Updated guidance as to paying charity trustees

The Charity Commission for England and Wales has issued updated guidance on charities paying a trustee or connected persons (CC11).

A voluntary role

At its core, the Commission has emphasised that a key principle of trusteeship is that it should be a voluntary role. This role is central to the way charities work and a charity’s public image.  There are some limited circumstances in which trustees may be paid but there are specific legal and governance requirements which must first be complied with to ensure that the payment is permissible.

We focus in this article on the payment of trustees for goods and services, however, the Commission has now helpfully divided their guidance into types of payment, including employing a trustee, paying a trustee and compensating a trustee.

When can a trustee be paid for goods and services?

Under the Charities Act 2011 (as amended by the Charities Act 2022), a trustee can be paid for providing goods or services to the charity, but only if certain legal requirements are met. These payments can be a one-off or a recurring payment.  If the proper legal process is not complied with, the payment could be considered “unauthorised”.

A trustee who received an “unauthorised” payment could be required to repay the money to the Charity, and all trustees may be jointly responsible for permitting such a breach. Additionally, the Charity Commission may carry out a formal investigation, leading to regulatory action, including official warnings, removing trustees, or referring the matter to the police if there is suspicion of fraudulent use of charitable funds.

What counts as a payment?

Payments are not limited to a payment of cash or a cheque. They also include:

• Professional fees or financial awards; or,
• Non-cash benefits, like free services or perks that someone would ordinarily have to pay for.

The rules must also be considered if a company which is owned by a trustee is being paid, or if a person or company connected to the trustee is being paid.

Expenses – a separate point

Paying out of pocket expenses to a trustee is not a trustee payment or benefit. The Commission has urged charities to encourage trustees to claim their expenses to avoid them needing to step down for financial reasons.

Paying a trustee under the statutory provision

In order for a trustee to be paid under the statutory provisions in the Charities Act, the trustees must comply with very specific conditions, including:-

1. Check your governing document – Trustees must check that there is no specific wording or clause which states that trustees or a connected person can’t be paid. If there is a prohibition or restriction on paying trustees, or connected persons, a separate procedure must be followed.
2. Be sure it’s in the charity’s best interest – Trustees must be satisfied that the decision to pay the trustee must demonstrably be in the charity’s best interests. Trustees should consider the costs, quality, and time for the goods and service to be delivered, as well as any risks to the charity.
3. The pay must be reasonable – Trustees must be satisfied that the amount they are paying is reasonable, taking into account factors such as the market price (e.g. checking the cost of the service to ensure it is benchmarked and competitive against other providers who are not trustees), what the charity can afford and what the charity has paid in the past for the same / similar services.
4. There must be a written agreement – Trustees must put a written agreement in place before receiving the goods or services. There are also specific provisions that must be included in such an agreement.

5. Only a minority of trustees may be paid at any one time – Trustees must check this before any agreement is agreed. Trustees who are employed by the charity and all trustees who are connected to people or organisations that are paid by the charity must be counted. Trustees who are receiving expenses do not need to be counted.

6. Manage the conflict interest – Trustees must manage conflicts of interest properly, including ensuring that a conflicted trustee does not take part in discussions or decisions around selecting the supplier in the first place or indeed approving the payment in question.

7. Keep records – Trustees must ensure the decision-making process is recorded, explaining why the payment is necessary, and ensure that payments are disclosed in the charity’s annual accounts where necessary.

If charities cannot use the statutory power, it may be necessary to apply to the Charity Commission for authority to pay a trustee.

Tips to charities – Key points from the updated guidance

• Trustees should always consider alternative options and ensure that any payments to a trustee for goods and services is competitive to other non-trustee connected services and in the best interests of the charity.
• Keep things transparent. Review your governing documents, use written agreements, and disclose everything in the charity’s accounts, including who was paid and how much, with existing payment arrangements audited.
• Clear policies and procedures must be in place to ensure impartial decision-making, and to ensure that decisions are made fairly with full accountability.

To avoid legal repercussions, reputational damage, and undermining of the charity’s mission and public standing, trustees should review how they currently handle trustee involvement in service delivery – and make sure their process is in line with the updated guidance.

How we can help

If you would like advice on whether your charity is complying with the updated guidance, please get in touch with our charities team.