Human Resource Blog

Reduced rent for volunteer /resident - non profit senior facility

We have a resident in our Independent Living community who does volunteer work for us in our open dining room as a cashier. In return we give her reduced rent but do not report any employment taxes. We are a non-profit in Texas. Is this legal? Similarly we have priests who live on campus and perform masses and also receive reduced rent. Thoughts?

Our suggestion is that you get advice from an attorney regarding your specific situation, because it appears you are breaking the law. There are a number of issues here, including minimum wage, overtime, payroll taxes, income tax, and housing discrimination.

It is legal to have volunteers work at some nonprofits, including religious organizations, but this is not truly a volunteer situation. This is allowing employees to work under the table, without paying taxes, unemployment taxes or social security.

The priests and cashier are not volunteers. A volunteer is someone who works with no compensation. The priests and cashier are receiving compensation in the form of lower rent. If you would normally charge $1,000 per month in rent, and are charging the cashier or priest only $500 per month, then under the law you are paying them $500 per month for this job. You would need to pay employment taxes including unemployment insurance on that amount. The employees would also have to pay income tax on that amount. The cashier would be entitled to at least the minimum wage for the hours she works, and to overtime if she works more than 40 hours in a payroll week.

What would happen if the cashier or a priest were unable to work for a month, or six months? Would his or her rent remain the same? Or would he or she be responsible for the entire rent? If the rent would go up, then you are conspiring with this person to conceal income from the IRS by allowing this employee to work *under the table.*

 If the rent would stay the same, that could be illegal discrimination in housing based on religion or sex (or potentially based on race, color, national ancestry, etc.) since you would be giving a much lower rent to a select few, and charging full rent to other residents. Suppose you have 3 Filipino residents, and none of them are the cashier or priests. In effect, you are charging Filipino residents higher rents than residents of other national ancestry. This is de facto discrimination, even if it was not your intention to discriminate. (If you are a religious organization, it may be legal for you to discriminate based on religion.)

 So either way you are violating the law, and our advice is that you seek an attorneys advice to rectify the situation.