Grant writers can’t work on commission because three separate rulebooks say so. The two professional associations that set standards for the field prohibit percentage-based pay outright. The IRS treats disproportionate consultant payments as private inurement or excess benefit transactions, with excise taxes attached. And federal grant regulations bar organizations from charging fundraising costs to most awards or paying professional service fees contingent on getting the money. Ethics, tax law, and grant compliance all point the same direction.
The Professional Ethics Rule
The Association of Fundraising Professionals (AFP) Code of Ethical Standards states that compensation “may include bonuses or merit pay in line with organizational practices but may never be based on a percentage of funds raised,” and requires members to “decline receiving or paying finder’s fees, commissions, or compensation based on a percentage of funds raised.”1Association of Fundraising Professionals. Code of Ethical Standards The Grant Professionals Association (GPA) takes the same line, requiring members to “work for a salary/wage or fee” and specifying that members “shall not accept or pay a finder’s fee, commission, or percentage compensation based on grants.”2Grant Professionals Association. GPA Code of Ethics
The reasoning is practical. A writer paid on commission has an incentive to submit as many applications as possible, whether or not the nonprofit is genuinely competitive for the funding. Volume-over-quality submissions produce weak proposals and damage a nonprofit’s reputation with funders who remember sloppy applications. Commission structures also imply that the writer’s personal connections secured the money, rather than the strength of the organization’s programs, which undermines the premise of competitive grantmaking.
Both codes allow performance-based bonuses, provided they follow the organization’s general practices and aren’t calculated as a percentage of funds raised. AFP defines a bonus as “a form of compensation based on performance (but not on a percentage of contributions raised) that is paid as an incentive to performance in addition to a salary or fee.”1Association of Fundraising Professionals. Code of Ethical Standards A flat bonus for hitting a deadline or a quality benchmark is fine. A payment equal to ten percent of an award is not.
These codes technically bind AFP and GPA members. Their reach is wider in practice. Funders, boards, and state regulators treat them as the industry standard, and a writer outside both organizations who charges a commission still raises red flags with anyone in the field who recognizes what commission-based pay signals.
IRS Exposure for the Nonprofit
The ethical objection has legal teeth. Under federal tax law, a 501(c)(3) organization must operate exclusively for exempt purposes, and “no part of the net earnings” may benefit any private individual.3Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. Treasury regulations reinforce this by requiring the organization to “serve a public rather than a private interest” and to establish that it is “not organized or operated for the benefit of private interests.”4eCFR. 26 CFR 1.501(c)(3)-1 – Organizations Organized and Operated for Religious, Charitable, Scientific, Testing for Public Safety, Literary, or Educational Purposes
Percentage payments can balloon out of proportion to the actual work. A ten percent commission on a $500,000 grant produces a $50,000 fee for what might have been 80 hours of work. If the IRS treats that compensation as excessive, it triggers the excess benefit transaction rules under Section 4958. The initial excise tax is 25% of the excess benefit, paid by the person who received the overpayment. If the excess isn’t corrected within the taxable period, an additional 200% tax applies on top of that.5Office of the Law Revision Counsel. 26 USC 4958 – Taxes on Excess Benefit Transactions
The exposure doesn’t stop with the writer. Organization managers who knowingly approve an excess benefit transaction face their own 10% excise tax, capped at $20,000 per transaction, unless they can show the approval wasn’t willful and resulted from reasonable cause.5Office of the Law Revision Counsel. 26 USC 4958 – Taxes on Excess Benefit Transactions Board members or executives who signed off on a percentage contract can be personally liable. In serious or repeated cases, private inurement can cost the organization its tax-exempt status entirely.
Flat fees and hourly rates fit the IRS’s reasonable-compensation framework much more cleanly than commissions. A $5,000 flat fee for a foundation proposal is easy to benchmark against market rates. A commission that produces $5,000 on one grant and $75,000 on the next is nearly impossible to defend as consistently reasonable. That matters because the rebuttable presumption of reasonableness, which shifts the burden to the IRS to prove compensation is excessive, requires approval by disinterested decision-makers, use of comparability data, and contemporaneous documentation.6eCFR. 26 CFR 53.4958-6 – Rebuttable Presumption That a Transaction Is Not an Excess Benefit Transaction Commission structures make each of those steps harder.
There’s a visibility problem too. Nonprofits must report their five highest-compensated independent contractors on Form 990 when those contractors receive more than $100,000.7Internal Revenue Service. Exempt Organizations Annual Reporting Requirements – Form 990 Part VII and Schedule J Form 990 is public. A percentage payment that swells into six figures on a large award becomes visible to donors, journalists, and regulators.
Federal Grant Cost Rules
Organizations receiving federal funds face another layer. The Uniform Guidance at 2 CFR Part 200 governs how federal grant dollars can be spent, and the rule on fundraising costs is direct: “Costs of organized fundraising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions, are unallowable.”8eCFR. 2 CFR 200.442 – Fundraising and Investment Management Costs Grant writing fees can’t be charged directly to a federal award.
Proposal preparation is treated separately. Under 2 CFR 200.460, proposal costs for both successful and unsuccessful applications “normally should be treated as indirect costs and allocated to all current activities of the recipient or subrecipient.”9eCFR. 2 CFR 200.460 – Proposal Costs The cost of writing a federal proposal can be recovered through the organization’s indirect cost rate, not as a direct line item on the grant budget.
Professional service costs, including grant writing fees, are allowable under 2 CFR 200.459 only when they are “reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Federal Government.”10eCFR. 2 CFR 200.459 – Professional Service Costs A percentage-based fee is by definition contingent on receiving the award, which puts it in direct tension with the rule. The regulation also requires contracts to describe the service, estimate time required, and set a rate of compensation, all of which point toward fixed or hourly arrangements.
What the Funder Expects
Funders provide grants expecting every dollar to support the program described in the application. When a nonprofit submits a budget showing all funds going to program staff and direct services, skimming ten percent off the top for a writer’s commission misrepresents that budget. Most grant agreements explicitly prohibit using awarded funds for fundraising expenses, and a funder who discovers the diversion can demand the money back.
The reputational damage extends beyond one grant. Foundations and government agencies talk to each other, and a nonprofit flagged for misusing funds can be effectively shut out of future opportunities across multiple funders. The short-term convenience of a no-win-no-fee arrangement can cost more than the writer’s fee if it damages relationships the organization spent years building.
How Legitimate Grant Writers Get Paid
Every compliant arrangement ties payment to the work performed rather than the outcome. Two structures dominate.
A flat fee sets a single price for a defined deliverable, such as one foundation proposal or a federal application package. The fee reflects the complexity of the narrative, the research required, and the volume of supporting documents. This works well when the scope is clear from the outset.
An hourly rate bills for time spent on research, drafting, revisions, and coordination with the nonprofit’s team. Rates vary with experience and grant type; writers with federal expertise or long track records charge more than those newer to the field. Hourly billing works best when the scope may shift.
Both models share the same feature: the writer gets paid regardless of whether the funder approves the proposal. A competitive federal program may have a five percent funding rate. Tying a professional’s paycheck to those odds either drives writers away from difficult but worthwhile opportunities or pushes them to inflate submission volume to compensate. Neither serves the nonprofit.
Performance bonuses remain available when structured correctly. A flat bonus for meeting deadlines, producing a submission that scores above a threshold, or completing a multi-year portfolio on schedule aligns incentives with quality. The bonus amount is set in advance and is not derived from the size of any award. That’s the line every ethics code, tax rule, and federal cost principle draws in the same place.