F4. Can our charity hire someone to manage a fundraising drive and pay them a percentage of the donations they raise?

F4. Can our charity hire someone to manage a fundraising drive and pay them a percentage of the donations they raise?


Short answer

Maybe. A registered charity may, provided it is carrying on its own charitable activities, enter into fundraising contracts. The charitable activities carried out by such fundraisers must be conducted under the registered charity’s direction and control and the fundraisers must not be paid more than reasonable market value.


On the other hand, you may want to consider paying a fundraiser based on effort (for example, devotion of time and resources) rather than fundraising success. Payment based on effort is less likely to result in disproportionate or excessive "private benefit”, which is benefit to individuals or corporations, rather than to the public.

Long answer

If a charity provides a commission or a percentage for fundraising on the basis of results rather than effort, a disproportionate or excessive remuneration may result in an unacceptable contractual arrangement. Charities are not to enter into fundraising agreements that result in unduly rich remuneration for the fundraiser.


Excessive “private benefit” to fundraisers (as well as to members and directors of the registered charity) must always be avoided. Private benefit is seen in contrast to public benefit. Your registered charity’s purpose indicates the public benefit you intend as a charity. When funds are spent to further your objectives, then the merit of the expense is self evident. If funds are spent on something not directly furthering your objectives, then you need to carefully consider the expense.


Any private benefit associated with a charity’s operations is only acceptable as a minor and incidental by-product of its work. Any private benefit must not be excessive or disproportionate to the public benefit of the charitable purpose it exists to pursue.


When the fundraising arrangement includes commission-based payment or other compensation based on the number or amount of donations raised, the charity will want to ensure that such provisions would not result in lopsided or excessive private benefit. Groups such as Imagine Canada and the Association of Fundraising Professionals discourage use of commission-based fundraising because of the conflict it may create between a fundraiser’s personal interests and those of the charity. Since you can’t measure the link between performance-based fees and the effort required to secure donations, contracts providing for such fees could possibly result in a windfall profit for the fundraiser. This is particularly true when the compensation is set at a high percentage and limited or no additional provisions govern how the work is done.

Example

This year, XXX Charity paid a fundraiser at a modest rate based on calls completed, regardless of whether a donation was received. YYY Charity paid on an hourly basis at a reasonable market value for the work entailed. Neither of these arrangements usually results in disproportionate or excessive private benefit.


For the same event the year before, however, XXX had paid a different fundraiser on a percentage basis an amount that was later seen as an amount exceeding reasonable market value for the work he did. Within a few calls, the fundraiser had been able to land some very large contributions and was eligible for a significant payment. In this circumstance the private benefit to the fundraiser, therefore, was not minor (or “incidental”) to the broader public benefit associated with the charities work.

More…

If you have any concerns about certain expenses or budget items, consult a professional who is familiar with registered charities.