Nonprofit payroll software (2026): the Restricted-Funds Test

A nonprofit’s payroll problem is not the price of a seat. It is that one person is paid from three grants, each funder wants to see what its money bought, and the Form 990 at the end of the year has to agree with all of it. The IRS writes that requirement plainly, with an example: “for an employee who works on fundraising 40% of the time and program management 60% of the time, an organization must allocate that employee’s salary 40% to fundraising and 60% to program service expenses. It can’t report the 100% of salary as program expenses simply because the employee spent over 50% of his time on program management.”

That sentence is the whole test, and it is the one the buying guides skip. We read ten payroll tools on 31 August 2026 and checked each one’s own pages for whether it can do what that sentence describes. Six name a split of one employee’s pay across several axes. Three describe the exact gesture on a product or help page. The first organic result on this search, Gusto, is not one of the three: its own help centre says “each teammate can be assigned to only one department at a time.”

Be clear about what this page is. We have not run a nonprofit payroll, allocated a grant, or filed a Form 990. We run our own payroll on Gusto and rate it 8/10 in our review; everything else below is quoted from the vendors’ own pages, help centres and, where we say so, from dated archive copies or developer documentation, and every tax rule from an IRS page with its revision date. There are no affiliate links on this page and no scores except Gusto’s. Nothing here is tax advice: the IRS quotes say what is reportable and where, never whether your organization qualifies for anything.

The Restricted-Funds Test: four questions

Run them in order. The first is the one that eliminates most of the market.

Question	What the source says	What to look for
1. Can it split one salary across funds?	Form 990 instructions: an organization “must allocate that employee’s salary 40% to fundraising and 60% to program service expenses”	A help or product page that says percentage or dollar amount, per employee, inside payroll — not a time-tracking report produced afterwards
2. Does it handle the FUTA exemption?	”An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. This exemption can’t be waived” (Publication 15-A, 2026)	A documented switch, and a vendor that says which taxes stay: FICA does
3. Can it produce what Form 990 asks about pay?	Part VII reports compensation from “box 1 or 5 (whichever amount is greater)” of the W-2, with no minimum threshold for current officers and directors, $150,000 for key employees	A compensation report by person, not just a payroll register
4. What does it cost your organization, really?	Nothing to say	The published price for your headcount, the tier the allocation needs, and whether the nonprofit discount is a number or a promise

Two things the test leaves alone on purpose. It does not judge whether your organization is exempt, which is between you, your accountant and the IRS. And it stops at the federal line: state unemployment is separate, and the reimbursable option nonprofits often hear about comes from the federal code’s instruction to state laws rather than from an IRS rule. The one state page we read that spells it out, Washington’s, says “reimbursable employers do not pay unemployment taxes. Instead, they pay us back for the benefits we pay to their separated employees,” and lists 501(c)(3) nonprofits among those eligible. What your state does is your state’s page, not a payroll vendor’s marketing.

At a glance: ten tools against the test, read 31 August 2026

“Documented” means we found a product or help page that names the mechanism. “Not stated” means we did not find it that day, not that it is absent.

Tool	Splits one salary across funds	FUTA exemption documented	Nonprofit page	Nonprofit discount	Five employees, per month
Rippling	Yes, on a product page: “allocate a certain percentage of an employee’s pay to a specific dimension”, plus a “non-profit grant accounting” use case; tier not stated	Not stated	Yes	None published	Quote-only
Patriot Full Service	Yes: “allocate a dollar amount or percentage of their salary to more than one department”, per payroll or ongoing; tier not stated	Not capturable 31 Aug (site blocked)	No	None published	$62
QuickBooks Workforce	Yes, with two locks: “for salaried employees, enter the percentage spent on each class or project”, needs Payroll Premium or Elite and QBO Plus or Advanced	Yes, per employee	Not captured	None published	$123 as a bundle
ADP RUN and Workforce Now	Named “Timebank/Grant Allocation” in a testimonial only, and on Workforce Now, not RUN	Not stated	Yes	Through TechSoup: “access to discounted rates”, rate not published; admin fee $100 (≤49 staff) or $350	Quote-only
Paychex Flex	In developer documentation only: “auto distributions allow employers to setup more complex allocation of worker wages by dispersing the earnings across these different jobs and assignments”	Partial, and its own pages disagree	Yes	None published	Quote-only
Paylocity	Promise only: “grant tracking and labor allocations” on the nonprofit page, no mechanism documented	Not stated	Yes	None published	Quote-only
Gusto	No: “each teammate can be assigned to only one department at a time”; Workforce Costing tracks hours by project instead, on Plus or Premium, or as a paid add-on on Simple	Yes, the best documented of the ten	Yes	None published	$79 (Simple), $140 (Plus)
OnPay	No: its nonprofit FAQ answers the grant question with “unlimited pay runs per month”	Landing page promises it, no help article	Yes, the clearest	None published	$79
Justworks	Not found	Not found	No (both nonprofit URLs 404)	None published	$90; PEO from $395
Netchex	Not found	Not found	Yes, but the page contains no mention of FUTA, 501(c)(3), grants or Form 990	None published	Quote-only

Read the first column against the last. The two cheapest tools with a published price, Gusto and OnPay at $79, are the two that cannot make the split. The cheapest that can is Patriot at $62, on prices we could only read from archive copies. Our dated pricing index tracks these tools as they move.

What the IRS actually says about a 501(c)(3) payroll

Three rules, quoted, because the vendor pages paraphrase them loosely.

FUTA: exempt, and you cannot choose otherwise. The IRS page on section 501(c)(3) organizations and the FUTA exemption, reviewed 28 June 2026, states that payments for services performed by an employee of a religious, charitable or educational organization described in section 501(c)(3) “are not subject to FUTA (unemployment) taxes”. Publication 15-A puts it more strongly: “this exemption can’t be waived.” The Form 940 instructions add the exception that catches shared-services arrangements: a 501(c)(3) is subject to FUTA “when paying wages to employees on behalf of a non-section 501(c)(3) organization”.

FICA: due, in the same breath. The same IRS page says those payments are “generally subject to FICA (Social Security and Medicare) taxes if the payments are $100 or more for the year”, and Publication 15-A repeats it: “wages paid to employees of section 501(c)(3) organizations are subject to social security and Medicare taxes” unless the employee is paid under $100 in a year, or the organization is a church that has filed Form 8274. A tool that says “tax-exempt” without separating the two is describing a status, not a payroll setting.

“Nonprofit” is not the word that matters; “501(c)(3)” is. Publication 15-A is explicit that nonprofits exempt under other parts of section 501 “aren’t exempt from withholding federal income, social security, or Medicare tax from their employees’ pay, or from paying FUTA tax”. Several vendor pages here say “nonprofit”. Only two say 501(c)(3).

Everything else is ordinary employer paperwork: federal income tax withheld, Form 941 each quarter unless the IRS has notified you in writing to file Form 944, W-2s in January. The IRS also puts the trust fund recovery penalty on the table by name for exempt organizations: it “may be assessed against any person, including an officer, director, employee or a member of a board of trustees of a tax-exempt organization, who is responsible for collecting or paying withheld income and employment taxes … and willfully fails to collect or pay them.”

Splitting one salary across grants: who documents the gesture

This is question 1, and it is where the market separates.

Rippling {#rippling} is the only one whose product page describes the mechanism in the words a finance lead would use: “allocate a certain percentage of an employee’s pay to a specific dimension”, with “automated split costing in payroll” and a named use case, “non-profit grant accounting”, where one grant is one job. Which plan it needs is not stated, and neither is any price: every path ends in a demo.

Patriot {#patriot} does the same thing for $62 a month at five employees, on prices we read from archive copies dated 29 July and 2 August 2026 because the site blocked our network on 31 August. Its help centre says you can “allocate a dollar amount or percentage of their salary to more than one department”, either for one payroll or as a standing rule, with a “re-allocate rates” step and a departments-in-payroll report. The word “grant” never appears: you are mapping departments, and calling one of them a grant is your convention, not the software’s.

QuickBooks Workforce {#quickbooks} splits by class or project, “for salaried employees, enter the percentage spent on each class or project”, which is the natural fit if the books are already in QuickBooks and funds are already classes. The catch is a double paywall: the feature needs Payroll Premium or Elite and QuickBooks Online Plus or Advanced, so the $123 a month we computed for five employees is the entry bundle, not the one that does this job. Intuit’s site was unreachable from our network on 31 August; the prices are our 26 August reading, the one behind our payroll and accounting round-up.

ADP {#adp} names the thing you want, “ADP Timebank/Grant Allocation”, inside a customer testimonial, on Workforce Now rather than RUN, and nowhere on a product page. Paychex {#paychex} describes “auto distributions” that disperse “the earnings across these different jobs and assignments” in its developer documentation, which is a strong sign the capability exists and a weak sign about which plan sells it. Paylocity {#paylocity} promises “grant tracking and labor allocations” on its nonprofit page and documents no screen, no tier and no price. All three are demo questions, and the demo is where you ask to see a single employee’s pay split 40/60 before you sign anything.

Gusto and OnPay: the two best nonprofit pages, and the split neither makes

Gusto ranks first on this search and has a nonprofit landing page, “nonprofit payroll for the modern HR team”. On question 2 it is the strongest of the ten: its help centre article on tax exemptions says in plain words that “qualified non-profits — such as charitable, religious, and political organizations — do not pay Federal unemployment tax (FUTA)” and shows the setting. On question 1 it says no, in its own documentation: “each teammate can be assigned to only one department at a time.” Its answer to the grant problem is Workforce Costing, which tracks hours against projects and produces a cost report after the fact: useful for a Form 990 allocation you compute yourself, and not the same as allocating the salary in payroll. It needs Plus or Premium, or a paid add-on on Simple whose price Gusto does not publish, which turns a $79 subscription into $140 at five employees. If that trade decides it for you, the Gusto alternatives we priced start from published grids.

OnPay {#onpay} has the clearest nonprofit page of the ten and the weakest answer on grants. Asked in its own FAQ whether a nonprofit can pay staff from different funding sources, it answers: “yes, it’s possible since you are able to have access to unlimited pay runs per month.” That is a way to pay one person twice, not a way to split one payment, and the two produce different books. What OnPay does bring is the flat deal that suits a multi-state charity: $49 plus $6 a person, filings in all 50 states with no multi-state surcharge, and the per-person fee charged only for someone actually paid that month, which matters when a grant-funded post is seasonal.

Justworks and Netchex: a price and a quote, neither nonprofit-aware

Two tools here document nothing about charities, in opposite ways. Justworks publishes its numbers: Payroll at $50 a month plus $8 per employee, so $90 for five, with the PEO products priced per employee — Basic at $79 and Plus at $124 a month, no base fee — so $395 and $620 at five. What it does not publish is a nonprofit page at all: both URLs we tried returned 404 on 31 August 2026, and the only nonprofit surface on the brand is Justworks.org, a grants program the company runs, not a discount on the software. Netchex does have a nonprofit page, and it is the emptiest of the ten: no mention of FUTA, of 501(c)(3), of grants or of Form 990 anywhere on it, and no published price. Neither is disqualified by that, but neither has done the homework on the page you are reading about.

The nonprofit discount: one number in ten

None of the ten vendors publishes a nonprofit rate on its own pricing page. What exists sits to the side. TechSoup, the technology marketplace for nonprofits, resells ADP with the promise of “access to discounted rates” and charges its own admin fee, $100 for organizations up to 49 employees and $350 for 50 or more; the discount itself is not printed, so the fee is the only number you can plan around. Outside this round-up, BambooHR publishes “an additional 15% off to registered nonprofit organizations”, the single stated percentage we found on 31 August, and its pricing sits in our BambooHR alternatives round-up.

One claim not to carry over: a Gusto editorial guide asserts a 501(c)(3) discount at a competitor we could not find on that competitor’s own pages. A price on a rival’s blog is not a price.

What Form 990 asks about pay, and what the software must give you

Two reports, one number each. Part VII, Section A lists current officers, directors and trustees with no minimum compensation threshold, current key employees above $150,000, and the five highest-compensated employees, using “reportable compensation” that “generally refers to compensation reported in box 1 or 5 (whichever amount is greater) of Form W-2”, and the instructions say to enter what was “required to be reported (whether or not actually reported)”. Schedule J, Part II picks up anyone whose Part VII columns sum above $150,000.

Nothing exotic there for payroll software; it is a compensation report by person, with both W-2 boxes visible. The awkward case is in the instructions too: for clergy and religious workers not subject to Social Security and Medicare as employees, “the amount in box 5 of Form W-2 may be blank or less than the amount in box 1”, and it is box 1 that must be reported. If your organization has that case, ask the vendor to show you the report before you assume it handles it.

Part IX is where the test comes from. The instructions accept that not every system allocates: “if the organization’s accounting system doesn’t allocate expenses, the organization can use any reasonable method of allocation. The organization must report amounts accurately and document the method of allocation in its records.” So a tool that cannot split does not put you outside the rules; it puts the split, and the documentation of the method, on your desk every year.

One boundary sits above all of this if any of your grants are federal awards. The Uniform Guidance says that “charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed”, and that “budget estimates (meaning, estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards” (2 CFR 200.430(g), read 2 September 2026). A standing 40/60 rule in a payroll tool is exactly such an estimate: it makes the allocation, but the time records that justify the percentages are yours to keep, and no tool on this page claims to keep them for you.

What five employees cost

List prices, one state, no promotion, computed from the figures above.

Tool	Five employees, per month	Per year	The catch
Patriot Full Service	$62	$744	$12/mo per additional state; prices from archive copies
Gusto Simple	$79	$948	Cannot split a salary; Workforce Costing pushes you to Plus at $140
OnPay	$79	$948	Cannot split a salary; all 50 states included
Justworks Payroll	$90	$1,080	Nothing nonprofit-specific documented
QuickBooks bundle	$123	$1,476	The split needs Premium or Elite and QBO Plus or Advanced
Rippling · ADP · Paychex · Paylocity · Netchex	Quote-only	n/a	The three that best document the split are also the ones that publish no price

That last row is the shape of this market: the capability that spares you rebuilding the allocation every year is concentrated in the tools that will not tell you what they cost. If your staff are each funded by a single grant, the split never arises and $62 to $79 buys everything you need; the moment one person is paid from two sources, the shortlist becomes Patriot, QuickBooks, or a demo.

Run the test on the trial

Four things, in the order above, on a real trial rather than a brochure. Add one employee and try to give them 40% of a salary on one department, class or project and 60% on another; if the app refuses, you have your answer to question 1. Open the tax settings and look for the 501(c)(3) or FUTA exemption switch, then check that Social Security and Medicare are still on. Ask for a compensation report by person that shows W-2 box 1 and box 5. Then price it at your actual headcount, with the tier the split requires, not the entry plan.

Ten minutes, on a test we say plainly we have not run ourselves; how we test the tools we do score is on our methods page. If payroll itself is the question rather than the grant split, the week-one questions in our buying guide come first, the free tools and their walls are the zero-budget end, and a one-person organization that has incorporated has a different problem entirely, which we cover in payroll software for S corps. A plain definition of what payroll software does sits in the glossary, and which HR jobs a lean organization can hand to software covers everything the pay run does not.