The Line You Can't See Until You've Crossed It: Volunteer vs. Employee Misclassification

Nonprofits run on volunteers. That's not incidental to the sector; it's structural. But the same reliance that makes volunteer labor so valuable also makes it one of the most quietly mismanaged compliance risks in the nonprofit world. The line between "volunteer" and "employee" is a legal one, not a title, and organizations cross it far more often than they realize, usually with good intentions and zero paperwork.

The consequences aren't theoretical. Misclassification exposes organizations to back wages, unpaid payroll taxes, penalties, workers' compensation gaps, and in some cases personal liability for board members who signed off on the arrangement. Here's where the risk actually lives.

1. "Volunteer" Isn't a Label — It's a Legal Test

Under the Fair Labor Standards Act (FLSA), a volunteer is someone who offers services to a nonprofit freely, without expectation of compensation, and without displacing what would otherwise be a paid position. That last clause is the one organizations trip over most: if a role was previously a paid position, or does substantially the same work a paid employee would do, calling the person a "volunteer" doesn't make them one in the eyes of the Department of Labor.

Red flags that a "volunteer" role is actually employment:

• The person works a set schedule under direct supervision, indistinguishable from staff
• The role replaced a position that used to be salaried
• The organization directs how the work gets done, not just what needs doing
• The person receives anything beyond nominal reimbursement, stipends, regular gift cards, free housing, or per-hour "honoraria"

2. Stipends Are a Common Trap

Paying volunteers a "stipend" to offset gas or supplies feels harmless. Still, stipends that function as regular, calculated compensation, especially anything tied to hours worked, can convert a volunteer into a de facto employee regardless of what the org calls the payment. The IRS and DOL both look at substance over label. A one-time thank-you gift is different from a recurring monthly stipend calculated against time served.

If stipends are part of your volunteer program, they need a written policy: flat amount, not hours-based, capped, and consistently applied, with legal or HR review before rollout, not after.

3. Interns Are Not Automatically Volunteers Either

Nonprofit internship programs frequently assume that "unpaid intern" and "volunteer" are interchangeable. They're governed by overlapping but distinct legal tests. The DOL's "primary beneficiary" test for internships asks whether the intern or the organization is the primary beneficiary of the arrangement — training, educational credit, and mentorship weigh toward intern status; performing work the organization would otherwise need to pay someone to do weighs toward employee status. A nonprofit intern doing real operational work with no educational structure around it is at meaningful risk of reclassification.

4. Board Members Doing Staff Work

Small and midsize nonprofits often lean on board members to fill operational gaps: a treasurer who also does the bookkeeping, a board chair who answers the main phone line during a staffing shortage. Board service itself is unpaid and doesn't trigger employment status. But once a board member is performing regular, hands-on operational work indistinguishable from staff duties, the same displacement and control tests apply. This is especially risky when the board member later receives any compensation for that work, since it raises private inurement and conflict-of-interest questions on top of the classification issue.

5. Workers' Compensation Blind Spots

Most states don't require workers' compensation coverage for true volunteers, but if a volunteer is later found to have functioned as an employee, the organization may be retroactively liable for medical costs from an injury that occurred while the coverage gap existed. Nonprofits with volunteer-heavy operations (facilities work, event setup, transportation, direct client care) carry outsized exposure here, and it's rarely discovered until after an injury, when it's most expensive to fix.

6. Episodic and Event-Based Volunteers Still Need Structure

One-off event volunteers feel low-risk, and mostly are, but "episodic" doesn't mean "undocumented." Organizations should still track who volunteered, what they did, and confirm the work doesn't overlap with paid staff roles for the same event. This matters most for organizations that run the same event annually with a rotating mix of paid staff and volunteers doing similar tasks; over several years, the line blurs without anyone deciding to blur it.

Getting Ahead of the Reclassification Risk

Volunteer misclassification rarely happens as one bad decision; it accumulates as a program grows, a role expands, or a paid position gets cut, and the work quietly shifts to "volunteers" to save budget. The fix isn't fewer volunteers; it's clearer structure: written role descriptions that distinguish volunteer duties from staff duties, a documented stipend or reimbursement policy, and periodic review of any volunteer role that has grown in scope since it was created.

This is precisely where Bearing Tree's Payroll & Benefits and Board Administration & Compliance teams add the most value, reviewing volunteer program structures before the Department of Labor does, and making sure the organizations doing the most good aren't the ones carrying the most avoidable risk.

Making it easier to make a difference.