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Are Raises the Same as Bonuses?

OSD Regulations on Salaries, Raises and Bonuses for Nonprofits Who File the UFR

The Massachusetts Operational Services Division (OSD), as the responsible oversight entity for health and human services organizations who hold contracts with the Commonwealth, maintains compliance requirements specific to employee compensation. These requirements include specific parameters related to incentivizing employees with salaries, raises and bonuses.

Bonuses – In accordance with OSD regulations, bonuses are considered employee morale, health and welfare activities and should be evenly applied and made available to everyone in a class of employees. In other words, to be reimbursable, providers are not permitted to give discretionary bonuses to only some employees in a specific class of employees.

AAFCPA guidance comes from the following OSD statement:

The provider’s employee morale, health and welfare activities must be available to all employees and not operated in a discriminatory manner.  Disparities in the availability of these activities may occur based on the employee’s status as a member of management, length of service, collective bargaining agreements or regular hours of employment.  Disparities may not occur within classes of employees.  The costs of the program must be equitably apportioned to all activities of the organization.

Furthermore, the costs associated with the employee morale, health and welfare activities must be adequately supported through written documentation (a health and welfare policy).

Raises – Raises would be considered salaries rather than falling under employee morale, health and welfare activities.  Providers are permitted to issue raises to one group or department (and not others) so long as merit, work performance, education, etc. is considered. Furthermore, salaries and raises are reimbursable operating costs as long as they are program-related, and do not exceed the market price ranges for these positions.

Your personnel policy should allow for raises to be given and, ideally, all employees should have an employment contract that stipulates how they will be evaluated, when, etc. The ideal policy is to combine merit, length of service, performance measures and availability of funds as factors in considering any bonuses or raises.

When making decisions relating to your operations, and specifically relating to employer-employee relations, employee morale and employee performance, providers should follow the guidelines established by the OSD to ensure that these costs are reimbursable state or federal costs.

Reminder: The IRS also has a 12-factor test for permissible compensation packages for employees within tax-exempt organizations, including guidance on the allowance of bonuses.

These regulations are specific to nonprofits who file an annual UFR with the OSD.  Human and Social Services providers who received funds in excess of $100K from the Commonwealth (with exceptions) must file a UFR annually.

If you would like any further clarification regarding the application of these rules, please contact your AAF Partner or Robin Kelley at 774.512.4011, rkelley@nullaafcpa.com.

About the Author

Robin Kelley CPA
Robin is a leader of AAFCPAs’ Managed Accounting Solutions practice, providing strategic finance and accounting guidance, and leveraging state-of-the-art cloud-based solutions to support clients’ most critical business and operational processes.  She provides high-level CFO oversight and strategic planning, enabling clients to drive efficiency, reduce the cycle it takes to close books, and develop better benchmark and baseline financial processes to meet regulatory requirements and achieve growth in revenue & profits. Robin advises many organizations in meeting grant & lender compliance requirements, and identifying and addressing risks within their internal control environment.

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