in the United States, about 23% of the U.S. population according to the Corporation for National and Public Service (CNPS).  About 26% of males and 34% of women volunteer. In Illinois, about 28% of residents volunteer.

Volunteers are also important because they are advocates for the organization, and are often donors themselves. “Volunteers donated to charity at twice the rate of non-volunteers” (CNPS).   There are also personal benefits to volunteers beyond the intrinsic reward of service.  Volunteers are more likely to finding employment regardless of a person’s gender, age, ethnicity, geographical area, or the job market conditions (CNPS).  There is also research that shows volunteers build their social networks through volunteering which keeps them more active and overall more healthy than non-volunteers.

Last month, the Independent Sector released its updated value of volunteer labor at $27.20 per hour.

“The national estimate of the value of an hour of volunteer time is based on the hourly-earnings CES estimate for private nonfarm and non-managerial occupations, plus a 15.7 percent increase for the value of fringe benefits.” Source

To read how this number was determined, review the methodology. But basically this dollar amount is used as an estimate of the wage a volunteer would receive if he or she were working in a paid capacity. So if a volunteer donated 100 hours to an organization, the wage replacement value would be 100 x $27.20 or $2,720.

Why calculate the value of volunteer labor at all?

By using the wage replacement rate, it gives a value to otherwise invisible labor and some funders and other stakeholders ask for it or appreciate it.  Using the value is also an easy number to track over time and is a relatively straightforward metric.

When does the value of volunteer labor do more harm than good?

Using this replacement wage rate to calculate the impact of volunteers can be misleading in several ways. First, people (wages, number, etc.) is a type of input into the organization just like other resources.  It is not an output or outcome measure.  What gets accomplished by those input resources depends on the effectiveness of the organization (output or outcome).  When you place a value on volunteer labor by using a replacement wage rate, you could mislead your stakeholders that the purpose of the organization is to achieve a higher economic impact of volunteers when, in fact, it is your mission.

The value of volunteer labor can be used on nonprofit financial statements or other documents such as grant proposals or annual reports “but only if a volunteer is performing a specialized skill for a nonprofit” based on the definition from the Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 116.  The general rule to follow when determining if contributed services meet the FASB criteria for financial forms is to determine whether the organization would have purchased the services if they had not been donated. Accounting specialists may visit FASB’s website for regulations on the use of the value of volunteer time on financial forms. There are also estimates of hourly wages by occupation that can be used to determine the value of a specialized skill.

“We do a disservice to volunteers, our organizations, and our sector to use these rates for all purposes, or without awareness of their risks.” Source

So I believe that using the volunteer rate, determining the economic savings using volunteers instead of paid staff, can do more harm than good.

  1. It misleads the public to think that nonprofit organizations would or could actually pay for skilled labor to replace these volunteers, which in most cases, is simply not true.
  2. It devalues the work of skilled and experienced nonprofit workers to assume that any volunteer could do their work for the same pay.  It then leads to the perception that nonprofit workers don’t (or shouldn’t) be paid.
  3. This practice leads to pay suppression in nonprofit organizations.  Wages remain shockingly low for the skills and education needed by employees addressing the largest social issues in our community.
  4. The estimated average rate of pay used is actually way above what most nonprofit employees actually earn, and it includes the cost of fringe benefits, which again, many nonprofits do not offer. Most nonprofit workers are part-time, not full-time.  Fringe is included in the replacement wage rate at 15.7% so the hourly rate is $23.12 (or $42,000 per year based on a 35-hour workweek) but still way above what many nonprofit employees earn.
  5. The rate does not take into consideration the equivalent work being done by the volunteer nor the market location, both key variables to actually determine pay by any industry.
  6. The nonprofit organization should also evaluate their use of unpaid interns, sometimes considered volunteers and sometimes employees. The primary law governing workers’ rights to fair compensation is the Fair Labor Standards Act of 1938 (FLSA).  Unpaid interns are volunteers who also agree to work for free, and often the students are paying tuition for internship credits. The Department of Labor applies a seven-factor “primary beneficiary test” to determine if unpaid staff are employees.  Basically, if the employer is the primary beneficiary, the intern must be compensated as an employee under at least the minimum wage provisions. If the intern primarily benefits from the relationship (academic credit for example), the internship can be unpaid. Nonprofit organizations need to be mindful not to treat unpaid interns in ways that could lead to liability for failing to classify them as employees.

What can we do?

  • For nonprofits, instead of talking about the economic impact as a cost-saving to the organization, which in most cases it is not, I and others suggest that volunteers extend the budget, they do not save money.  “Saving money suggests a scarcity mindset and scrimping to get by without adequate resources. Extending the budget suggests that resources are invested wisely to advance the mission” suggests Kahl.
  • Funders and other stakeholders need to understand the true costs of providing a particular service. Nonprofit organizations seek to address complex issues which often requires specialized expertise, expensive outreach, without many options for earning revenue.
  • You can’t replace all staff with volunteers and value that work above the workers who are actually employed.  Many of those workers sought additional training or education, which they will likely be paying for years later.  Their pay is compressed by the public perception that nonprofit work can be done by anyone, or any volunteer.  Quantifying all volunteer labor with the replacement wage for volunteers can hurt the actual wages of nonprofit employees.
  • Evaluate all internships and determine if your organization should hire them as an employee or treat them as a volunteer. There are important distinctions and dilemmas but the conversation is a good one. There are also legal implications for the organization and the student that need to be resolved.  Consult guidance from the National Council of Nonprofits. Clearly specify the status and classification of the unpaid intern as a volunteer, that there will be no ordinary compensation – or expectation of compensation – and that the duties and responsibilities are regular volunteer work.
  • Volunteers, as I said earlier, are important assets to an organization and they themselves reap benefits far beyond the value of donating their time.  Volunteers also have to be managed, trained, and insured often by paid staff.   Volunteer labor is not free to an organization and does have a value. We just need to talk about it differently to appreciate the difference.

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