She shows up every Tuesday and Thursday at 9 a.m., sits at the same desk near the front office, and answers the phone when the receptionist is busy. She processes donation acknowledgment letters, sorts the mail, and occasionally helps onboard new supporters in the database. She has been doing this for two years. Everyone on staff calls her a volunteer, and she would tell you the same thing if you asked. She has a lanyard that says so.
The Department of Labor might see it differently.
The nonprofit volunteer vs. employee distinction is one that organizations depend on every day, often without examining whether they are drawing the line in the right place. Volunteers sustain programs, staff events, execute fundraising campaigns, and keep daily operations running at thousands of mission-driven organizations across the country. Yet the legal boundary between a community member who freely donates her time and an unpaid worker who is owed wages under federal and state employment law is narrower than most nonprofit leaders appreciate. The distinction doesn’t hinge on what a person’s badge says or whether she signed a volunteer agreement. Courts and regulators evaluate the substance of the relationship, applying a specific set of factors that have far more to do with economic reality than organizational intent.
Most executive directors and operations leaders have never tested their volunteer relationships against the legal framework that governs when volunteers become employees. The assumption tends to be that good faith and a volunteer title are sufficient. And in some cases, they are. But in others, volunteer misclassification at a nonprofit has been compounding for years, carrying exposure that includes back wages, employment tax liability, and penalties that surface once when a complaint or audit brings them to light.
Below, this piece dives into the three areas where nonprofit volunteer classification most frequently breaks down, together with a screen organizations can apply to their rosters.
What Makes Someone a Volunteer
As a preliminary matter regarding the volunteer vs. employee question, the Fair Labor Standards Act doesn’t contain a general volunteer exemption for private nonprofits. The statutory carve-out for volunteers under 29 U.S.C. § 203(e)(4) applies exclusively to public agencies: state governments, political subdivisions, and interstate governmental bodies. The only express exemption for a private nonprofit is remarkably narrow, covering individuals who volunteer solely for humanitarian purposes at nonprofit food banks and receive groceries in return. Every other private nonprofit operates without a statutory safe harbor, which means volunteer status rests entirely on DOL policy guidance and judicial interpretation.
The FLSA volunteer rules for nonprofits are set out most clearly in DOL Fact Sheet 14A, which requires that the individual volunteer freely, without pressure or coercion, for public service, religious, or humanitarian objectives, and without contemplation or receipt of compensation. The guidance adds several important qualifiers: the volunteer should serve on a part-time basis, should not displace regular employed workers, and should not perform work in commercial activities that the nonprofit operates, such as a gift shop or thrift store. Paid employees of the organization cannot volunteer additional hours performing the same type of services for which they are already compensated. None of these factors is individually dispositive, but taken together they form the analytical framework the DOL applies when determining whether a nonprofit volunteer is actually an employee.
The IRS brings its own lens to the question. Although the Internal Revenue Code doesn’t define “volunteer,” the IRS applies a three-factor common-law test, evaluating behavioral control, financial control, and the type of relationship, to determine whether a purported volunteer is in fact a compensated worker for federal tax purposes. The agency interprets “compensation” broadly to include nonmonetary benefits, and it has taken the position that when a benefit is tied to productivity, hours worked, or job performance, the recipient may be treated as an employee for both wage and tax purposes.
The Supreme Court addressed the nonprofit volunteer vs. employee distinction nearly four decades ago in Tony and Susan Alamo Foundation v. Secretary of Labor (1985), and that case remains foundational. Participants in a religious nonprofit’s commercial enterprises claimed to be volunteers, but the Court found they were employees under the FLSA because they were economically dependent on the foundation and received in-kind benefits, including food, shelter, and clothing, in exchange for their labor. The legal test, the Court made clear, is not whether someone identifies as a volunteer or even whether the organization sincerely believes the relationship is voluntary. It is whether the economic substance of the arrangement resembles employment.
Where Nonprofits Get This Wrong
The legal framework is useful in the abstract, but most volunteer misclassification at nonprofits emerges from a handful of recurring patterns that leaders don’t necessarily recognize until a complaint or audit surfaces. Five areas account for the majority of the risk.
Stipends and perks that function as compensation. The DOL’s general benchmark is that any fee or stipend paid to a volunteer shouldn’t exceed roughly 20% of what the organization would pay a full-time employee to perform the same work. Above that threshold, or when the payment is structured around hours or output, the relationship begins to resemble employment. Regular gift cards are particularly problematic because they function as cash equivalents and have drawn specific warnings from regulators. What remains generally permissible: mileage reimbursement, meals during a shift, a t-shirt, or a recognition certificate. What creates exposure: a fixed monthly stipend, a gift card distributed after every shift, or any arrangement in which the volunteer expects a specific and recurring financial benefit tied to participation. These are the kinds of perks that can determine when volunteers become employees in the eyes of the DOL.
Paid employees volunteering the same services. A staff member can’t donate additional unpaid hours performing the same category of work for which the organization already compensates her. If a development coordinator stays late to stuff envelopes for a campaign mailing she manages at her employing organization, those are compensable hours regardless of whether she offered to stay. DOL Opinion Letter FLSA2018-16 confirmed that this rule applies to religious, charitable, and nonprofit employers with the same force it carries for public agencies. The practical implication is significant for organizations with lean teams where the boundary between “on the clock” and “pitching in” tends to blur.
Mandatory scheduling and attendance expectations. The “freely given” element of volunteer service erodes when the organization mandates specific hours, imposes attendance requirements, or penalizes a volunteer for missing a shift. Volunteers, by legal definition, volunteer. If the organization tracks attendance, issues warnings for absences, or conditions other benefits on showing up, regulators might view those controls as indicia of an employment relationship rather than a charitable one. Under FLSA volunteer rules for nonprofits, scheduling control is one of the strongest signals that a volunteer relationship has crossed the line into employment territory.
Work in commercial operations. The DOL has been consistent in its position that volunteers generally can’t perform labor in a nonprofit’s revenue-generating activities. The thrift store, the café, the fee-based consulting program—these operations need paid staff. Even when an individual freely offers her time, the commercial nature of the work undercuts the humanitarian or public-service purpose that volunteer status requires.
Displacement of paid positions. When an organization eliminates a paid role and fills the gap with volunteers performing identical duties, those individuals are likely employees under the FLSA. Budget pressure is a real and sympathetic constraint for nonprofits, but it doesn’t provide a legal basis for converting a compensated position into an unpaid one. If the work previously required an employee, the DOL’s position likely will be that it still does.
A recent California appellate decision illustrates how courts are sharpening the volunteer vs. employee analysis for nonprofits. In Spilman v. The Salvation Army (Cal. Ct. App. 2026), participants in a residential rehabilitation program worked full-time in the organization’s warehouse and thrift stores without wages, receiving housing, meals, and program services instead. The trial court held that without an express agreement for compensation, no employment relationship existed. The Court of Appeal, though, rejected that reasoning and adopted a new two-part test for nonprofits: first, whether the worker freely agreed to work for a personal or charitable benefit rather than compensation, and second, whether the nonprofit’s use of volunteer labor was a pretense to evade wage laws. The decision signals that courts are looking beyond labels and agreements to examine whether the operational structure of the volunteer relationship is, in substance, exploitative.
What to Do About It
Identifying these risk areas is only useful if organizations translate awareness into a concrete review process. The most effective approach I’ve seen for catching volunteer misclassification at a nonprofit before it becomes a liability is a straightforward roster audit: pull the list of every person the organization currently classifies as a volunteer and run each individual through a five-question screen.
First, does this person receive anything beyond expense reimbursement, meals during a shift, or nominal tokens of appreciation? If so, evaluate the amount, the frequency, and whether the benefit is structured in a way that ties it to hours, attendance, or output. Second, is this person performing the same category of work as a paid employee, or work that was previously a paid position? Either circumstance raises a significant classification concern. Third, does this person operate on a set schedule with attendance expectations or consequences for missing shifts? If the organization tracks volunteer attendance the same way it tracks employee attendance, the relationship has taken on characteristics of employment. Fourth, is this person working in a revenue-generating arm of the organization, such as a retail operation, a fee-for-service program, or a commercial venture? The DOL’s guidance strongly disfavors volunteer status in those settings. Fifth, is this person a current paid employee who is volunteering additional time in the same type of role she is employed to perform? If so, those hours need to be compensated, and failing to do so creates overtime exposure as well.
Any person who triggers one or more of these flags warrants closer evaluation, and in many cases the organization should consult with counsel or restructure the relationship before a complaint forces the issue on less favorable terms.
Documentation deserves separate attention. A signed volunteer agreement does not immunize the organization from a misclassification claim, because courts and regulators evaluate the substance of the relationship regardless of what the paperwork says. But having a well-drafted agreement that clearly states the person is not entitled to compensation, is free to stop volunteering at any time without penalty, and will not be subject to disciplinary action for absences can establish the organization’s intent and create a record that can support the classification if it’s later challenged. The agreement, however, must be paired with practices that match its terms. A volunteer agreement that promises freedom and flexibility means very little if the organization simultaneously maintains a mandatory shift calendar with written warnings for no-shows.
The consequences of volunteer misclassification for nonprofits can compound in ways that catch organizations off guard. Direct exposure includes back wages and overtime, liquidated damages that can double the back-pay award under the FLSA, and back employment taxes covering Social Security, Medicare, and federal unemployment contributions. Beyond those financial liabilities, an organization might face retroactive workers’ compensation obligations and, in a consequence many leaders do not anticipate, a recalculated headcount. Misclassified volunteers added to the payroll can push an organization past the employee thresholds that trigger federal anti-discrimination statutes and leave requirements. Title VII and the ADA apply at 15 employees; the FMLA applies at 50. An organization that believed it was below these thresholds might discover, after a reclassification, that it has been out of compliance with an entirely separate body of employment law.
State law adds yet another layer to the nonprofit volunteer vs. employee analysis. New York, for example, takes the position that a volunteer can’t replace or augment paid staff and can’t perform duties beyond those traditionally reserved for volunteer roles.California’s Spilman framework now requires courts to evaluate whether a nonprofit’s use of volunteer labor functions as a pretense to evade wage obligations. Organizations that operate across state lines or solicit volunteers in multiple jurisdictions cannot rely on the federal FLSA volunteer rules alone; each state’s classification framework needs independent review.
Protecting the People Who Show Up
The person at the desk on Tuesday and Thursday might be a volunteer. She also might be an unpaid employee whose classification the organization has never examined against the legal standard that actually governs the question. The label the organization assigns does not control the outcome. Courts and regulators apply a substance-over-form analysis every time, and the factors they weigh have nothing to do with lanyards, volunteer handbooks, or good intentions.
The legal framework governing nonprofit volunteers vs. employees is not designed to discourage organizations from engaging volunteers. Volunteer labor is a defining feature of the nonprofit sector, and the law accommodates it when the relationship is genuinely voluntary, free of compensation (or its functional equivalents), and structured in a way that doesn’t displace paid work or operate as an end-run around wage obligations. The risk arises when organizations allow these relationships to shift, over months or years, into arrangements that carry the economic substance of employment without any of the corresponding legal protections for the worker.
Nonprofits exist to do meaningful work, and the people who volunteer their time to support that work deserve to be treated the way the law requires. Getting the volunteer vs. employee classification right protects both the organization and the individuals who show up to serve its mission.
If your organization would benefit from a volunteer classification review or a template volunteer agreement tailored to your operations, Porter Legal works with nonprofits at every stage on these kinds of structural questions. Reach out here to start the conversation.
