There is a number that makes a lot of nonprofit people flinch, and it is not the size of the ask. It is the percentage of the budget that goes to salaries and administration.

We have all absorbed the same message: a “good” nonprofit keeps overhead low and pours every possible dollar straight into programs. So when it comes time to write the budget, the instinct is to shrink the salary line, bury the admin costs, and hope no one looks too closely.

Here is the problem. That instinct is built on a myth, and chasing it can quietly starve the very organizations it claims to protect.

Let’s talk about where the overhead myth came from, why low overhead is often a warning sign rather than a badge of honor, and how to talk about salaries and admin in a grant proposal without apologizing for them.

What the overhead myth actually is

The overhead myth is the persistent belief that the best nonprofits are the ones that spend the least on anything other than direct programs. Under this logic, salaries, rent, technology, fundraising, and accounting are “waste,” and the lower the overhead ratio, the more virtuous the charity.

It is a tidy story. It is also wrong.

Back in 2013, the three biggest names in nonprofit accountability, GuideStar (now Candid), Charity Navigator, and the BBB Wise Giving Alliance, did something unusual. They co-signed an open letter to the donors of America calling the overhead ratio “a poor measure of a charity’s performance.” The same watchdogs who had trained donors to obsess over overhead were now asking them to stop.

Around the same time, fundraiser Dan Pallotta’s TED talk on how we think about charity went viral with a single, sticky idea: we reward nonprofits for how little they spend, not for what they actually get done. More than a decade and millions of views later, the public still has not fully caught up.

Overhead is not the opposite of impact. Overhead is the infrastructure that makes impact possible: the people, the systems, and the fundraising capacity that keep the mission running.

Why low overhead is often a red flag

Here is the part that surprises people. A very low overhead ratio is not something to brag about. It is frequently a sign of an organization quietly running itself into the ground.

Researchers at the Stanford Social Innovation Review gave this pattern a name: the nonprofit starvation cycle. It works like this:

1. Funders expect unrealistically low overhead.
2. Nonprofits feel pressure to meet that expectation.
3. To comply, they underspend on real needs and underreport what they actually spend.
4. That underreporting convinces funders the low numbers are normal, and the expectations get even more unrealistic.

The result is a sector full of organizations that cannot afford to pay people fairly, upgrade their systems, train their staff, or invest in the fundraising that brings in the next dollar. They look efficient on paper while slowly losing the capacity to do their work. And this is not a relic of the last recession. As recently as 2025, sector observers note that the starvation cycle refuses to die.

The National Council of Nonprofits now says it plainly: overhead that is too low can be more concerning than overhead that is high. An organization spending almost nothing on infrastructure is not a lean, mean, mission machine. It is usually an organization one key departure or one system failure away from a crisis.

So how much should really go to salaries and admin?

The honest answer: there is no magic number, and anyone who gives you one is selling something.

For years, a popular rule of thumb held that overhead should stay under fifteen percent. That fifteen percent figure stopped being abstract in 2025 when the federal government tried to turn it into a hard ceiling. The National Institutes of Health moved to cap indirect cost rates at a flat fifteen percent, down from negotiated rates that averaged twenty-seven to twenty-eight percent and ran higher at some institutions, and the Department of Defense attempted a similar cap on its research grants. The courts blocked both, and in January 2026 a federal appeals court kept the freeze in place. That fight played out mostly among universities and research institutes, but it matters for every nonprofit, because the sector pushed back hard for one simple reason: fifteen percent does not come close to covering what it actually costs to keep an organization running.

In fact, research on what it actually costs to run a nonprofit, including work cited by the Bridgespan Group’s “Pay What It Takes” initiative, found that real indirect cost rates routinely run far higher, often well north of thirty percent, depending on the type of organization and the work it does. A community clinic, a research institute, and an after-school program do not have the same cost structure, and pretending they should is how good organizations end up underfunded.

The right question is not “how low can we get our overhead?” It is “what does it genuinely cost to deliver this mission well, and can we explain that clearly?”

A few things to keep in mind as you think about salaries and admin specifically:

• Salaries are not overhead in the wasteful sense. Much of your staff’s time goes directly into programs. People delivering the mission are the mission. Pallotta’s reframe is worth borrowing here: overhead is largely just the humans powering your cause.
• Underpaying staff is a sustainability risk, not a virtue. Turnover is expensive, and losing institutional knowledge sets programs back further than a competitive salary ever would.
• Fundraising and admin make everything else possible. A dollar spent on a grant writer or a development director is what brings in the next ten. Starving that function is the opposite of stewardship.

This matters more than ever in 2026. With eight in ten nonprofits reporting cost increases well above inflation and funding more volatile than it has been in years, the organizations that survive are the ones investing in their own capacity, not the ones cutting it to the bone to chase a flattering ratio. Even Candid felt the need to publish a fresh “debunking the overhead myth (again)” piece this year, which tells you how stubborn this myth still is.

Is it even overhead? The direct and indirect cost line

A lot of the salary panic eases once you realize something simple: much of what gets lumped under “overhead” is not overhead at all. It is a direct program cost.

Funders and accountants sort costs into two buckets:

• Direct costs are tied to delivering a specific program: the program manager, the curriculum, the supplies for a workshop, the case worker meeting with clients.
• Indirect costs support the whole organization rather than any one program: the bookkeeper, general liability insurance, the office lease, the executive director’s time spent on organization-wide leadership.

Here is what trips people up: the line between the two is not fixed. The same role can land in either bucket depending on how the program is designed.

Take a receptionist. In one organization, the front desk is general administration, an indirect cost. In another, greeting clients, figuring out why they came in, and routing them to the right service is a deliberate, designed part of the program. In that case, the receptionist is a direct program cost, and you can budget them as one.

The point is not to play games with the categories. It is to look closely at how your program actually works and classify each cost based on that reality. A cost that genuinely serves a specific program belongs in that program’s budget, even if it looks like “admin” at first glance. Get this right and you accomplish two things at once: you show funders a truer picture of what the program costs to run, and you keep your indirect rate from looking inflated by expenses that are really doing direct program work.

How to talk about overhead in a grant proposal

Knowing the myth is nonsense is one thing. Writing a budget that reflects that confidence is another, especially when you suspect the reviewer on the other end still believes the old rules. Here is how to handle it.

Name your indirect costs honestly. Do not hide salaries inside program lines or shave the admin number to look lean. A clean, realistic budget reads as competence. A suspiciously thin one reads as either inexperience or something to hide.

Put each cost in the bucket where it honestly belongs. The flip side of not disguising admin as program work is making sure the costs that genuinely are part of a program get counted as direct. If a role is built into how the program runs, budget it there, not as admin. Done honestly, this gives funders a truer cost picture and keeps your indirect rate from looking padded.

Use the budget justification to tell the story. This is the same move that anchors the whole-organization budget: the numbers show what is true, and the narrative shows why. A sentence or two explaining that your salary line reflects experienced staff who make the program work, or that your systems investment is what keeps reporting accurate, reframes overhead as strategy rather than waste.

Know the language of indirect costs, especially for government funding. When federal dollars are involved, “overhead” becomes “indirect costs,” and there are real, claimable rates attached. Many organizations leave money on the table simply because they do not understand they are allowed to recover these costs.

Connect spending to results. The watchdogs themselves asked donors to look at transparency, governance, leadership, and results instead of ratios. Give funders exactly that. Tie your costs to outcomes so the conversation moves from “how much do they spend on overhead?” to “look at what this organization accomplishes.”

Transparency beats thinness every time. A funder will trust an honest budget with real overhead far more than a too-good-to-be-true one that falls apart under a second look.

The bottom line

The overhead myth has done real damage, and it is not quite dead yet. But the tide has turned, and the funders worth working with already know that a healthy nonprofit spends real money on real people and real systems.

You can see that shift in where philanthropy is heading. Unrestricted, general operating support climbed to thirty-eight percent of philanthropic giving in 2025, after sitting near twenty percent for almost two decades, and large no-strings gifts like MacKenzie Scott’s have been shown to measurably strengthen the organizations that receive them. There is a practical lesson in that shift for how you budget. As more money arrives without program-by-program restrictions, the exact box you put each cost in starts to matter less, and your ability to be honest and clear about what those costs really are matters more. The direction of travel is toward funders who want to trust the whole organization, not audit every line.

Your job as a grant writer is not to make overhead disappear. It is to present it honestly, explain it clearly, and connect it to the impact it makes possible. Do that, and a strong salary and admin line stops being something to apologize for and becomes proof that your organization is built to last.

Ready to budget like a strategist?

Understanding the overhead myth is half the battle. Turning that understanding into budgets and justifications that read as strategy is the other half, and that is where things get advanced.

Grant Writing Made Easier Advanced is built for grant professionals who already have the fundamentals down and want to work with more efficiency, clarity, and strategic control. It digs into the moves this post only introduces: classifying direct and indirect costs, presenting salaries and admin with confidence, and writing justifications that make funders see stewardship instead of red flags. It also includes full access to Grant Writing Made Easier Foundations, so the building blocks are right there if you want them.