Form 990: Compensation Information, Part 7February 15, 2021
Part seven of our 990 series dives into publicly disclosing officers, directors, key employees and other highly compensated employees.
*Editor's Note: This blog has been updated as of February 15, 2021 for accuracy and comprehensiveness.
Disclosure of compensation is a required part of an organization’s form 990. Although most people believe their compensation is confidential, that is not the case for nonprofit executives and independent contracts that meet certain criteria. Here’s part seven of our 990 blog series on compensation disclosure.
What does Part VII report?
Part VII, Section A of the Form 990 requires an organization to list officers, directors, key employees and other highly compensated employees who exceed certain thresholds, as described below.
But first, who are considered officers, directors, key employees and highly compensated employees?
- An “Officer” is a person elected or appointed to manage the organization’s daily operations. This includes, the board president, vice president, secretary and treasurer. In addition, the top management official (i.e. organization’s president, CEO or executive director) and the top financial official (i.e. the organization’s CFO or finance director).
- A “Director” is a member of the organization’s governing body, but only if the member has voting rights.
- A “key employee” is defined as a person who is not an officer or director who has annual compensation of $150,000 or more, meets the responsibility test and is one of the top 20 highest paid employees. The responsibility test is met if the individual has influence over the organization as a whole similar to that of an officer or director, or manages a segment of the organization that represents 10% of the organization’s activities, assets, revenue or expenses or has the authority to control 10% or more of the organization’s capital expenditures, operating budget or compensation for employees.
- “Highly compensated employees” are the five highest compensated employees earning over $100,000 who have not already been listed as an officer, director or key employee.
Who is listed in Part VII?
All officers and directors must be listed in Part VII if they served in such capacity at any time during the reporting period. The amount of compensation reported for all individuals is the amount of compensation that appears on their Form W-2 (box 1 or 5, whichever is greater) and/or Form 1099-NEC box 1 and/or Form 1099-MISC box 6. The Form W-2 and Form 1099 should be from the calendar year that occurs during the fiscal year being reported on. Therefore, if your organization is completing its Form 990 for the fiscal year ending June 30, 2021, it will report compensation figures obtained from the December 31, 2020 W-2 or 1099 forms.
Do they have to be listed in a certain order?
The individuals you are reporting should be listed in the following order: directors, officers, key employees and highest compensated employees. Although an individual may fit in more than one category, they should be listed in the above order. For example, if an officer has compensation above $100,000, that individual is listed as an officer and later on in the list, the organization still must list the 5 highest employees earning over $100,000. The fact that the officer also qualifies as a highly compensated individual does not reduce the number of highly compensated employees who must be listed.
Reporting average hours worked
The form also asks the average hours per week that the individual devotes to the organization during the year. An actual number of hours should be listed here. Enter “-0-”, if appliable, but statements such as “as needed” or “as required” should not be used. Thus, if directors attend a monthly board meeting that requires 4 hours, than they should spend an hour or so preparing for the meeting. This would average out to be about 1.25 hours per week and should be reflected on the form. For employees, the number of hours worked should be accurate and exact, for example, one should not give an estimate of 40+ hours.
For each individual listed, use column (D) to indicate the compensation received from the filing organization and column (E) for the compensation received from any related organizations. The following are a few examples of a related organization:
- Parent: an organization that controls the filing organization.
- Subsidiary: an organization controlled by the fling organization.
- Brother/Sister: an organization controlled by the same person or persons that control the filing organization.
Reporting “other compensation”
Column (F) asks for the amount of “other compensation” which generally includes any compensation that is not included in box 1 or 5 of Form W-2, in box 1 of Form 1099-NEC or in box 6 of Form 1099-MISC. The following items must be reported as other compensation:
- Deferred compensation
- Employer contributions into a defined contribution retirement plan
- Increases in the actuarial value of defined benefit plan amounts
- Employer paid health benefits
- Employee health benefits paid with pre-tax dollars
- Nonqualified deferred compensation
After the compensation details have been provided, the form asks for the total number of individuals whose compensation is more than $100,000, including but not limited to the individuals listed previously. In addition, for those individuals whose compensation is greater than $150,000, additional information is required in Schedule J of the form.
Highly compensated independent contractors
Section B of Part VII asks to list the five highest compensated independent contractors that received more than $100,000 of compensation. If there are none, you should write “none” in the space provided. In general, you should never leave a question or section blank just because you have nothing to report. Complete each section with a positive response even if that response is “none” or “zero”.
In this section, if you have a contractor who received a significantly large amount of compensation from you during the year, do not hesitate to explain the circumstances. For example, you may say “ABC Contractor worked on seven different projects totaling $175,600.” Indicating “multiple projects” lends some perspective that is not evident if only the total compensation is disclosed.
Reporting compensation amounts can be a daunting task. However, it is one of the areas of the form 990 that receives a great deal of attention. Be sure you are completing this section properly.
Read the rest of our series on Understanding the Importance of your Form 990.
Questions? Reach out to our Nonprofit Services Team.