The de minimis rate is a federal standard allowing nonprofits to recover indirect costs that support their core operations, such as administrative expenses, rent, utilities, and technology. This rate applies to federal grants and provides a portion of funding for necessary, but indirect operational expenses, that are critical for organizational stability and growth.
Historically set at 10%, this rate has recently increased to 15% as of October 1, 2024. This increase is part of the revised Office of Management and Budget (OMB) Uniform Guidance, which recognizes the importance of adequately covering nonprofits’ operational needs to sustain impactful services and programs.
With this increase, the federal government signals its commitment to funding nonprofits more sustainably, understanding that these organizations require flexible operational support to effectively deliver their missions. This move sets a valuable precedent for other funders, such as foundations, local and state government, and corporate grant makers, to consider raising their own indirect cost allowances.
5 Reasons Funders Should Raise Their Indirect Cost Allowances for Nonprofits
1. Enhanced Program Impact
Greater operational funding enables nonprofits to improve infrastructure, hire skilled staff to overcome the nonprofit workforce crisis, and strengthen systems. This directly increases their capacity to deliver programs and achieves deeper, more lasting community impact that aligns with funders’ goals.
2. Alignment With Federal Standards
The increased de minimis rate underscores that indirect costs are essential for nonprofit sustainability. By aligning with these updated standards, funders can support financial best practices and help nonprofits stay financially healthy and stable.
3. Increased Financial Transparency
When funders adopt a standardized approach to covering operational costs, nonprofits are less pressured to reallocate resources to cover unallowable expenses. This transparency helps nonprofits report outcomes accurately without hidden gaps in funding, which benefits both the organization and its funders.
4. Sustainability of Nonprofit Services
Adequate operational support allows nonprofits to adapt to evolving community needs, invest in necessary technology, and build robust infrastructure. Increasing operational allowances helps secure nonprofits’ resilience, ensuring they’re prepared for changing economic and social demands.
5. Equitable Funding Practices
Many nonprofits, especially smaller or grassroots organizations serving marginalized communities, operate on lean budgets that limit investments in capacity-building resources, like technology and staff development. When funders increase operational allowances, they provide more equitable support, enabling these organizations to sustain their missions effectively.
By following the federal lead and adjusting indirect cost policies, funders can foster a stronger, more sustainable nonprofit sector — one that’s better equipped to fulfill its mission and strengthen our communities for everyone.
