May a charitable nonprofit give out holiday stipends (not performance-based but based on years of service) to its employees? From what I've read, this kind of stipend is the same as a bonus, and bonuses would need to be performance based and would need to be proposed by the independent board of directors, not by the management. The purpose of the stipend is to recognize folks' general hard work, further morale, and help them over the two weeks holiday break in which they don't get paid a salary.
I don’t see any reason why a charity cannot give a bonus to its employees at holiday time, so long as it is not based on the “profit” or surplus of the organization. I don’t think there is a legal difference between the “stipend” you propose and a “bonus.” They are both extra compensation that has not been part of the basic pay scheme of the employees. They can be based on performance, longevity, or other criteria that are not discriminatory against a protected class of employees. The IRS has no objection to bonuses so long as they are not based on profit and, when taken with the other compensation of the employee, do not create “unreasonable” or “excess” compensation. You usually have a lot of latitude before you reach excessive compensation levels for most nonprofit staff employees.
If the ability to pay the bonus is within the organization’s budget, and if the CEO has the authority to set compensation for staff, you may not have to have formal board approval. But you would probably want the board’s approval if paying the bonus would be an unusual event for the organization. And if total employment costs would exceed the budget as a result of the payments, you definitely want board approval.