Some nonprofits hire outside consultants to lead or support fundraising activities, while other nonprofits hire staff members for this role, or use a combination of employees plus consultants. There is no right or wrong approach, but how your nonprofit elects to handle staffing for its fundraising activities can have important ramifications.
Classify Workers Correctly
First, determine whether workers with responsibility for fundraising are independent contractors or employees. Just because your fundraising consultant wants to be an independent contractor doesn't mean they meet the legal definition of a consultant/independent contractor. The IRS and state or federal Departments of Labor might classify the worker as an employee instead. Do you know the difference? A good place to start is guidance provided by the IRS:
Should your fundraising professional be registered?
Nonprofits hiring outside consultants to provide assistance with fundraising should be familiar with state laws that may require the nonprofit and/or the fundraising consultant to register with the state prior to any solicitation activity. State laws vary. Even the names used for fundraising consultants vary from state to state (i.e., some state laws use the language, “professional fundraiser”; others use “fundraising counsel”). Registration requirements only apply to consultants/independent contractors, not employees, so if the worker who handles fundraising for your nonprofit is an employee of the nonprofit, that worker may not have a requirement to register with the state, but the nonprofit may still be required to do so.
Did you know?
It is not considered ethical to compensate fundraising professionals with a commission, or a percentage of contributions or funds raised.
- See Standard #24 of the Association of Fundraising Professionals’ Code of Ethical Standards
- If your nonprofit operates in a state with a registration requirement and has hired or intends to hire a consultant who has NOT registered, you should insist that s/he register in accordance with state law requirements, because in some states, the charity can still be subject to fines/penalties if the consultant fails to register.
- We recommend that your nonprofit use a written letter agreement when hiring any independent contractors or consultant that outlines the scope of work as well as clearly identifies the worker as a consultant/independent contractor.
Related Insights & Analysis
- Read more about classifying employees correctly
- Exempt organizations: Who is an independent contractor? (IRS)
- Raising funds? What you should know about hiring a professional (Federal Trade Commission)
- Reporting payments to grantwriters and consultants that are independent contractors (IRS)
- Sample job descriptions, including some for fundraising positions (Bridgespan)
Disclaimer: Information on this website is provided for informational purposes only and is neither intended to be nor should be construed as legal, accounting, tax, investment, or financial advice. Please consult a professional (attorney, accountant, tax advisor) for the latest and most accurate information. The National Council of Nonprofits makes no representations or warranties as to the accuracy or timeliness of the information contained herein.