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.
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.
In this guidance, we refer to remuneration as ‘payment’ or ‘paying charity trustees’
What are the rules on paying charity trustees?
The 2005 Act states that you must not pay a charity trustee, for services provided to the charity, either as a charity trustee or under contract, unless you meet all of these conditions:
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:
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.
What are the rules for paying a connected person?
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:
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.
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:
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:
Here we set out the specific sections of charity law in Scotland relevant to each part of the guidance.