Running a nonprofit is all about focusing on your mission. But behind every great cause, there’s a ton of administrative work, and payroll is a big one. Nonprofits employ millions of people, and payroll often makes up nearly 45% of an organization’s budget. Choosing the right payroll software for nonprofit organizations isn’t just about paying your team; it’s about protecting your resources, staying compliant, and keeping your focus where it belongs.

This guide walks through everything you need to consider, from essential features to smart evaluation methods, helping you find the perfect solution for your team.

How to Evaluate and Choose Your Payroll Software

Making the right choice upfront saves countless hours down the road. It starts with a clear process and understanding what makes your organization unique.

1. Start with a Nonprofit Payroll Software Comparison

Don’t just pick the first name you recognize. One source might praise Gusto while another recommends ADP, but the truth is, no single solution is perfect for every nonprofit. What works for a large national charity might be overkill for a local community center.

Start by looking at independent reviews and “best of” lists that focus specifically on payroll software for nonprofit organizations. For example, a Fit Small Business analysis evaluated 13 different platforms across 34 criteria to find the top contenders. This broad comparison helps you create a shortlist of options worth exploring further.

2. Define Your Organization’s Selection Criteria

Before you get dazzled by features, map out your must haves. The right payroll provider should fit your staff, funding, and compliance needs, not the other way around.

Make a checklist covering:

• Budget: What is your realistic monthly or annual spend?
• Team Size & Type: How many W-2 employees and 1099 contractors do you have? Do you pay volunteer stipends?
• Funding Sources: Do you manage multiple grants with specific reporting needs?
• Internal Capacity: Who will run payroll? How much time can they dedicate to it?

Knowing your priorities, whether it’s grant tracking, multi state compliance, or simple affordability, creates a clear method for evaluating nonprofit payroll software.

Core Payroll and Compliance Features for Nonprofits

Nonprofits have unique compliance and operational needs. Your software must be able to handle them without complicated workarounds.

3. Automated Payroll Tax Filing and Compliance

Payroll tax mistakes are costly. Look for a solution that automatically calculates, withholds, and files all federal, state, and local payroll taxes. This automation is your first line of defense against penalties. The best payroll software for nonprofit organizations stays current with changing tax laws and handles everything from Form 941s to state unemployment filings for you. Some providers even offer tax penalty protection, giving you an extra layer of security.

4. Simple FUTA Exemption Setup for 501©(3)s

Here’s a key difference for nonprofits: 501©(3) organizations are generally exempt from the Federal Unemployment Tax Act (FUTA). Your payroll software must support this. If it doesn’t, you could end up overpaying taxes. Leading platforms like Gusto and OnPay allow you to easily mark your 501©(3) status so FUTA taxes are not calculated on employee wages. Confirm this feature is included and easy to activate.

5. Robust Grant Funded Salary Tracking

If your organization relies on grants, you know the reporting burden is real. Manually tracking payroll expenses against restricted funds is a recipe for errors. Choose a payroll software with built in grant funded salary tracking. This lets you tag employee hours or wages to specific grants, programs, or funders. It’s essential for showing donors and auditors exactly how their money was spent.

Managing Your Diverse Nonprofit Team

Nonprofit teams are rarely straightforward. From volunteers to contractors, your software needs to be flexible.

6. Support for Multiple Schedules and Roles

Nonprofits often have a mix of full time salaried staff, part time hourly workers, seasonal help, and stipended volunteers. Your payroll system should handle this diversity seamlessly. Look for software that allows you to set up multiple pay schedules (weekly, biweekly, monthly) and manage different worker types without needing separate systems.

7. Easy Processing for W-2 Employees and 1099 Contractors

Paying both employees and independent contractors should be simple. The best payroll software for nonprofit organizations lets you manage W‑2 and 1099 workers in a single platform. For tips on working with contractors compliantly, see our contractor management best practices. This streamlines payments, simplifies end of year tax form generation (W-2s and 1099s), and keeps all your payment records in one place. For organizations that need to hire and pay teams globally, platforms like Bolto unify US payroll and contractor payments in one simple workflow.

8. Volunteer Hour and Stipend Tracking

Volunteers are the lifeblood of many nonprofits. While they aren’t on payroll, tracking their hours is crucial for grant reporting, insurance purposes, and internal recognition. Some payroll platforms offer features for logging volunteer hours. If you provide stipends for volunteers or interns, ensure your software can process these non wage payments correctly and report them as needed.

9. Employee Self Service Portal and Mobile Access

Empower your team with a self service portal. This gives employees 24/7 access to their pay stubs, tax documents, and personal information. It reduces administrative questions and lets your staff manage their details independently. A modern platform should also offer a mobile app, allowing employees to check their pay, request time off, and access documents from anywhere.

10. Direct Deposit Options and Payout Speed

Direct deposit is a standard expectation for most employees. Confirm that the software offers reliable direct deposit and check for its payout speed. Some providers offer 2 day or even next day direct deposit, which can be a valuable perk for your staff. Flexible payment options show you value your team’s time and financial well being.

Integrations and HR Capabilities

A payroll system that connects with your other tools saves time and reduces data entry errors.

11. Time and Attendance Integration

If you have hourly employees, integrating your time tracking tool with payroll is a game changer. This eliminates manual data entry and ensures hours are calculated accurately. Look for payroll software that either has a built in time and attendance system or integrates smoothly with popular tools you already use.

12. Accounting Integration for Nonprofits

Your payroll data needs to flow directly into your accounting software. The best payroll software for nonprofit organizations integrates seamlessly with platforms like QuickBooks or Xero. This simplifies bookkeeping, ensures your financial records are always up to date, and makes financial reporting much easier for your board or auditors.

13. Donation and Fund Allocation Integration

While less common, some advanced systems designed for nonprofits can integrate with fundraising or donation platforms. This allows for a more holistic view of your organization’s finances, connecting funds received directly to the payroll expenses they cover. This is particularly useful for robust grant and fund allocation reporting.

14. Benefits Administration Integration

Managing health insurance, retirement plans, and other benefits can be complex. A payroll platform that includes or integrates with benefits administration simplifies enrollment, deductions, and compliance. This creates a unified experience for employees and reduces the administrative burden on your HR team. For startups and nonprofits looking for an all in one solution, platforms like Bolto can help manage payroll and benefits in one place.

15. DEIA Tracking and HR Features

Modern HR goes beyond payroll. Some platforms now include tools for Diversity, Equity, Inclusion, and Accessibility (DEIA) tracking. This can help you analyze workforce demographics and support your organization’s equity goals. Other valuable HR features to look for include onboarding checklists, document storage, and performance management tools.

Strategic and Operational Considerations

Think about your organization’s future and the support you’ll need to get there.

16. Scalability and Multistate Payroll

Your nonprofit might be small now, but what about in five years? Choose a payroll software that can grow with you. This means it can handle an increasing number of employees and, crucially, manage multistate payroll. If you have remote employees in different states, the software must handle the varying state tax withholding and filing rules automatically. This is a common pain point where a specialized provider can save you from major compliance headaches. If you’re planning to hire outside the U.S., see our multi-country payroll solutions guide.

17. PEO Service vs. Payroll Software for Nonprofits

You might encounter the term PEO (Professional Employer Organization). A PEO becomes the co employer of your staff, handling payroll, benefits, and HR compliance. If you’re weighing PEOs vs. payroll software, see our PEO software guide. This can be a comprehensive solution but often comes at a higher cost. For most nonprofits, dedicated payroll software offers the right balance of features, control, and affordability without the complexity of a co employment relationship.

18. Clear Pricing and Nonprofit Discounts

Budget is always a top concern. Look for transparent pricing (see Bolto pricing for examples), which is typically a base monthly fee plus a per‑employee fee. Beware of hidden charges for things like year end tax forms or off cycle pay runs. Always ask if they offer a nonprofit discount; many providers are happy to support charitable organizations with reduced pricing.

19. Compliance Reports for Nonprofits and Grants

Good reporting is non negotiable. Your payroll software should generate a variety of reports, including payroll summaries, tax liability reports, and employee details. For nonprofits, the most critical reports are those that help with grant reporting and Form 990 preparation. The ability to create custom reports that break down payroll costs by program, department, or grant is a huge advantage.

20. Customer Support Availability

When something goes wrong with payroll, you need help fast. Evaluate the customer support offered by each provider. Do they offer phone, email, and chat support? What are their hours? Look for reviews that mention the quality and responsiveness of their support team. Having access to knowledgeable humans when you need them is invaluable.

21. Setup Services and Onboarding

Switching payroll systems can be daunting. A provider that offers dedicated setup services and a clear onboarding process can make the transition smooth. See our Assembly case study for a real‑world example. Some will handle the data migration for you, ensuring that all your employee and historical payroll data is transferred correctly. A strong onboarding experience sets you up for long term success. If your team is struggling to manage complex hiring and payroll, booking a demo with a platform that specializes in this can provide immediate clarity.

Frequently Asked Questions

1. What makes payroll software for nonprofit organizations different?

Nonprofit payroll software is designed to handle unique needs like 501©(3) FUTA tax exemptions, grant funded salary tracking, and reporting for Form 990. It helps organizations stay compliant while managing restricted funds properly.

2. Can we pay 1099 contractors and W-2 employees in the same system?

Yes, most modern payroll platforms are built to handle both W-2 employees and 1099 independent contractors. This simplifies your payment process and ensures all year end tax forms (W-2s and 1099s) are generated correctly from one system.

3. How much should we budget for nonprofit payroll software?

Pricing typically involves a monthly base fee (around $40 to $100) plus a per employee fee (around $5 to $12 per person, per month). Always ask for nonprofit discounts, as many vendors offer them.

4. What are the key compliance features to look for?

The most critical compliance features are automated federal, state, and local tax filings; support for FUTA exemptions; correct generation of W-2 and 1099 forms; and the ability to handle multi state payroll complexities.

5. What is the difference between payroll software and a PEO?

Payroll software automates your payroll calculations, tax payments, and filings, but you remain the sole employer. A PEO (Professional Employer Organization) becomes a co employer, taking on more HR and liability responsibilities, usually at a higher cost. Most nonprofits find dedicated payroll software to be the more straightforward and cost effective choice.