Can Nonprofits Pay Board Members or Appoint Paid Staff?

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Board Members Are Usually Volunteers

Even though compensating board members is common in the business world, only a small percentage of nonprofits compensate board members.

Those nonprofits that do pay board members are usually large, complex organizations such as health care systems, large foundations or art institutions.

However, although nonprofit board service is usually a volunteer activity, reasonable compensation for service is permissible if the bylaws allow and if safeguards are in place to make sure that compensation is reasonable and in line with what similar organizations do.

 

But, such compensation is quite rare. That's because nonprofits serve the public good and should not enrich any person or group of people. Board compensation can call into question a nonprofit’s financial integrity.

Some states may have rules about board compensation that come into play when your group is incorporated there.Check state laws to be sure.

At a time when unusually high nonprofit CEO compensation is often investigated, we do not recommend for most nonprofits that they compensate board members. There should be no problem finding community leaders to serve as volunteer board members. 

Compensating board members may not be unlawful, but, in most cases, it would not be a smart public relations move. And it may well set up potential conflicts of interest.

However, board members can be reimbursed for expenses, such as travel and lodging for a board meeting in another city or for attending a conference.

Uncompensated expenses might also be tax deductible for board members..

Can a Paid Staff Member Serve on the Board?

Generally, it is not a good idea to have a paid staff member serve on the board and may even be limited by your state's nonprofit laws.

The chief reason staff members do not usually serve on a nonprofit's board is the risk of a conflict of interest.

That said, some nonprofits have at least one staff member on their boards, especially in small nonprofits where the founder may be on the board.

In volunteer-only organizations, those volunteers might do the work and some will serve on the board.

Sometimes state laws permit staff to serve on nonprofit boards, with California being the prime example.

The Better Business Bureau's Wise Giving Alliance suggests that a nonprofit board should include no more than one paid staff member.

It is recommended that if a staff member does serves on the board, that he or she not be elected board president so that important decisions about the organization are not overly influenced by that person.

Staff may attend board meetings, especially the CEO or Executive Director. But they usually don't vote. Other staff members may attend the meetings as well, either regularly or on an ad hoc basis, in an advisory position.

The new IRS Form 990, the tax return for nonprofits, requires more disclosure of potential conflicts of interest, so make sure that having paid staff on your board does not create any problems.

 

Also check with your state office that governs nonprofit incorporation to see what rules, if any, govern paid staff serving on nonprofit boards.

Resources:

  • Nonprofit Kit for Dummies, 3rd Edition, Stan Hutton and Frances Phillips, Wiley 2010.
  • Starting and Managing a Nonprofit Organization: A Legal Guide, 5th Edition, Bruce R. Hopkins, Wiley, 2009.
  • National Council of Nonprofits.

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