For many nonprofits, their volunteers rank among their most valuable assets. These individuals contribute critical services, freeing up employees to work on other vital matters. What’s one way to protect them and keep them on board? Take the steps necessary to minimize their risk of tax or legal liabilities that could be associated with their volunteer work.
The tax man can cometh
The possibility that federal or state taxing authorities might come after people because of their volunteer activities doesn’t necessarily spring to mind as an obvious risk. But it can happen. You could inadvertently create taxable income for your volunteers if you provide them any benefits, services or compensation beyond reimbursements for actual out-of-pocket expenses incurred while performing volunteer services. Reimbursements that exceed actual expenses are taxable.
If your volunteers sometimes need to cover costs with their own money (for example, picking up supplies for an event), inform them beforehand — in writing and verbally — that they must provide records and receipts of their spending on the organization’s behalf. This may seem burdensome to people just trying to do some good, so explain that it’s for their own protection.
They can land in court
Volunteers face a real risk of being sued for their actions (or inactions) while performing services for your organization. The risk is particularly significant with nonprofits that provide medical services or work with vulnerable populations. But even such simple tasks as driving can result in litigation.
The federal Volunteer Protection Act of 1997 offers some degree of defense for volunteers acting within the scope of their responsibilities. Many states similarly have passed laws to shield volunteers. But the limitations on liability can vary significantly from state to state, with different limits, conditions and exceptions. For example, Alabama provides broad coverage in the absence of “willful or wanton conduct.” In Michigan, on the other hand, volunteers are protected from lawsuits only if the nonprofit expressly assumes liability for claims in its articles of incorporation.
The volunteer protection laws, however, don’t preempt the need for appropriate insurance coverage. In fact, some of the laws explicitly require a nonprofit to carry insurance to limit volunteer liability.
To minimize risk, carry comprehensive general liability insurance that specifically covers volunteers, as well as directors and officers liability insurance. If volunteers will operate vehicles for your organization, check whether your auto insurance will cover them. Add them as additional insureds if necessary. Larger organizations might consider amending their bylaws to include a broad indemnification clause for volunteers when the claims against them exceed insurance limits.
Think, too, about how you can nip the risk of litigation in the bud by implementing processes and procedures to control the risks of harm or injury caused by volunteers. For instance, you should devote time upfront to screen and train volunteers appropriately, and restrict certain client-facing activities to employees.
Help them help you
Volunteer retention often is just as important as employee retention. But volunteers who feel the risks associated with helping your organization outweigh the benefits probably will direct their altruistic instincts elsewhere. Consult with your legal and insurance advisors to make sure you’re doing all you should to reduce those risks.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.