Can board members be paid?

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The vast, indeed overwhelming majority, of board members of charitable nonprofits are unpaid volunteer members of their boards of directors. This is because of the conviction that board members serve voluntarily, and they should not benefit personally from their service. On the other hand, they should also not be asked to cover debts of the corporation, or suffer financially for their service.

Did you know?

Historically, the structure of charitable nonprofits in America has placed sizable responsibilities on board members. These part-time, usually unpaid, board members are tasked with legal obligations of serving as fiduciaries to ensure that the nonprofit’s assets serve a public benefit. Board members also serve the role of visionaries, community leaders, cheerleaders for their nonprofit’s mission, and ambassadors to donors, potential donors, volunteers, and clients/consumers of the nonprofit’s services. They do all this – as volunteers.

Charities should generally not compensate persons for service on the board of directors except to reimburse direct expenses of such service. ... Charities may pay reasonable compensation for services provided by officers and staff. In determining reasonable compensation, a charity may wish to rely on the rebuttable presumption test of section 4958 of the Internal Revenue Code and Treasury Regulation section of 53.4958-6.

Source: IRS publication Governance and Related Topics - 501(c)(3) Organizations (2008)

Practice Pointers

  • Board members, like any other volunteers, may deduct expenses they incur in connection with their volunteer service, including mileage to travel to meetings using their own car.
  • Many nonprofits adopt travel reimbursement policies for board members so that there are common expectations and guidelines to follow which reduces the risk of one board member receiving financial preferential treatment. Sample travel reimbursement policy.
  • If board members are paid more than $600 per year, the nonprofit must issue them an IRS Form 1099 Msc.
  • Bylaws of the organization may prohibit or limit compensation for board members, but possibly not for officers of the corporation. This may be because it is common for nonprofits to appoint employees as officers (such as “Assistant Treasurer”) for practical reasons, such as the need for a staff member to be a signatory on the organization’s bank account.
  • Compensating board members can take away immunity from lawsuits for volunteer board members that exists in some states.

Resources

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