Can Australian Charity Board Members Receive Remuneration: A Not For Profit Guide

Introduction

The question of whether Australian charity board members can receive remuneration is a significant consideration for many not-for-profit organisations. While traditionally board members volunteer their time, paying board members for their service is permissible under certain conditions and is becoming a more frequent topic of discussion within the sector.

Understanding the rules surrounding board remuneration is crucial for charities navigating this decision. This guide provides essential information on the Australian Charities and Not-for-profits Commission (ACNC) stance, the legal requirements, and the key factors organisations must consider before choosing to remunerate their board members.

Defining Board Member Remuneration

What Counts as Remuneration for Charity Board Members

Remuneration refers specifically to payments made to board members (often called Responsible People) for their service in that governing role within a charity or not-for-profit organisation. Understanding what constitutes remuneration is crucial for ensuring compliance and transparency.

The forms that board member remuneration can take vary between charities and may include:

• Regular payments: These might be set fees for attending board meetings, often referred to as ‘sitting fees’, or other regular payments for specific duties or services performed as a board member.
• One-off payments: Payments could be linked to achieving certain performance criteria relevant to the board member’s role.
• Cash payments: Direct monetary compensation like salaries or fees.
• Non-cash benefits: These can include items such as subsidised housing, medical care, or the provision of a car as part of a compensation package.

It is important to distinguish remuneration from gifts or honorariums. A gift is typically given without obligation, while an honorarium is an honorary payment for professional services, also often without obligation.

Furthermore, remuneration for board service is distinct from payments a board member might receive for providing separate professional services to the charity or if they are also employed by the charity in a staff role. These arrangements require careful management of conflicts and adherence to fair market value principles.

Remuneration Versus Expense Reimbursement

A key distinction exists between remunerating a board member for their service and reimbursing them for expenses incurred while performing their duties. Remuneration is payment for the role itself, whereas expense reimbursement involves covering reasonable out-of-pocket costs.

Examples of typical reimbursable expenses include:

• Travel costs: Covering the cost of travel to and from board meetings or other locations required for board duties.
• Fuel costs: Reimbursing fuel expenses if a board member uses their personal vehicle for organisational work.

Reimbursing board members for legitimate expenses is generally permissible and is distinct from paying them for their time or expertise as a director. Even if a charity’s governing document or specific regulations prohibit board remuneration, reimbursing reasonable expenses is often allowed.

For organisations that regularly reimburse expenses, establishing a clear reimbursement policy is advisable.

Is Paying Charity Board Members Allowed

The ACNC Stance on Board Remuneration

The ACNC permits charities to provide remuneration to their board members, though this allowance comes with specific conditions. For board member remuneration to be acceptable to the ACNC, payments must satisfy several key criteria:

• Made in furtherance of the charity’s charitable purpose
• Allowed under the charity’s governing document, such as its constitution or rules
• Properly authorised according to the charity’s internal processes

Furthermore, charities must adhere to the ACNC Governance Standards:

• Governance Standard 1 requires charities to operate on a not-for-profit basis and work towards their charitable purpose, avoiding private benefit for individuals
• Governance Standard 5 mandates that board members act in the charity’s best interests, manage finances responsibly, and disclose any conflicts of interest

It’s important to note that payments deemed unreasonable, unauthorised, or unjustifiable could indicate non-compliance with these standards.

Legal Requirements and Governing Documents

Before a charity decides to remunerate its board members, it must confirm that doing so is legally permissible and aligns with its foundational documents. Several essential conditions must be satisfied to ensure the payment is appropriate and lawful.

These payments must demonstrably further the charity’s specific charitable purpose and be considered in the best interests of the organisation. A critical requirement is that the charity’s governing document—be it a constitution, rules, or trust deed—must explicitly permit the remuneration of board members.

If the document prohibits payments or is silent on the matter, the charity cannot proceed with remuneration until the document is formally amended. This amendment process often requires approval from the charity’s members, typically through a special resolution.

Additionally, the proposed remuneration must be properly authorised within the charity, following established procedures. It’s also vital to ensure payments do not contravene the not-for-profit principle, meaning they should not result in private gain for board members beyond reasonable compensation for their service.

Charities should also review funding agreements, as some may contain clauses restricting the use of funds for board remuneration.

Specific Rules for Different Charity Structures

The legal structure of a charity and its activities, particularly fundraising, can impose specific rules or restrictions on board member remuneration. Different legal forms carry different obligations under state, territory, and federal law.

Specific considerations include:

• Companies Limited by Guarantee (CLG): The constitution must allow director payments. If a CLG has approval under section 150 of the Corporations Act 2001 (Cth) to omit ‘Limited’ from its name, its constitution generally must prohibit director fees. Changing this requires amending the constitution and notifying ASIC.
• Incorporated Associations: State and territory laws governing incorporated associations typically prohibit the association from operating for the financial profit or gain of its members. The association’s constitution or rules must also be checked for any specific clauses regarding board payments.
• Trusts: Charities operating under a trust structure usually cannot pay trustees unless the trust deed explicitly provides for such remuneration.
• Indigenous Corporations: Organisations incorporated under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) can only pay board members if their constitution expressly permits it. Amendment requires a special resolution (75% member approval), and remuneration details must be approved at a general meeting.
• Co-operatives: Under the Co-operatives National Law (CNL), director payments (other than expense reimbursement) generally require approval at a general meeting.
• Fundraising Laws: Charities conducting fundraising activities must comply with state and territory fundraising legislation. Notably, laws in New South Wales (under the Charitable Fundraising Act 1991 (NSW)) and Queensland impose restrictions, potentially requiring ministerial approval (NSW) or limiting payments (QLD). Charities operating nationally may need to adhere to the rules in multiple jurisdictions.

Factors to Consider When Deciding on Remuneration

Potential Benefits of Paying Board Members

Deciding whether to offer remuneration to board members involves weighing several potential advantages for the charity. Paying board members can be a strategic move for not-for-profit organisations facing complex governance demands.

Offering remuneration may assist a charity in several ways:

• Attracting Skills and Experience: Charities, particularly large or complex ones, often require board members with specific expertise. Compensation can help attract individuals with the necessary skills who might otherwise pursue roles in the for-profit sector.
• Enhancing Accountability: Remuneration can foster a stronger sense of accountability and responsibility among board members regarding their duties and performance. This approach may signal an expectation of rigorous engagement.
• Increasing Diversity: Offering payment can broaden the pool of potential board members. It allows individuals who may not have the financial means to volunteer significant time, including those with valuable lived experience, to contribute their expertise.
• Improving Engagement: When board members receive remuneration for their service, the charity might reasonably expect higher levels of engagement. This includes:
  • Consistent attendance at meetings
  • Active participation in communications
  • Thorough involvement in decision-making processes

Potential Drawbacks and Risks of Paying Board Members

While there are benefits, charities must also consider the potential downsides and risks associated with remunerating board members. These factors require careful thought before implementing a payment policy.

Potential drawbacks include:

• Conflict with Altruistic Motivations: Many individuals join charity boards driven by a desire to ‘give back’ to the community. Introducing payment might conflict with these altruistic motivations for some potential or existing board members.
• Shifting Motivations: There’s a potential risk that financial compensation could become the primary motivation for serving on the board, overshadowing commitment to the charity’s mission and purpose.
• Donor and Supporter Concerns: A significant number of donors and supporters hold the expectation that board members serve on a voluntary basis. Consequently, paying board members might be viewed negatively by these stakeholders, potentially impacting donations.
• Cost Implications: For many charities, especially smaller ones operating on limited funds, paying board members represents an additional expense that may be viewed as unnecessary or unaffordable.
• Impact on Volunteer Engagement: Offering remuneration to the board could potentially make it more challenging to:
  • Engage other volunteers within the organisation
  • Solicit donations if stakeholders perceive funds are being diverted from the core mission
• Affordability: Some charities simply lack the financial resources to pay their board members, making remuneration impractical regardless of other considerations.

Assessing Impact on Stakeholders and Public Perception

A critical factor in the decision-making process is how paying board members will be perceived by key stakeholders and the public. The potential impact on the charity’s reputation and funding cannot be overlooked.

Charities should carefully consider the views of their members, donors, supporters, and the general public. There is often a public perception that charities should minimise administrative costs, which can sometimes include board remuneration.

Payments viewed as excessive or unjustified could damage the charity’s reputation and potentially affect its ability to secure donations and funding.

Therefore, any charity choosing to remunerate its board members must be prepared to justify these payments transparently. It’s essential to clearly communicate how the remuneration:

• Aligns with and furthers the charity’s purpose
• Benefits the organisation’s overall mission

Being open about the decision-making process and the rationale behind payments can help mitigate potential negative perceptions and maintain stakeholder trust.

Implementing Board Remuneration Responsibly

Establishing Clear Policies and Procedures

If a charity decides to proceed with paying board members, establishing clear internal guidelines is essential. Charities should implement a formal policy that provides structure and clarity for the organisation and its stakeholders.

The remuneration policy should clearly outline several key aspects:

• Determination Method: How the amount and nature of board member remuneration are decided (through benchmarking against similar organisations or using independent consultants)
• Approval Process: The specific steps required to authorise payments, ensuring decisions align with the charity’s governing document and internal controls
• Handling Concerns: Procedures for addressing any concerns or disputes regarding board remuneration

Having such a policy helps ensure consistency and provides a framework for making responsible decisions about board member compensation.

Ensuring Transparency and Accountability

Transparency and accountability are fundamental when remunerating charity board members. Charities must be open about their decision to pay board members and the supporting policies, particularly with key stakeholders.

This involves several essential practices:

• Open Communication: Clearly communicating the rationale for remuneration and how it furthers the charity’s purpose
• Stakeholder Engagement: Providing opportunities for stakeholders to raise questions or concerns about board payments
• Justification: Being prepared to publicly justify the payments and explain how they benefit the charity’s mission

Making policies publicly available, perhaps online, demonstrates a commitment to transparency. For charities with members, this aligns with the responsibilities under ACNC Governance Standard 2 regarding accountability.

Failure to be transparent can damage the charity’s reputation and potentially affect donations and support.

Managing Conflicts of Interest Effectively

Managing conflicts of interest is crucial when implementing board remuneration. A conflict arises when a board member’s personal interests could improperly influence their decisions regarding the charity.

Effective management requires:

• Identification: Recognising potential or actual conflicts, particularly where a board member might benefit financially
• Disclosure: Board members must disclose any perceived or actual material conflicts of interest, as required by ACNC Governance Standard 5
• Management Procedures: Implementing a clear conflict of interest policy

A key principle is that board members should not participate in decisions concerning their own remuneration. Some charities establish independent remuneration subcommittees to handle these decisions.

Properly addressing conflicts ensures that decisions about paying board members are made in the best interests of the charity.

Disclosure and Reporting Obligations

Charities, particularly medium and large ones, have specific obligations regarding the disclosure of remuneration paid to key individuals. These requirements enhance transparency and accountability within the not-for-profit sector.

Key reporting obligations include:

• Key Management Personnel (KMP) Remuneration: Medium and large charities must disclose the remuneration provided to their KMP
• Annual Information Statement (AIS): Details of KMP remuneration must be reported in the charity’s AIS submitted annually to the ACNC
• Financial Reports: Charities preparing financial statements must disclose KMP remuneration in accordance with AASB 124 Related Party Disclosures

KMP typically includes Responsible People (board members, committee members, trustees) and senior executives like the CEO or CFO who have authority for planning, directing, and controlling the charity’s activities. The AIS specifically asks medium and large charities about related party transactions, which includes KMP remuneration.

These disclosure requirements help ensure that stakeholders have visibility into how charity funds are used for leadership compensation.

Understanding the Implications of Payment

Changes to Volunteer Status and Employment Law Considerations

Paying a board member can significantly alter the nature of their relationship with the organisation, potentially shifting it from a volunteer arrangement to one of employment. According to the Fair Work Ombudsman, a genuine volunteering arrangement typically involves:

• No intention to create a legally binding employment relationship
• No obligation for the volunteer to perform work
• No expectation of payment for their work

When there is an expectation of payment for services rendered, a board member might be considered an employee rather than a volunteer. This distinction is important because if an employer/employee relationship is established, the organisation may incur additional legal obligations, including:

• Adherence to National Employment Standards
• Payment of superannuation contributions
• Provision of workers’ compensation coverage
• Accrual of paid sick, annual, and long-service leave
• Application of unfair dismissal laws
• Potential contractual redundancy rights

For example, paying a director a significant annual fee, such as $25,000, in exchange for expected services likely establishes an employment relationship. Conversely, giving a small token gift, like a $100 voucher, as a thank you without expectation of further work typically does not create such a relationship.

Conclusion

Paying Australian charity board members is permissible under specific ACNC and legal conditions, provided it furthers the charitable purpose and is allowed by the governing documents. Charities must carefully weigh the benefits of board remuneration against potential risks, implement transparent policies, manage conflicts effectively, and understand the implications for employment status and director liability.

Navigating the complexities of board remuneration requires careful consideration and expert guidance to ensure compliance and responsible governance. Contact LawBridge today to get specialised services and trusted expertise from our not-for-profit lawyers, helping your organisation make informed decisions about paying board members.

Frequently Asked Questions