5 best payroll software for nonprofit organizations in 2025

Running a nonprofit business comes with a unique set of payroll challenges. Unlike for-profit businesses, nonprofits must find their way around complex tax regulations, track payroll expenses against grants and donations, and manage a mix of employees, contractors, and volunteers. And budget constraints often mean there’s no full-time payroll specialist. On top of that, nonprofits need to make sure they comply with government regulations while maintaining financial transparency for donors and stakeholders.

Software can make the payroll process simpler by automating tax calculations, tracking employee wages, and integrating with accounting systems. The right tool can help nonprofit leaders save time, reduce compliance risks, and keep payroll costs in alignment with their funding sources.

In this article, we outline some of the best payroll software for nonprofits in 2025, key features to look for, and how to choose the right solution for your organization.

What is payroll software? 

Payroll software is a tool that automates the process of paying employees, calculating wages, withholding taxes, and ensuring timely payments. It eliminates the need for manual payroll processing by handling pay schedules, deductions, and compliance requirements.

For nonprofits, payroll software is especially useful because it simplifies administrative work while keeping financial records organized. Nonprofits often operate with limited resources, so automating payroll reduces the burden on staff and minimizes errors. It also helps organizations ensure that they make accurate payments, meet their tax obligations, and properly maintain their employee records.

Instead of spending hours managing payroll manually, nonprofit leaders can rely on payroll software to handle the details, allowing them to focus on running their organization and serving their mission.

Why do nonprofits need payroll software?

Managing payroll for a nonprofit is different from handling payroll in a traditional business. Nonprofits must comply with specific tax regulations, maintain financial transparency, and ensure that payroll costs align with their funding sources. Here’s why every nonprofit should consider using payroll software:

1. Ensuring legal and tax compliance

Nonprofit organizations must follow strict tax rules when processing payroll. While some nonprofits qualify for tax-exempt status, they're still responsible for payroll taxes, including federal income tax, Social Security, and Medicare contributions under the Federal Insurance Contributions Act (FICA). The Internal Revenue Service (IRS) requires nonprofits to withhold and report these taxes just like for-profit businesses.

Payroll software helps nonprofit organizations handle all tax deductions and filings correctly, reducing the risk of errors and penalties. It also helps them keep track of changes in tax laws, making compliance easier without the need for a dedicated payroll specialist.

2. Streamlining accounting processes

Handling payroll manually can create unnecessary work for nonprofit finance teams. Every payroll cycle involves tracking wages, deductions, and benefits, then recording everything correctly in financial statements. Good payroll software integrates with accounting systems to automatically update records, making sure payroll data is accurate and up to date. This eliminates the need for manual data entry, reduces accounting errors, and simplifies audits.

By automating these processes, nonprofit organizations can free up valuable time and have peace of mind knowing that their financial records remain organized and compliant.

3. Generating accurate financial reports

Nonprofits must maintain clear and accurate financial records to comply with grant requirements and tax laws. Payroll software can generate detailed reports on wages, taxes, and deductions, making it easier to track where funds are going. These reports are essential for audits, grant applications, and donor transparency.

Automated payroll reporting also reduces human error, making sure that financial statements reflect the correct payroll expenses. Having accurate reports can help nonprofits plan budgets, demonstrate financial responsibility, and provide stakeholders with the information they need.

4. Tracking payroll costs against grants and donations

Unlike for-profit businesses, nonprofits often rely on multiple funding sources, including grants, donations, and government funding. Many funders require organizations to track and allocate payroll expenses across different funding streams. Payroll software enables nonprofits to categorize wages, benefits, and payroll taxes according to their funding sources. This can help them comply with grant guidelines and can also make financial reporting a lot easier.

Proper tracking also helps nonprofits show donors and funders exactly how they use their contributions, reinforcing their charitable mission and building trust with stakeholders.

5 best payroll services for nonprofits

Here are five of the top payroll services that may be suitable for nonprofit organizations: 

1. Rippling

Rippling offers an all-in-one workforce management platform that merges Payroll, HR, IT, and Spend, all in a single system.

Key features

• Rippling automates payroll processing so nonprofits can make timely and accurate payments.
• The platform calculates and files federal, state, and local taxes without requiring manual input.
• Nonprofits can integrate Rippling with various accounting software to keep financial records up to date.
• The system provides benefits administration, including health insurance and 401(k) plans, to help manage employee compensation.
• Rippling tracks time and attendance, making workforce management easier.
• Nonprofits can use Rippling to help them comply with labor laws and regulations, avoiding legal risks.
• The platform allows users to customize reports for financial analysis and transparency.
• Rippling also includes role-based access controls, strengthening data security.

Strengths

• Rippling combines payroll, HR, and IT management in a single platform, reducing the need for multiple systems.​
• The platform offers a user-friendly interface that can simplify complex processes. This makes it accessible for organizations with limited HR staff.​
• Its scalable solutions accommodate growing nonprofits, adapting to changing needs.​
• Rippling offers comprehensive compliance support that can help nonprofit organizations adhere to various regulations without extensive manual oversight.

Weaknesses

• Rippling's extensive feature set might be overwhelming for organizations seeking a simple payroll solution without additional functionalities.
• Businesses need a working internet connection to use most of the payroll features. 

2. ADP

ADP is a workforce management platform offering payroll, HR, and benefits administration services.

Key features

• ADP runs payroll for organizations of various sizes, including nonprofits.
• The system calculates payroll taxes and submits filings according to federal and state regulations.
• Employees can access their pay stubs and tax forms through a self-service portal.
• ADP includes a time and attendance tracking feature that records workforce hours.
• The software connects with accounting tools to sync payroll data with financial records.
• Compliance alerts notify organizations about changes in tax laws and labor regulations.

Strengths

• ADP is an established provider with extensive experience in payroll and HR services.​
• It offers scalable solutions that cater to both small and large organizations.

Weaknesses

• ADP's reporting tools can be difficult to navigate, making it challenging to generate customized reports.
• Users mention that reaching customer service representatives can take longer than expected, leading to delays in issue resolution.
• The home dashboard can feel cluttered or lack easy access to important links, making navigation less intuitive.

3. Gusto

Gusto is an all-in-one HR platform that includes payroll, benefits, and compliance management.

Key features

• Gusto processes payroll by calculating wages and deducting taxes before submitting filings.
• Employees can manage their personal details and benefits through a self-service portal.
• The platform records time worked and tracks paid time off.
• Gusto connects with accounting and time-tracking software to sync payroll data.
• The system includes a benefits administration feature that manages health insurance and retirement plans.
• Gusto also updates tax and labor compliance settings based on legal requirements.

Strengths

• Gusto offers a user-friendly interface designed for small to medium-sized organizations.​
• The service has a transparent pricing structures with no unexpected costs. 

Weaknesses

• Customer service can be unreliable, with long wait times and unresolved issues. Some users report having spent over 11 hours across multiple calls just to set up payroll.
• The platform lacks robust reporting features, and users mention that technical support staff provide little assistance when issues arise.
• Adding additional payments to payroll history can be difficult, with a navigation process that feels unclear and cumbersome.

4. Justworks

Justworks is a Professional Employer Organization (PEO) that provides payroll, benefits, and compliance support.

Key features

• Justworks runs payroll by calculating wages, deducting taxes, and submitting payroll filings.
• The system provides access to health insurance and retirement plans for employees.
• Justworks includes tools for onboarding new employees and updating payroll details.
• The platform tracks employee work hours and paid time off.
• Justworks integrates with accounting software.
• The system offers compliance tools to help organizations manage payroll tax requirements.

Strengths

• Justworks acts as a co-employer, handling various administrative responsibilities.​
• The platform provides access to enterprise-level benefits.

Weaknesses

• The PEO model may limit organizational control over certain HR functions.
• Pricing structures may be less flexible, potentially impacting smaller nonprofits. 
• Transitioning to a PEO model requires careful consideration of co-employment implications.

5. Quickbooks

QuickBooks Payroll is a payroll service integrated with QuickBooks accounting software.

Key features

• QuickBooks Payroll calculates employee wages and deducts payroll taxes before submitting filings at the federal and state levels.
• The system integrates with QuickBooks accounting software to sync payroll and financial records.
• Employees can view their earnings and tax details through a self-service portal.
• QuickBooks includes time-tracking features that record work hours and project management details.
• The system provides tools for managing health insurance and other employee benefits.
• QuickBooks updates tax compliance settings to align with payroll regulations.

Strengths

• Integration with QuickBooks can simplify financial management for organizations already using the accounting software.​
• QuickBooks Payroll offers a user-friendly interface designed for small to medium-sized businesses.

Weaknesses

• QuickBooks Payroll lacks advanced HR features in comparison to other payroll providers, making it less suitable for nonprofits needing a full workforce management solution.
• While QuickBooks Payroll offers comprehensive features, the additional cost for full-service payroll may be too high for some nonprofits, especially those with tight budgets.
• Certain payroll processes feel overly complicated. Making changes to an employee’s information requires multiple steps that could be more streamlined, with clearer instructions and fewer technical terms.

4 features nonprofit payroll software should have

Nonprofit organizations need payroll software that goes beyond the processing of paychecks. The right system should simplify financial tracking, help with compliance, and support nonprofit-specific needs. Here are four essential features to look for in payroll software for your nonprofit business: 

1. Seamless direct deposit processing

Nonprofit organizations need a payroll system that makes sure employees and contractors receive their wages on time. Direct deposit eliminates delays caused by paper checks and simplifies payroll distribution. A good payroll system should allow organizations to schedule payments, handle multiple pay rates, and deposit funds into employee accounts securely.

2. Integration with 401(k) and healthcare benefits

Managing employee benefits can be complex, especially for nonprofits operating on tight budgets. Payroll software should integrate with 401(k) retirement plans and healthcare benefits, making it easier to track contributions and deductions. A system that automates these processes can make sure that employees receive the correct benefits while reducing the administrative burden.

3. Responsive customer support services

Nonprofits often lack dedicated payroll specialists, so reliable customer support is important. Payroll software should offer accessible and knowledgeable support teams that can resolve issues quickly. Live chat, phone support, and in-depth help centers can prevent payroll disruptions and be helpful when it comes to complying with tax laws and labor regulations.

4. Built-in time tracking capabilities

Many nonprofits manage a mix of full-time employees, part-time staff, and contractors. A payroll system with built-in time tracking allows organizations to monitor work hours, overtime, and paid time off. Integrating time tracking with payroll reduces errors and helps nonprofits make sure that they pay their employees accurately. It can also simplify financial reporting for grants and funding sources.

Benefits of using payroll software for nonprofit organizations

Here are four key benefits of using payroll software for nonprofit organizations: 

Simplifies HR tasks and reduces manual payroll processing

Nonprofit organizations often operate with limited administrative staff. This can make manual payroll processing time-consuming and error-prone. Payroll software automates calculations, deductions, and direct deposits, reducing the need for manual data entry. It also helps organizations meet minimum wage requirements and comply with federal and state labor laws. 

By streamlining payroll, nonprofits can reduce human errors, prevent payroll delays, and pay their employees accurately and on time. 

Saves time for small nonprofits 

Many small nonprofits lack dedicated HR or payroll teams, forcing leadership to handle payroll tasks on top of their regular responsibilities. Payroll software can simplify this process by automating tax filings, generating reports, and integrating with accounting systems. So, instead of spending days managing payroll manually, nonprofit leaders can set up payroll runs quickly. 

This efficiency enables small nonprofit organizations to focus more on fundraising, program development, and community outreach.

Automates tax filing to ensure compliance

As mentioned, nonprofits must stay compliant with tax regulations, including federal income tax, Social Security, and Medicare contributions under FICA. The IRS also requires nonprofits to calculate and withhold taxes correctly, even if they qualify for tax-exempt status. 

Payroll software automates tax filings and payments, reducing the risk of missed deadlines and costly penalties. It also updates tax rates and regulations automatically, encouraging compliance without manual tracking.

Boosts financial transparency and compliance

Donors and grant providers typically expect nonprofits to maintain clear and accurate financial records. Payroll software helps nonprofit organizations track wages, benefits, and deductions, ensuring full transparency in payroll expenses. It can generate detailed reports that show exactly how the organization allocates funds, making audits and financial reviews far easier. 

With better tracking, nonprofit organizations can demonstrate responsible financial management and maintain the trust of donors, funders, and stakeholders in the charitable sector.

How to set up payroll for nonprofit organizations

Without a proper payroll system, nonprofit organizations may risk compliance issues, financial errors, and administrative challenges. Here are four critical steps to setting up payroll for a nonprofit:

Step 1. Obtain necessary tax identification numbers

Nonprofits must register with federal and state tax agencies before running payroll. This process requires obtaining an Employer Identification Number (EIN) from the IRS, which acts as a unique tax ID for the organization. Some states also require a State Tax ID to handle state payroll taxes.

For example, a nonprofit based in California must apply for an EIN through the IRS website, then register with the California Employment Development Department (EDD) for state payroll taxes. Without these IDs, the nonprofit can't legally withhold or pay payroll taxes for employees.

Step 2. Collect employee information and employment documents

Before processing payroll, nonprofits must gather essential employee documents. This includes W-4 forms for federal income tax withholding, I-9 forms to verify employment eligibility, and state-specific tax forms if necessary. Nonprofit organizations must also record employee classification (full-time, part-time, or contractor) to ensure accurate tax withholding and benefits.

For example, if a nonprofit hires a new full-time program coordinator, they must submit a completed W-4 form and provide documentation proving work eligibility. If the nonprofit misclassifies an employee as an independent contractor, they could face tax penalties for not withholding payroll taxes properly.

Step 3. Secure required insurance and benefits

Nonprofits must provide the necessary insurance and benefits required by law. This includes workers' compensation insurance, which covers employees in case of work-related injuries, and unemployment insurance, which states typically mandate. If the nonprofit offers health benefits or retirement plans, payroll software should integrate with these systems for automatic deductions.

For example, a nonprofit in New York must purchase workers' compensation insurance through a licensed provider and register for unemployment insurance through the New York State Department of Labor. Failure to secure the necessary insurance can result in fines and legal consequences.

Step 4. Ensure compliance with government regulations

Nonprofits must comply with federal and state payroll laws, including minimum wage laws, overtime pay requirements, and payroll tax filings. These organizations must also track payroll expenses and report them accurately for grant funding and tax-exempt status.

For example, a nonprofit receiving a government grant to fund staff salaries must track payroll costs separately to ensure compliance with grant conditions. If the nonprofit misallocates payroll expenses, they could lose funding or face audits.

How to choose the right payroll software for your nonprofit

Here are five key factors nonprofits should consider when choosing payroll software:

1. Consider both HR and payroll needs

Nonprofits often manage a diverse workforce, including full-time employees, part-time staff, and contractors. Some organizations also offer stipends or honorariums, making payroll more complex. Payroll software should handle these different pay structures while also offering HR tools like employee onboarding, benefits administration, and tax form generation.

For example, a nonprofit that runs after-school programs may need payroll software that manages payroll and tracks employee background checks, certifications, and training requirements. A solution that combines HR and payroll can reduce administrative workload and ensure compliance with employment laws.

2. Look for scalability and growth potential

As nonprofits grow, their payroll needs change. A small nonprofit organization with a handful of employees might only need basic payroll processing, but as funding increases and the workforce expands, more advanced features like automated tax filings, benefits integration, and grant tracking can become essential.

For instance, a nonprofit starting with ten employees may grow to 50 within a few years as new grants and fundraising efforts take off. Choosing a payroll system that scales with the organization prevents the hassle of switching software later. Look for providers that allow easy plan upgrades and integrations with other nonprofit management tools.

3. Prioritize essential payroll features

Nonprofits have unique payroll needs beyond basic paycheck processing. The right software should include automated tax compliance, direct deposit, employee classification tracking, and the ability to allocate payroll expenses to different funding sources. Some nonprofits also require detailed reports for audits and grant applications.

For example, a nonprofit receiving a federal grant must track payroll costs tied to the grant and provide reports showing how they use the funds. Payroll software that includes expense tracking and grant-specific reporting can simplify compliance and financial transparency.

4. Choose a flexible and integrated solution

A nonprofit’s payroll system should integrate with other tools the organization already uses, such as accounting software, donor management platforms, and time-tracking systems. Without integration, payroll data may become fragmented, leading to manual work, duplicate entries, and errors in financial reporting.

For example, if a nonprofit relies on specific accounting software, its payroll system should sync directly to keep payroll expenses in alignment with financial records. Integration with time-tracking tools is also important for nonprofit organizations that must track staff hours linked to grants and contracts, ensuring accurate reporting and compliance with funding requirements.

5. Ensure reliability for employees and compliance

Payroll accuracy affects employees directly, and mistakes can lead to frustration or legal issues. A reliable payroll system helps nonprofit organizations pay their employees correctly and on time. It can also help them keep up with compliance requirements, including tax withholding and reporting.

For example, a nonprofit that employs seasonal workers for summer programs must make sure that the payroll software they choose can correctly handle temporary employees, tax deductions, and overtime pay. Essentially, a payroll provider with strong compliance support and real-time payroll processing can help nonprofits avoid payroll-related issues.

Nonprofit tax considerations

Nonprofit organizations must navigate unique tax obligations to maintain compliance and financial transparency. While some nonprofits qualify for tax exemption, they're still responsible for specific payroll and employment taxes. Understanding these obligations can help nonprofits avoid penalties and keep funding sources in good standing.

Payroll taxes

A common question is, "Do nonprofits pay payroll taxes?" The answer depends on the type of taxes. While tax-exempt nonprofits don't pay federal income tax, they must still withhold payroll taxes for employees. This includes Social Security and Medicare under FICA, as well as federal unemployment taxes if the nonprofit doesn’t qualify for an exemption. Nonprofits must also comply with state payroll tax laws, which vary by location.

For example, a nonprofit with paid employees must withhold federal income tax from employee wages, just like for-profit businesses. However, certain religious or charitable organizations may be exempt from federal unemployment taxes if they meet IRS exemption criteria. Payroll software with built-in compliance tracking can help nonprofits determine their tax obligations and ensure proper filings.

Maintaining tax-exempt status

Nonprofits must follow IRS guidelines to keep their tax exemption status. This includes using funds for charitable purposes, avoiding political campaigning, and ensuring that compensation remains reasonable. Failure to meet these standards can lead to the loss of tax exemption, which would require the nonprofit to pay federal income tax like a regular business.

For example, if a nonprofit pays executives excessively or spends too much revenue on administrative costs instead of mission-based programs, it could face scrutiny from the IRS. Payroll software can help nonprofits track compensation, document expenses, and generate reports that demonstrate compliance with tax exemption rules.

Filing tax returns

Even though most tax-exempt nonprofits don't pay federal income tax, they still need to file annual tax returns with the IRS. Most nonprofits submit Form 990, which provides financial details about income, expenses, and executive compensation. Failure to file Form 990 for three consecutive years can result in the automatic revocation of tax-exempt status.

For example, a nonprofit operating on grants and public donations must report all incoming funds and payroll expenses on Form 990. If they fail to file, they could lose their tax exemption, making them liable for federal income tax and other business taxes. Automated payroll software with reporting tools can help nonprofits track payroll-related expenses for easy tax filing.

Using grants to pay employees

Many nonprofits rely on grant funding to cover salaries, but they must follow strict rules on how they allocate the grant money. Some grants allow payroll expenses, while others restrict funds to program costs. Misusing grant money for payroll can result in funding loss and legal issues.

For example, if a nonprofit receives a grant specifically for community outreach programs, it can't use that money to pay administrative salaries unless explicitly permitted. Payroll software with grant tracking features helps nonprofits categorize salaries correctly and generate reports to ensure compliance with funding restrictions.

Rippling: The best payroll software for nonprofits

Rippling is an all-in-one workforce management platform that unifies Payroll, HR, IT, and Spend in a single system, all built on a single source of truth. 

With Rippling, your nonprofit organization can automate payroll, receive compliance support, manage employee benefits, and integrate seamlessly with accounting software to keep financial records in order. Whether you have a small team or are scaling rapidly, Rippling provides a powerful, easy-to-use platform to manage payroll efficiently.

Why nonprofits choose Rippling

• One platform, all-in-one management: Instead of juggling multiple systems for HR, payroll, and IT, nonprofits can manage everything in one place with Rippling’s unified workforce platform.
• Automated compliance: Rippling takes care of federal, state, and local payroll tax filings, reducing errors and penalties.
• Scalable for growing organizations: As nonprofits expand, Rippling grows with them, making it easy to onboard new employees, track expenses, and manage payroll at scale.
• Fast and user-friendly: Payroll processing takes just 90 seconds, eliminating the complexity of traditional payroll systems.
• Flexible payment options: Nonprofit organizations can pay employees via direct deposit, check, or international payments, ensuring that nonprofit staff and contractors receive payments on time.

FAQs on payroll for nonprofits

What is the 33% rule for nonprofits?

The 33% rule for nonprofits refers to a guideline used by the IRS to determine whether an organization qualifies as a public charity rather than a private foundation. To maintain public charity status, a nonprofit must receive at least one-third (33.3%) of its total revenue from public support, such as individual donations, grants, or government funding.

If a nonprofit fails to meet this threshold, the IRS may reclassify it as a private foundation, which comes with different tax rules and reporting requirements. A private foundation must pay excise taxes on investment income and distribute a minimum percentage of its assets annually to charitable causes.

For example, a nonprofit with a focus on community health services must ensure at least one-third of its funding comes from public sources like grants, membership fees, or small-dollar donations. If most of its funding comes from a single donor, the IRS might classify it as a private foundation, impacting tax obligations and funding strategies.

How do nonprofits afford to pay employees?

Nonprofits pay employees through multiple revenue sources, including:

• Grants: Government agencies, foundations, and corporations provide grants that often include funding for salaries.
• Donations: Many nonprofits rely on individual and corporate donations to cover operating costs, including payroll.
• Program service revenue: Some nonprofits generate income through service fees, ticket sales, or memberships.
• Endowments and investments: Large nonprofits may have investment income or endowments to fund salaries.
• Government contracts: Many nonprofits provide public services under government contracts, which allocate funds for staffing.

Are there payroll services that have free plans?

Most full-service payroll providers don't offer free payroll plans because payroll processing involves compliance, tax filing, and direct deposits, which require ongoing support and automation. However, some payroll software providers offer:

• Discounted rates for nonprofits
• Free trials for limited payroll processing
• Basic payroll tools with restricted features

For example, some accounting platforms provide free payroll calculators, but they don’t handle tax filings, direct deposits, or compliance tracking. 

What are the best payroll services for small nonprofits?

Small nonprofits need easy-to-use payroll software that can handle tax compliance, employee payments, and benefits administration without adding unnecessary complexity. The best payroll software for small nonprofits should:

• Offer transparent pricing: No hidden fees, clear and predictable costs
• Automate tax filings: Handle federal, state, and local payroll taxes
• Support a flexible workforce: Work for full-time, part-time, and contract staff
• Integrate with accounting and donor management software: Sync payroll with financial reporting
• Scale with growth: Grow alongside the nonprofit without requiring a system switch

Several payroll providers can work well for small nonprofits, but Rippling stands out as an all-in-one workforce management platform that includes Payroll, HR, IT, and Spend in a single system. Unlike basic payroll tools, Rippling automates tax compliance, benefits management, and employee onboarding while integrating with accounting software, reducing administrative work.

For example, a small nonprofit with a handful of employees and grant-funded contractors can use Rippling to track payroll expenses by funding source, ensure tax compliance, and simplify payroll processing. As the nonprofit grows, Rippling can scale with it, eliminating the need to switch platforms later.

Other payroll providers offer basic payroll processing, but small nonprofits should choose a system that supports long-term financial and workforce management needs. This makes Rippling an ideal choice for both small teams and growing nonprofit organizations.

This blog is based on information available to Rippling as of March 6, 2025.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.