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Being a trustee is generally a voluntary role. This is what makes the charity sector unique and promotes trust and confidence in charities. As a result, external reaction to paying trustees is often negative.

There are legal rules that apply to paying trustees. If you wish to pay a trustee for loss of earnings, read this guidance to understand:

• the rules, including having a power or authority (legal permission)
• the risks, for example public criticism

You must follow the rules even if the arrangement benefits the charity.

If you do not follow the rules, the trustee who received the payment, or all the trustees, may have to repay the charity.

You should understand what it means to ‘pay’ a trustee. It means:

• giving financial rewards such as a salary, fees, stipend and/or
• giving other benefits, such as free use of equipment or property or free access to services that people normally have to pay for

The rules also apply if it is a company belonging to the charity that pays the trustee.

You may have to name the trustee you paid and what you paid them in your charity’s accounts. Your charity’s accounts become public information.

This guidance applies to all charities.

What this type of payment means

Occasionally, a trustee may lose out financially if they cannot be at work because they need to do their trustee role.

This might affect a trustee who is self-employed or who is in paid employment.

Some employers provide paid volunteering leave. Charities should ask those trustees who are employees to check if their employer provides paid volunteering leave that they can use.

Here are some examples.

A charity needs a trustee to attend a safeguarding training course at the charity. The training will take place during the trustee’s working hours. The trustee’s employer does not provide paid leave for volunteering. This means the trustee will lose out financially by attending the training.

A trustee, who has specific skills and knowledge, is needed by the charity during their working hours. The trustee is self-employed. Their availability to the charity affects the amount of paid work they can take on.

In these types of situations, it may be in your charity’s best interest to compensate a trustee for their lost earnings if:

• it avoids the trustee stepping down, because they cannot afford to remain as trustee and
• it avoids your charity losing the trustee’s skills and experience

You must follow steps 1 and 2 to compensate a trustee for lost earnings.

Step 1: Make the decision

The trustees must:

• consider that compensating a trustee for loss of earnings, at the agreed amount is in the charity’s best interests, and
• manage the conflict of interest

Step 2: Have a power or authority (legal permission)

The trustees must have:

• a power in their charity’s governing document that permits the payment, or if they do not
• authority from the Charity Commission

Make the decision

You, as trustees, must consider that compensating a trustee is in your charity’s best interests. This means that you can show that it is the best option for the charity having assessed:

• other options to paying, and
• the advantages and risks of paying a trustee

Use our decision-making guidance to help you make your decision.

Manage the risks

When you make the decision, think about the risks and how you will manage them. These include:

• this type of payment could be viewed as unfair by trustees who are not employed or self-employed
• criticism from within or outside your charity. This could become public criticism and could affect your charity and its funding
• the charity being seen as a way of benefitting particular individuals
• not complying with legal requirements including the rules on conflicts of interest

These risks increase if you regularly pay trustees at your charity.

If you regularly make this type of payment, you should check why you cannot make arrangements that avoid trustees losing out financially. For example, changing when you need trustees’ involvement.

You must  manage the risks. For example, by:

• looking at how you can minimise the need to compensate for loss of earnings
• reading this guidance and making sure you follow the rules
• keeping a full record of why you made your decision
• explaining your decision if it is criticised in public
• following the rules on disclosing payments in your charity’s accounts
• having a written agreement; get legal advice about this if you need it

The amount must be reasonable

Decide what you will pay. It should be either:

• the amount of earnings the trustee has lost, or
• a reasonable amount to cover what the trustee was asked to do on behalf of the charity in their work time

whichever is lower.

Understand how you will decide what is reasonable, such as a reasonable hourly rate for attending a trustee meeting. You can:

• get advice from a sector advice body
• look at what similar charities pay for similar activities

Check that your charity can afford to pay.

Manage the conflict of interest

When trustees are paid, they have a conflict of interest each time you make decisions about that payment.

In this situation, the following will have a conflict of interest:

• the trustee being compensated
• any trustee who has a relationship with the trustee being compensated

There can be more than one trustee who is conflicted. Make sure you identify them all.

You must manage the conflict of interest. Use our guidance to help you.

You must still manage the conflict of interest even if:

• compensating the trustee benefits the charity
• you have a power or authority, as explained in the next section

Check you have a power or authority

You must have a power or authority (legal permission) to compensate a trustee for lost earnings. So, check your charity’s governing document.

Governing documents do not tend to contain a power for this type of payment. However, if your governing document does contain a clear power that permits this, you can use that power.

If the power sets out any rules, you must follow them. For example, it may say you must get the Charity Commission’s consent first. This is called a ‘conditional power’.

You will need authority from the Commission if your governing document:

• does not say anything that clearly permits trustees to be compensated for loss of earnings, or
• includes a prohibition

A ‘prohibition’ is any wording or clause that indicates trustees cannot:

• be compensated for lost earnings, or
• receive any type of payment or benefit (or ‘remuneration’) from the charity

If you are not sure, get legal advice.

Apply for Charity Commission authority

Read this guidance to understand what the Commission expects when you make a decision about this type of payment.

If you need authority (or consent to use a conditional power), you will need to tell us:

• who you want to pay and why
• the amount of pay they will lose out on
• what you have agreed to pay and how you decided on this amount
• why it is in the charity’s best interests to compensate the trustee
• why the situation giving rise to compensating the trustee could not be avoided; what other options you considered
• the risks you have identified and how you will manage them
• if other trustees at your charity are paid; why they are paid; and how much you pay them. Tell us what proportion of your trustees are currently paid
• that you made the decision in line with your governing document rules. For example, that the meeting was quorate
• how you managed the conflict of interest
• whether your governing document contains a prohibition or a conditional power as explained in this guidance

If you need authority because you cannot manage the conflict of interest, you will need to:

• provide the information listed above about how you made the decision and how it is in the charity’s best interests
• tell us if your governing document includes a power to compensate a trustee
• tell us why you cannot manage the conflict

Make one application if you need authority to pay and to manage a conflict of interest.

Record your decisions

Keep a full record of your decisions and the reasons for them. For example, in the minutes of the relevant meeting. This can help show you followed the rules.

Keep a record of any Charity Commission consent or authority.

Your written agreement forms part of your charity’s financial records. You must keep it for 6 years.

Disclose trustee payments in your charity’s accounts

Charities that prepare accrual accounts

Your charity’s accounts must include certain details about payments and other benefits to trustees. Check the  or get professional advice.

SORP explains the accounting rules for charities that prepare accrual accounts.

Charities that prepare receipts and payments accounts

You should include details of payments you made to trustees. For example, who you paid, why you paid them, what you paid them, and the power or authority for the payment.

Check what type of accounts your charity must prepare.