Should Our Nonprofit’s Executive Director be an Employee or an Independent Contractor?
1. The IRS will make its own assessment of whether a person is an employee or independent contractor of an organization based on the level of control the employer has over that hired person's conduct and work. It is important for the organization to evaluate carefully before deciding how to treat the hired person. The board needs to make the right call because directors can be held personally liable for failure to pay payroll
if the hired person is an employee as opposed to an independent contractor, who is responsible for his/her own employment taxes. (As a related note, the board should ensure they have general liability and D&O insurance in place.)
2. The board will also want to be able to demonstrate that it engaged in a reasonable hiring
and that other candidates were considered for the position. This will help to eliminate the appearance of a conflict of interest for the new hire/former board member. (We should confirm they have a COI Policy in place.) This is especially true in the case of founding directors, who have a high level of personal investment and identification with the new nonprofit.
3. As always, it is best to have a solid job description in place before making a hire.
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