Should the Board of Directors of Your Nonprofit Be Paid?
Board members play a huge part in the success of your nonprofit organization. Without them, much of the leg work that’s needed to get the business up and running may not happen. In addition, without their commitment and focus, it would be hard to sustain the business. Due to this, it would not be surprising if you wanted to compensate your board members for the time they’ve given to your business.
This is a reasonable consideration, as board members have full-time jobs and families, and are extremely busy people without the time they give to your business. If you’re wondering if you can compensate your board members, this article will give you the answers you need.
Board Members Operate in a Volunteer Capacity
Most nonprofit board members operate in a volunteer capacity. That means they adhere to the task of a committed board member without the expectation of being paid. However, there may be exceptions to that rule and there is usually at least one board member that is compensated.
Committed board members sometimes dig into their own pockets to cover needed expenses while serving in this capacity. While they shouldn’t have to because they’re already sacrificing so much, sometimes it’s needed, especially with smaller nonprofits. It is a very reasonable thing for an organization to reimburse board members for expenses incurred while serving.
Paying The Executive Director
In most cases, the Executive Director of a nonprofit is also the founder. The person in this role handles the day-to-day operations of the business and this is likely their full-time job. So, in this instance, the founder or Executive Director serves also as a paid employee. If this is the case, this particular board member should also have non-voting rights for ethical reasons.
Beyond the Executive Director, some nonprofits may provide forms of regular payments to their board members for the time and work they put in. Before carrying out this type of action, it may be wise to evaluate your state’s laws and research IRS guidelines about conflict of interest.
Benefits of Paying Board Members
Despite the fact that it’s more ethical to not pay your board members, there are many benefits to paying them:
It makes board members even more committed to the cause
It can put your business at the top of your board members’ priorities
It can attract a better-qualified group of board members
It can reward your board members for all their hard work
It should also be noted that for any board member who receives $600 or more in compensation from your organization, you will be responsible for completing the IRS Form 1099-MISC, as they will need to report that money on their taxes.
Disadvantages of Paying Board Members
Just as compensating your board members can have advantages, it can also have its disadvantages:
Your nonprofit can be looked at by some as a for-profit business.
People may question why board members are getting paid and volunteers are not.
People who donate to your business may have more questions about where their money is really going.
Board members manage the nonprofit’s finances and this may seem like a conflict of interest.
Whether you decide to pay your board members or not, ensure the aspect of payment or nonpayment is covered in your nonprofit’s bylaws. All nonprofit organizations should also have a conflict of interest policy; should you choose to pay your board members, make sure there is no conflict of interest.
When it’s all said and done, your board of directors has a fiduciary duty of loyalty to the organization they serve and when they’re making decisions for the organization, they should always have the best interest of the organization and the community it serves at heart. That should be the case even if there is no compensation.
That said, your board members should work for the cause, whether paid or not. Should you decide to pay them, make sure it falls within the realm of your bylaws, state laws, and IRS regulations.