Some nonprofits hire outside consultants to be responsible for 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, does not mean that the worker who is writing grant proposals and advising your board about donor-prospects meets 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:

• Independent contractor defined (IRS)
• Independent contractor or employee (IRS)
• Read more about independent contractors and nonprofits (National Council of Nonprofits)

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 “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.

• Read about charitable solicitation registration requirements.

Did you know?

It is not considered ethical to compensate fundraising professionals with a commission, or a percentage of contributions, or funds raised.

• Position Paper on ethical fundraising practices (Association of Fundraising Professionals)
• Statement on compensation for fundraising performance (CASE)

Practice Pointers

• If your nonprofit operates in a state with a registration requirement and your nonprofit 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 when 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.

Resources

• UnderDeveloped: A National Study of Challenges Facing Nonprofit Fundraising  (Compasspoint)
• Raising funds? What you should know about hiring a professional  (Federal Trade Commission)
• Finding the right development officer for your organization Part 1  and Part 2 (Nonprofit Quarterly)
• Reporting payments to grantwriters and consultants that are independent contractors (IRS)
• Sample job descriptions including some for fundraising positions (Bridgespan)
• Exempt organizations: Who is an independent contractor? (IRS)