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Remuneration (Paying charity trustees and connected persons)

Published: 04/04/2016
Updated: 04/04/2016

Summary

The 2005 Act sets out when charity trustees (and people who are connected to them) can receive payment from the charity for services provided to it. A charity must not pay charity trustees, and people who are connected to them, unless the charity can satisfy the conditions set out in the 2005 Act.

This section explains what those conditions are and gives examples of when it is and is not appropriate to pay charity trustees and people connected with them.

The rules on paying charity trustees do not apply to reclaiming expenses, like train fares to get to a charity trustee meeting.

What is remuneration?

Remuneration in the 2005 Act means any payment received for services provided to the charity either as a charity trustee or under a contract of employment with the charity, and includes people connected with charity trustees. It is any such payment from the charity’s funds. Payment may be received in the form of a salary, payment for services or in the form of other benefits such as a company car, medical plan or pension plan.

For example:
Out of pocket expenses paid to charity trustees, for instance travel expenses to attend meetings, are not considered remuneration, although receipts for expenses are still required. 

In this guidance, we refer to remuneration as ‘payment’ or ‘paying charity trustees’.
 

 

What are the rules on paying charity trustees? Legal duty.png

The 2005 Act states that you must not pay charity trustee, for services provided to the charity, either as a charity trustee or under contract, unless you meet all of these conditions:

  • there is no restriction to the payment in the charity’s governing document.
  • less than half the total number of charity trustees are getting paid (directly or indirectly) from the charity
  • there is a written agreement between the charity and the charity trustee
  • the written agreement sets out the maximum amount to be paid, and
  • the charity trustees are satisfied it is in the interest of the charity for the services to be provided by the charity trustee for that maximum amount.

If your governing document says that the charity trustees cannot be paid, then even if the other rules from the 2005 Act are met, you will not be able to pay any of the charity trustees.

Examples of when it might be reasonable to pay a charity trustee, provided the conditions above are met:

  • When a local tradesman is a charity trustee and provides services to the charity at a competitive rate.
  • When employees of the charity are also charity trustees because of their position: for example, as chief executive or because they are elected as a staff representative.

An indirect payment to a charity trustee is where two or more charity trustees are connected and one of them is being paid.

See the flowchart below to see if a payment meets the conditions.

Remuneration flowchart

What are the rules for paying a connected person? Legal duty.png

The 2005 Act states that you must not pay a person connected to a charity trustee for services provided to the charity, unless you meet all of these conditions:

  • there is no restriction on the payment within the charity’s governing document
  • the payment is reasonable
  • there is a written agreement between the charity and the connected person
  • the written agreement sets out the maximum amount to be paid
  • the charity trustees are satisfied it is in the interest of the charity for the services to be provided by the connected person for that amount.
In order to pay a charity trustee or connected person, provided the exemptions do not apply, the conditions detailed above must be met. If a decision is taken to pay a charity trustee or connected person, you should keep a record of the charity trustees considerations and must enter into a written agreement with them setting out the maximum amount to be paid.

What is reasonable will depend on the circumstances. The important thing is that whatever the decision is, the interests of the charity come first and you can demonstrate that.

The process for deciding the level of payment must be open and transparent and must not involve the charity trustee who is to receive payment or is connected to the person who will.   

You could compare payment amounts with similar roles at other charities or the wider market place.

If the payment appears to be excessive, there may have been a breach of charity trustee duties, which would be misconduct.

Good practice Good Practice.png

  • have a payment policy that makes sure any payments to charity trustees and/or connected people complies with the conditions set out in the 2005 Act
  • establish a register of charity trustees’ interests
  • obtain at least two separate quotes for services 
  • clearly minute the decision that paying a particular charity trustee or a person connected to them for services  is in the charity’s interest.

If you are not sure if a charity trustee, or connected person, can be paid for services you should get professional advice.

If you are thinking about employing a charity trustee or connected person, you must make sure that:

  • there is a genuine need for a paid position or for the services to be provided
  • as charity trustees, you assess any potential risks, manage any conflicts of interest and are open and transparent about the decision
  • any charity trustee who has a conflict of interest is not involved in the decision
  • no one individual takes a decision about employment on their own
  • any payments to charity trustees are declared in the annual accounts.

We have particular concerns where the charity trustees of a charity are the people benefiting from it as private individuals, or where those benefiting most are people connected with the charity trustees such as family members or companies in which the charity trustees have an interest.

Where there is such private benefit we may need to consider whether it causes the charity to fail the charity test. This is the legal test as to whether or not your organisation can be, or remain, a charity.

An honorarium is generally a small amount of money paid to someone for a service; unlike a fee or salary, an honorarium is not contractual but is a gift.

We would not expect honoraria payments to be paid on a regular basis as a matter of course. As charity trustees, you should review the situation every year and only award a payment if there are exceptional reasons for doing so. We would expect you to clearly explain and record your decision.

In order to make payment of honoraria to a charity trustee or a connected person the remuneration conditions detailed above would have to be met.

You are allowed to use your charity’s funds to provide your charity trustees with indemnity insurance.

Charities registered in England and Wales and Registered Social Landlords

If you are also registered with the Charity Commission for England and Wales you will also need to follow their rules on payments to charity trustees.

If you are a cross-border charity and you are paying charity trustees in line with the law of England and Wales you will need to take into account the rules under the 2005 Act and whether those rules allow the payment in question.

Registered Social Landlords must follow the rules set out by the Scottish Housing Regulator about payments to charity trustees. 

If you fail to comply with these duties then this is misconduct and we do have powers to take action against charity trustees, where appropriate. Our response will be proportionate depending on the situation.

Where a charity trustee has acted reasonably and honestly it is unlikely to be treated as misconduct.

Find out more about what we can and cannot do and what to expect if we have a concern about your charity.



These rules for paying charity trustees and connected persons do not apply if:

  • there is a provision authorising payment of the charity trustees (and/or connected persons) in the charity’s governing document and this was in force on or before the 15 November 2004.
  • there is legislation or an order made by the Court of Session that allows charity trustees (or connected persons) to receive payment. 


For case studies and advice please see our Good Governance pages

Here we set out the specific sections of charity law in Scotland relevant to each part of the guidance.  

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