Most nonprofits, particularly small ones, rely on free help from volunteers. Indeed, about 85% of all nonprofits have no paid staff at all and rely entirely on volunteers. Even larger nonprofits that have paid staff often have substantial numbers of volunteers working for them.
How much is all this volunteer time worth? A lot. The organization Independent Sector estimates that the value of volunteer time for 2012 was $22.14 per hour. About 64.3 million Americans, or 26.8% of the adult population, gave 7.9 billion hours of volunteer service worth $171 billion in 2011.
That's a lot of money. It's great that there are volunteers willing to help nonprofits free of charge. However, using volunteers does present a problem when it comes to showing the public the size and effectiveness of your nonprofit. This is because a nonprofit may not include the value of volunteers’ time when it reports its annual revenues to the IRS on Form 990 or 990-EZ. Nor can they include the value of the free use of property—for example, free office space provided by a donor.
This rule is unfortunate because its effect is to diminish the apparent size and importance of nonprofits that rely on volunteers and effectively understates their public support. This is especially significant because Form 990 and 990-EZ are used by organizations like Guidestar and Charity Navigator to report on the extent and nature of a nonprofit's activities.
What can a nonprofit that relies on volunteers do? The value of volunteer services can be mentioned in the part of Form 990 or 990-EZ where your nonprofit describes its service accomplishments. Be sure to do this.
The value of volunteer time can also be included on financial statements, including those used for grant proposals and annual reports. However, accounting rules require that the value of a volunteer's time may be counted only if he or she performs a specialized skill for a nonprofit. The general rule is that such time may be counted only if the nonprofit would have purchased the services if they had not been donated.
Independent Sector's $22.14 per hour figure for valuing volunteer time is only a rough estimate based on the average wages of non-management and non-agricultural works. Some volunteers' time is worth far more.
For good guidance on how to calculate the value of volunteer time, refer Independent Sector’s website at www.independentsector.org.
For more on complying with IRS nonprofit standards, see Nolo's book, Every Nonprofit's Tax Guide.