The general rule of thumb is that trustees are not to receive monetary payment for any work that is carried out to benefit the charity. However, this is not always the case: in certain circumstances, payment is allowed if it satisfies the conditions disclosed in the governing document.
Prior to the Charities Act 2006, the Charity Commission’s permission was required in order to modify or grant any powers to pay trustees. However, since the introduction of the Charities Act 2006, if the governing document did not include a provision on payments to trustees, no appeals can be made. In the case where there is no mention of payments, the trustees themselves will need to use their discretion to determine whether payment is reasonable and is of benefit to the charity. This should always be of legitimate and reasonable means and payment should be in exceptional cases only.
What is Payment?
Payments can come in in many different forms and is considered an exchange in return for a service or act performed by a trustee for the benefit of the charity.
There are three key categories, which the Commission groups payments for trustees into:
- Paying a trustee to be one: As mentioned, trustees should not receive any monetary payments, unless it is consented to in the governing document
- Purchase of a service from a trustee: In some cases, trustees can be paid to complete a service or work for the benefit of the charity; this includes domestic work such as plumbing and painting to services such as accountancy or legal advice. However, it is best practice to have this formally stated in a written agreement which should be kept as part of the charity’s financial records.
- Trustee expenditure: If stated in the governing document, trustees can be reimbursed for expenditure such as travel goods purchased for the benefit of the charity. Although, this must be of a reasonable price and the individual must not be over compensated.
The charity commission also state that an honorarium is a form of payment.
Conflict of interest
The wellbeing of the charity should always precede that of the trustees when handling pay-outs. All trustees who require remuneration should always act in the best interest of the charity and should not try to capitalise or benefit financially from the charity. If a company does not act ethically, a conflict of interest may arise and the trustee may need to be removed from the board.
Another conflict of interest may arise when a person who is connected to a trustee may be paid to carry out work or services for the charity. In this case, it is important that all trustees connected, related or associated with the individual are disassociated with any part of the process. For connected individuals to work for the organisation, the Charity Commission must approve this first.
Factors to consider:
Although payment can be made in some cases to trustees, it is important to remember that:
- Trustees who receive payment in this way should always be a minority
- All arrangements should always be written out in an agreement and be reasonable
- Should only ever be agreed and made permissible by the provisions stated in the governing document
If you would like further advice on payments to trustees, please contact our charity specialist Suda Ratnam at firstname.lastname@example.org.
For any further reading, please refer to our Charity and Not-for-profit tools and resources at https://www.raffingers.co.uk/sectors/charity-and-not-for-profit/.