Many nonprofits don’t realize that the Executive Director is nearly always considered an employee of the organization. We’ve seen nonprofits paying the ED as a contractor and issuing a Form 1099 each year, and some of these organizations get into a lot of trouble with IRS as a result. There are several factors to consider when determining whether a worker is an employee or contractor (IRS guidelines), but the primary focus of IRS is the control issue. Who has ultimate control over how the ED’s work is done? For a nonprofit, it’s generally assumed to be the board of directors. Certain rare circumstances may allow an ED to be treated as a contractor, but be sure you consult with your accountant and/or attorney if you think your situation qualifies. The majority of EDs should have payroll taxes withheld and get a Form W-2 each year.
