21. Payments

Can the Trustees/Management Committee be paid?

Firstly, are you a registered charity? If so the easy answer is ‘no’. If not, then the answer is ‘maybe’. But in fact the situation is much more complicated than that, with both legal and ethical questions to consider. Bear in mind that non charities generally have more freedom to act as they wish. Broadly speaking, Associations, Companies Limited by Guarantee and Community Interest Companies are free to pay committee members unless the constitution expressly forbids it. However, if you are thinking of registering as a charity in the future it may be worth shadowing charity rules to make the transition smoother.

Do you mean Payments or Expenses?

First be clear if you are talking about payments or about reimbursing expenses. Management committee members are entitled to be reimbursed any out of pocket expenses incurred in their duties including travel costs to and from meetings, phone calls and postage incurred as part of their duties as a management committee member. It could even include childcare and caring costs though small organisations would be well advised to write into their policy that such costs should be agreed with the chair in advance to avoid the expenses bill mushrooming.

Can we reimburse for loss of earnings?

The Charity Commission does not accept loss of earnings as an expense automatically. Some charities have successfully argued at registration to have this provision in the constitution, but if you don’t have it and want to pay for loss of earnings you will need to get express written permission from the Charity Commission and you will have to put up a good argument to convince them.

Is Trustee Indemnity Insurance an expense or a benefit?

Until the Charities Act 2006 Trustee Indemnity Insurance was seen as a benefit and there was a needlessly complicated process to go through with the Charity Commission. The 2006 Act has now clarified that, providing the trustees feel that purchasing such insurance is in the best interests of the charity, and there is no clause in the constitution specifically forbidding it, then Trustee Indemnity Insurance can be purchased and treated as a legitimate expense. The full guidance is available here.

What about discounts, free memberships or free tickets for trustees?

If the benefits are incidental then it is generally OK. For example if members of your organisation receive a discount on services, then the trustees/management committee members can receive this benefit as well, assuming that they are also members. However, if you were to give a special discount for trustees/management committee members only then this would be seen as a benefit.

What are the moral and ethical arguments?

From the moral/ethical point of view there are two strongly held viewpoints about payments to trustees. The first is that the voluntary principle is what defines the sector and for many organisations the Management Committee may be the last visible sign of that voluntary principle.

Another often held and conflicting view is that those who put the time into an organisation should be adequately rewarded for their efforts and so not paying the committee is an out-of-date hangover from the past.

There is no easy way to resolve the ethical dilemma: there is no wrong or right answer and both viewpoints have their merits. However, if you are considering this issue it may be worth finding out where the rest of you committee stand on the issue first.

What if we are all committed to the idea of fair payments for everyone on the committee?

If you really want to take a collectivist approach and pay everyone involved then you may be better off looking at a cooperative or social enterprise structure. The big problem with this approach is Business Rates Relief. For organisations with premises business rates are a large expense and only Charities get mandatory rates relief. Because of this many collectives get pushed down the charity route once premises are involved leading to problems later. See ‘support’ for sources of advice and support in dealing with this situation [see Case Study].

What about payments to management committee members other than reimbursement of expenses?

Consider each of the following questions carefully.

Are you a registered charity (or thinking of becoming one)?

Clarify whether charity law applies. If you are an unincorporated association or a company limited by guarantee and not charitable then you are free to pay committee members as you see fit provided your constitution allows it. If it doesn’t allow it you can always amend the constitution accordingly. (Remember, if you are a company you must follow the new conflict of interest rules closely).

Will funders or members actually agree to these payments?

One practical consideration is getting the agreement of your members and funders to paying committee members – after all, it’s their subscriptions and grants that you will need to use to actually pay the trustees.

Are you sure you are referring to the trustees?

Clarify the roles of those on your committee. We often use the term management committee quite loosely. The ‘trustees’ are those round the table entitled to vote if you put a decision to the vote. You may have advisers and observers around the table as well who wouldn’t be entitled to vote. Charity rules don’t cover them. If the status of those round the tale isn’t clear refer to the previous FAQ (19) for clarification.

Is the payment for attending the meeting as a ‘trustee’ or is it for doing additional work providing a service?

The new Charity Act 2006 has made it clear that you can now pay trustees for specific pieces of work (providing a service), such as editing a newsletter for instance. You must manage the process properly to manage the conflict of interest and ensure that the organisation is getting value for money. The trustee in question must not take part in the decision. If you are a company limited by guarantee then you must follow the new conflict of interest procedure required by the Companies Act 2006. Generally only a minority of the committee can be paid at any one time.

Does your constitution specifically forbid payments to trustees?

In which case the new Act does not overrule it and you must go to the Charity Commission to get your constitution amended before you can pay trustees.

Is it for paying a trustee who has another role such as being a member of staff?

In a small number of cases organisations have negotiated at registration for a clause in the constitution allowing a member of staff (generally the Director) to also be a Trustee/Management Committee Member. However, for most organisations without such a clause you will need to approach the Charity Commission and seek specific written approval. You will be expected to provide a sound justification for the request and the Charity Commission may impose conditions if they do approve it.

Is the payment for attending the meeting as a ‘trustee’?

This is the option least likely to succeed. The Charity Commission states, “A charity trustee may only be paid for serving as a trustee where this is clearly in the interests of the charity and provides a significant and clear advantage over all other options. There is no general power in law for this type of payment – a charity would need a specific authority which may be found in its governing document, or be provided by the Commission, or, more rarely, the Courts.”

Could all the committee be paid?

Unlikely as it seems, the Charity Commission have registered a small number of organisations where all of the committee are paid. This is much easier to do at registration. It is much harder to change the constitution later as the charity commission will work from the premise that the original founders would have argued for the clause at the beginning if that was what they really wanted. Even getting agreement for this at registration is not easy and you will have to put up a convincing case.

Is it possible to pay an honorarium for a service already provided?

In the past this was a common scenario and was often seen as a way of rewarding a trustee (typically the treasurer) who had put in a lot of additional work, for instance to prepare the accounts for the audit. This way of doing things is outdated and will incur the Charity Commission’s displeasure. Don’t do it! However, you can achieve the same result by proposing that the treasurer (for example) is paid for the work as a service. Follow the conflict of interest rules, makes sure it’s in the organisation’s best interests, minute the decision and the payment can be made. Don’t attempt to make such a payment retrospectively without written permission from the Charity Commission.

Where can I go for more guidance?

For the full Charity Commission guidance click here.

To talk to an advisor go to Support to locate the nearest appropriate advisor.

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A Word About Words

This site is aimed at those who govern (control) small organisations - whether they are charities, companies, both or neither. Those who govern them may be called a variety of names. We have chosen to use mainly 'management committee' and occasionally 'committee member' or 'trustee'. more...
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