Fiscal sponsorship is a well-recognized method for raising charitable funds to support a charitable activity proposed by an individual or group that doesn’t have separate recognition as a 501(c)(3) charitable organization and is therefore unable to raise charitable contributions on its own.

There are basically two major types of fiscal sponsorship arrangements according to the seminal book on fiscal sponsorships by Gregory Colvin of Adler & Colvin in San Francisco.  Under Model A, the fiscal sponsoring organization, normally a recognized public charity, absorbs the program being sponsored and operates it directly, hiring the employees, covering the insurance, and undertaking ultimate responsibility for the activities.  Under Model C, the fiscal sponsor makes grants to or on behalf of an individual or other entity to perform a charitable function pursuant to a grant agreement, but does not undertake responsibility for the program or its employees.

It sounds as though you already have a Model C arrangement in place.  You could increase your grant to pay the founders/(former) volunteers to continue to perform work for the program, assuming that someone has raised the funds to do so.  Normally compensation for the people performing the services is included in the grant under a Model C arrangement.  It would probably make the most sense here.

You could hire the founders as your own employees, but you would be responsible for all payroll implications and assume liability if your new employees messed up in performing their work for the sponsored organization or injuring someone in connection with the program.  It would be added work and added risk that doesn’t make sense to me unless you were to be paid a substantial fee (that would only be deducted from funds available for the charitable program).

For more on fiscal sponsorships and the critical issues for sponsorship agreements, listen to our recent webinar on Fiscal Sponsorships: For the Funders, Sponsors and the Sponsored.