What Percentage of a Nonprofit Budget Should Be Salaries?

Sooner or later a board member or funder asks what share of your budget goes to salaries, and the question can land like a charge of waste. In a small nonprofit the payroll is often most of the budget, and thin at that. One leader who applied to the Center for Nonprofit Coaching described “a $100K budget with three highly underpaid part-time staff members including myself.”

Organizations with operating expenses under $250,000 a year make up 41% of our applicants (67 of 152 in our intake data). This page, part of our nonprofit financial management guide, gives the sourced numbers, names who set each standard, and offers words for the conversation.

Why Does the Salary Share Vary So Much?

The salary share follows the work. A food bank pays for the food it hands out, while a counseling, tutoring or coaching program buys mostly people’s time, so its salary share runs higher. A high share in a program delivered by staff says little about waste, because the staff are the program.

For a national reference, we added up pay, benefits, pension contributions and payroll taxes in the IRS Statistics of Income tables for tax year 2022 (released September 2025): 41.6% of total expenses for 501(c)(3) organizations filing Form 990. Two cautions: organizations with $50 million or more in assets account for about 80% of that spending, and Form 990 is required only at gross receipts of $200,000 or more or assets of $500,000 or more, so many small organizations are missing.

The board question that matters more is whether the pay is fair. A common mistake is benchmarking executive pay against one data source. Use at least three: Form 990 filings from comparable organizations, a salary survey or two, and conversations with peers. Our guide to how boards benchmark executive director pay covers those sources.

What Percentage Should Go to Administrative Expenses?

No law sets a percentage for administrative expenses, which Form 990 calls management and general. As a reference point, 501(c)(3) organizations with $100,000 to $10 million in assets reported 13.2% to 13.5% of their expenses in that column for tax year 2022, according to IRS Statistics of Income. Reported figures can run low.

In “The Nonprofit Starvation Cycle” (Stanford Social Innovation Review, Fall 2009), Ann Goggins Gregory and Don Howard found that four youth-serving nonprofits reported overhead of 13% to 22% while their actual rates ran 17% to 35%. A study of more than 220,000 organizations they cite found that more than a third reported no fundraising costs at all. For comparison, they put average overhead across for-profit industries at about 25% of total expenses.

They call the pattern the nonprofit starvation cycle: funders expect low overhead, nonprofits underspend and underreport, and expectations drop further. Our guide to reading the statement of functional expenses shows where your own split appears.

What Percentage Should Go to Fundraising?

No law sets a fundraising percentage. The BBB Wise Giving Alliance’s Standard 9 asks charities to spend no more than 35% of related contributions on fundraising. Related contributions are the donations, legacies and other gifts that fundraising brings in, so the test compares fundraising costs with those gifts. It sets no share of your total budget.

The alliance accepts that a newly created organization, donor restrictions or events beyond its control can justify higher costs, and it describes its standards as voluntary. Charity Navigator scores fundraising efficiency, what a charity spends to raise each dollar of contributions, only for donor-funded charities with more than $2 million in annual revenue.

In a small office the development budget is often whatever remains after program expenses, and the executive director’s fundraising time is a cost too.

Why Does the Overhead Ratio Mislead?

The overhead ratio measures administration and fundraising as a share of total expenses, and it reports nothing about results. In 2013 the heads of GuideStar, Charity Navigator and the BBB Wise Giving Alliance wrote to donors that the ratio is “a poor measure of a charity’s performance,” and that many charities should spend more on overhead.

The same 2013 letter to donors grants that at the extremes the ratio can help root out fraud and poor financial management, and warns that focusing on overhead alone “can do more damage than good.”

A ratio built from costs alone cannot tell a lean program from a starved one.

The 65% in a “65/35” rule of thumb matches the alliance’s Standard 8: spend at least 65% of total expenses on program activities. If someone quotes you 80/20 or 90/10, ask where the number comes from. Donor expectations run tighter still. A 2001 alliance survey, cited by Gregory and Howard, found that more than half of American adults thought overhead should be 20% or less.

How Does Allocation Change Your Overhead Ratio?

Allocation splits shared costs, including the executive director’s salary, among programs, management and fundraising according to how time and space are actually used. The IRS instructions for Form 990 say the chief executive’s salary usually belongs in management unless part of that time directly supervises programs or fundraising. Then it is split, by any reasonable method you document.

Take an illustrative after-school program with a $400,000 budget (round numbers, not a real organization):

• Executive director, $100,000 in pay and benefits. Time records show 50% on programs, 30% on management and 20% on fundraising.
• Program staff, $140,000, and a part-time bookkeeper, $20,000.
• Rent and utilities, $40,000, with 75% of the floor space used for programs.
• Everything else, $100,000: program supplies and transport ($60,000), insurance, the annual financial review and software ($20,000), and event and mailing costs ($20,000).

The payroll did not change. The overhead ratio fell from 50% to 30%, and the program share moved from below the alliance’s 65% to above it. Allocation has limits too: Gregory and Howard quote a finance chief who called a peer’s allocation of 70% of its finance director’s time to programs “preposterous.” Settle the method with your accountant or auditor, and add it to the written financial policies your board adopts. Our annotated sample budget shows the same three columns for a $395,000 organization.

How Do You Talk About Overhead With a Funder?

Start with what your results cost, then explain the share. In 2014 the same three organizations wrote to nonprofits asking them to “help educate funders on the real cost of results” and to “have honest conversations with your funders about what it takes to do your work.”

That 2014 letter to nonprofits also warned against highlighting ratios as an accomplishment. Candid repeated the point in March 2026: explain “overhead” when you use the word, and talk about the staff, technology and infrastructure that make the work possible. A three-sentence version:

1. The cost of a result. “Seeing one student through a full school year costs us [amount], and this is what it covers.”
2. What shared costs buy. “Part of that pays for the bookkeeping, insurance and supervision that keep the program safe.”
3. The ask. “We are asking you to fund the full cost, including that part.”

Leadership development belongs in the same conversation. Our pages on making the case to funders and what coaching costs help you add a professional development line.

What Should You Do With Your Own Numbers?

Set your targets from your own last two years of actual spending. This week, find the executive director’s salary on last year’s Form 990 Part IX or statement of functional expenses, ask your accountant how it was split, and check the split against how the time was actually spent.

Carry what you learn into the plan when you set next year’s budget. The Center for Nonprofit Coaching is not an accounting firm, so the allocation method stays with your accountant. A coach helps with the leadership side: what to say to the board chair or the funder, and how to make the case for paying people fairly.

Our coaching for executive directors carrying the finances runs six sessions for $300, $400 or $600 depending on organization size, with volunteer coaches who donate their time to keep fees 85%+ below market rate. When you are ready, apply for coaching.

Frequently Asked Questions