Compensation Reviews

At Church & Charity Law, we understand the IRS’s often complex requirements for determining reasonable compensation payable by nonprofits.  Unlike some firms that merely provide an unsupported opinion regarding legally acceptable wages, Church & Charity Law provides detailed reports with statistical data concerning compensation paid at the mean, 75th percentile, and 90th percentile by similarly-situated nonprofits for similar categories of employment, both nationally and in the employee’s state of residence. Our goal is to assist the nonprofit’s board or independent compensation committee to establish a compensation package which is legally defensible per IRS requirements.

By federal law, compensation paid by a 501(c)(3) should not exceed amounts that would ordinarily be paid for similar services by similar organizations. This might include other churches and ministries, but it might also include secular non-profits or even for-profit organizations. IRS regulations state that current compensation surveys compiled by independent firms may be considered when determining reasonable compensation. We can review various compensation surveys and government records and databases and provide your organization with written documentation of the compensation totals which are deemed reasonable under the law.

IRS regulations encourage nonprofits to use compensation data when setting executive compensation. By law, particularly at Section 26 CFR §53.4958-6 of the federal regulations, compensation approved by an independent compensation committee with the help of a formal compensation review enjoys a “rebuttable presumption” that the compensation is reasonable. This means that the compensation figure will be treated as “reasonable” under the law unless the IRS is able to prove otherwise. This is a highly protective and beneficial standard for nonprofits which establish executive compensation in this manner.