5 Tips to Budget for Volunteer Programs and Support

Sometimes, the annual budgeting process can feel like a guessing game. Although you base your projected revenue and expenses on historical financial data, it’s difficult to be confident that you’ll capture all the nuances involved in proper nonprofit budgeting.

One common blind spot for nonprofit budgets is volunteer-related line items. Although it may seem that volunteers don’t cost your organization anything, you likely have some costs associated with volunteer programs and support. This guide offers five tips to help you better incorporate volunteer costs into your budget and financial management strategy.

1. Create a volunteer class in your accounting software

While you might lump all volunteer-related costs into a general administrative line item on your Statement of Functional Expenses, this approach will make it difficult to track which expenses are associated with your volunteer program.

Instead, create a specific class in your accounting software for volunteer recruitment, training, and retention. Isolating these costs allows you to:

• Improve the accuracy of your program expense ratio. Donors and charity watchdogs often evaluate nonprofits based on their program expense ratios, or the percentage of their budgets allocated to their missions rather than overhead. When you record volunteer costs appropriately, you can show that they’re fueling your cause.
• Demonstrate the value of volunteer costs to your board. When presenting your volunteer expenses, compare the total cost of managing volunteers to the value of their time to prove the return on investment (ROI) of your volunteer program. For instance, if your volunteer expenses total $3,000, but you calculate that their time is worth $75,000 by multiplying the value of a volunteer hour by the total number of volunteer hours, volunteers produce a high ROI that can help you justify these costs to your board.
• Prepare for audits. The more specific you are in your functional expense analysis, the smoother your audits will go. Clear labeling prevents questions about miscellaneous spending and instills confidence in auditors that you’re using funds responsibly.

If you need help setting up the proper function in your accounting system to track volunteer expenses, consider working with a nonprofit accountant. They’ll handle the system logistics so you can focus on managing your volunteers and demonstrating ROI.

2. Pinpoint hidden expenses

You likely budget for larger volunteer appreciation and team-building events, but you might neglect the smaller costs involved in engaging volunteers. Consider all the hidden expenses related to your volunteer program, creating line items for costs like:

• Background checks. Many nonprofits require background checks for volunteers. This is key for those who work with vulnerable populations like minors, the elderly, or individuals with disabilities, handle financial assets or sensitive data, or transport beneficiaries. While you’ll need background checks for new volunteers, some insurance policies also require you to re-screen your volunteers annually, which introduces extra costs.
• Insurance riders. Typical insurance policies only cover employees. You may need to add riders to your policy to insure volunteers, increasing your insurance expenses.
• Volunteer management software. The right solutions make it easier to manage and engage volunteers, but some volunteer management platforms increase in price as you add more volunteers.
• Branded merchandise. You may create and purchase t-shirts or other branded items that volunteers can wear when working with your nonprofit, so staff and beneficiaries can easily recognize them.
• Food. If you typically feed volunteers during training, shifts, and events, you’ll need to account for those costs as well.

To further improve this process, consider calculating your average cost per volunteer by dividing your total volunteer budget by the number of volunteers. That way, you know exactly how much it costs to recruit and manage one new volunteer and can accurately budget for any program expansions.

3. Understand the nuances of recording volunteer time on financial statements

Whether you can put the value of your volunteers’ time on your nonprofit financial statements depends on whether they’re creating or enhancing non-financial assets or lending specialized skills that your organization would otherwise have to purchase. Under Generally Accepted Accounting Principles (GAAP), you can only record volunteer time as a financial contribution and expense if at least one of the following applies:

• The service the volunteer provides creates or enhances a non-financial asset.
• The service the volunteer provides requires a specialized skill that you would otherwise have to hire and compensate a professional to complete.

For example, YPTC’s in-kind donation guide explains that if a group of parents got together to build a storage garage behind your nonprofit’s office, that would count as an in-kind donation of services that you could recognize on your financial reports, but volunteers working the food line for Thanksgiving dinner at a soup kitchen would not meet the requirements for recognition.

However, even if you can’t recognize volunteers’ contributions on your financial statements, you should calculate the value of their time so you can accurately estimate this figure when applying for grants and developing annual impact reports. Currently, the estimated value of a volunteer hour in the U.S. is $34.79.

4. Count volunteer hours toward your grant match requirements

When budgeting for a grant, you might have to provide a match, or a portion of the project costs that your nonprofit will cover. However, many government grants allow you to count volunteer hours toward this match requirement, keeping you from having to spend the equivalent amount in cash.

Similar to recording volunteer time in your financial statements according to GAAP, counting volunteer hours toward your government grant match requirements has its own rules under Uniform Guidance (2 CFR § 200.306). To use volunteer hours for a match, the following conditions must apply:

• The volunteer services are verifiable.
• The services the volunteer provided are integral to the project funded by the grant.
• Their time is valued based on the job being performed and standard market value, not necessarily the volunteer’s professional salary.
• The volunteer time used to match one federal grant cannot be used to match another.
• The match typically can’t come from another federal source, such as a volunteer funded by a federal program.

You will need a rigorous time-tracking system in place to prove volunteer time. For instance, you may provide logs from your volunteer management system and details that explain how volunteers’ work furthered the goals outlined in your grant agreement.

5. Consider your volunteer appreciation gifts

While you may want to thank your volunteers, the IRS has rules for different types of gifts. More specifically, the IRS considers gift cards cash equivalents, which are typically taxable income, making financial management and tax compliance more complicated for both you and your volunteers. Allocating funds for tangible appreciation offerings like merchandise to wear while volunteering, or a volunteer appreciation dinner, makes it easier to maintain compliance. Survey your volunteers about what types of appreciation offerings they’d prefer, and shift your strategy toward those requests to simplify your financial reporting process.

Volunteers are an immense resource for nonprofits. To continue unlocking their generosity and building your volunteer community, you must follow industry standards and requirements to value their time and present it correctly. By budgeting, recording, and managing volunteer-related costs appropriately, you can maintain a thriving volunteer program that enables you to help even more beneficiaries.