I know that the board members of a homeschool groups are hard-working people. They not only homeschool their own children, but they organize support groups and co-ops to help other homeschool families. Sometimes a homeschool group would like to “reward” these generous individuals.
Is it OK to compensate your board members?
A homeschool co-op in the Midwest contacted me recently to apply for 501c3 tax exempt status. The Treasurer told me that her co-op had been paying their leaders anywhere from $200-$1,200 a year for their service on the board. I discussed why paying board members was not a typical practice. Here is some of what we discussed:
- Payments to board members can create a conflict of interest. Does the loyalty of the leader lie in herself or in the best interests of the group?
- Paying board members can call into question the duty of loyalty of the board member. Is she acting in the best interest of the group rather than a personal, financial interest?
- Payment could compromise the leader’s duty of care. A leader should act in good faith, with the care an ordinary, prudent person would exercise and with the best interest of the group in mind.
- Payments on nonprofit boards is not a typical practice. Charities do not usually compensate their board members. Their funds usually go back into the program. Board members serve because they have a passion for the mission and a concern for the members.
- Board payments can undermine the volunteer spirit of other members. Why should a member volunteer her time when others are paid for their efforts?
- Paying a board member can cause dissension and a sense of injustice or imbalance in the group.
- In this particular case the payments did not have member approval. The board voted themselves compensation, but never put the idea to a member vote. This could be considered inurement which is forbidden for 501(c)(3) tax exempt organizations and could put the organizations tax exempt status at risk.
- Paying board members involves correctly classifying them as employees or independent contractors. The classification is a matter of IRS law, not your choice.
This group has wisely decided to stop payments to board members. I think the group will be better served by an all-volunteer board and healthier in the long run.
You can pay board members, but the income is taxable income. My book Paying Workers in a Homeschool Organization explains the correct way to pay board members as employees or independent contractors and alternative tax-free ways to thank your hard-working board members.
Carol Topp, CPA