Paying Board Members - Self Managed Property

CathleenH (Wisconsin)
Posts: 22

Posted:

I am the Secretary of a 5 member Board. We recently removed most of the prior Board, so 4 of 5 members are new, including Secretary, Treasurer and President. The other two are non-officer Board Members. Something that has come up is paying Board Members. Per our Bylaws, the positions are volunteer but the question has been raised about services Board Members, complete over and above officer duties that maybe a Management Company would have been paid to complete. My thought is the positions are volunteer period but that's not the how other members feel. Our President feels as I do. I'm looking for some advice from more experienced Board Members. Thank you.

GlenL (Ohio)
Posts: 5,491

Posted:

Expenses - OK, work not covered by the officer's description i.e. maintenance - OK but often questioned but compensation for doing their duties IMO - not OK. In fact compensation is often banned not only in the By-Laws but in the Covenants and Articles of Incorporation and would have to be amended by the homeowners to be allowed.

Studies show that 5 out of 4 people have problems with fractions

TimB4 (Tennessee)
Posts: 21,059

Posted:

Typically somewhere in your governing documents it should specify if Board members are paid positions or not.

As a volunteer, there are laws that provide protection for bad business decisions. As a paid Director, some of those laws might not apply. Since laws vary by State, you should check with your attorney to see what the specific legal issues may be.

Additionally, if Directors or Officers are paid, they would become employees of the Association. As an employee, there are specific IRS rules that need to be complied with.
See Businesses with Employees from the IRS website.

In my opinion, the purpose of being self managed is to save the Association money. If the work load is too much, consider hiring an independent contractor for some of those duties. As an example, my Association used a bookkeeper for years to collect the mail, track assessment payments and make deposits.

Hope this helps,

Tim

KellyM3 (North Carolina)
Posts: 2,239

Posted:

In regards to paying board members for their public service - why would a community pay amateurs when professionals can handle matters more efficiently (especially collections, bookkeeping and independent auditing), leave the board to oversee the "big picture."

If anyone should be paid, it's someone who can't eat cookies from their own cookie jar. The new board members should recognize they are community servants and free up some unpaid hours to improve the neighborhood

MichaelO4 (Montana)
Posts: 40

Posted:

Speaking for myself as an HOA President (and Chair of the Board), I've been offered compensation, but declined. If I'm paid, my duties become "HAVE TO DOs" instead of "WANT TO DOs." I'd no longer be providing a service to my neighbors, but doing a job for an employer. Just my personal view.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Per our Bylaws, the positions are volunteer

The positions are volunteer per the bylaws. It's not up for discussion. Period.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

NEVER compensate the positions for not having to pay dues while serving. That is a HUGE bad idea. Everyone must pay their dues no matter what. The problem being what if your board member quits and out of protest decides not to pay dues? Where is the line of saying when they owe? It would be very difficult to prove and not make the mistake of going too far back.

HOA's are VOLUNTEER NON-PROFIT corporations. It is spend as much as it collects on it's expenses. No more and no less. The tax ramifications of paying your volunteer staff outweighs the benefits... It's volunteer ONLY and it's written in the documents for a reason. If you want paid, then don't volunteer. Simple as that.

Former HOA President

DaveD3 (Michigan)
Posts: 796

Posted:

Quote:

Posted By CathleenH on 08/28/2013 3:04 PM
I am the Secretary of a 5 member Board. We recently removed most of the prior Board, so 4 of 5 members are new, including Secretary, Treasurer and President. The other two are non-officer Board Members. Something that has come up is paying Board Members. Per our Bylaws, the positions are volunteer but the question has been raised about services Board Members, complete over and above officer duties that maybe a Management Company would have been paid to complete. My thought is the positions are volunteer period but that's not the how other members feel. Our President feels as I do. I'm looking for some advice from more experienced Board Members. Thank you.

What would be considered over and above normal duties? Examples?

If there is something that needs to be done, but is not the responsibility of anyone on the board per the description of their positions, then it means that someone else would normally be paid to do that task. Are they suggesting that the board solicit bids and potentially award the business to a board member that bid and is qualified?

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By CathleenH on 08/28/2013 3:04 PM
I am the Secretary of a 5 member Board. We recently removed most of the prior Board, so 4 of 5 members are new, including Secretary, Treasurer and President. The other two are non-officer Board Members. Something that has come up is paying Board Members. Per our Bylaws, the positions are volunteer but the question has been raised about services Board Members, complete over and above officer duties that maybe a Management Company would have been paid to complete. My thought is the positions are volunteer period but that's not the how other members feel. Our President feels as I do. I'm looking for some advice from more experienced Board Members. Thank you.

Have any of your board members ever owned or managed a business that has employees? If not, don't even consider paying board members for performing certain duties, whether those duties are normally done by a property manager, a bookkeeper, an accountant, or not.

First, you cannot simply compensate someone for doing a task and that's the end of it. Any income has to be reported to the IRS and even if the individual chooses to leave the income out of his tax return, you would be irresponsible to take the risk of your association getting into trouble by not doing things properly, or "by the book" as they say. Furthermore, your D&O insurance will not cover you if you knowingly break the law (or should have known, and everybody knows you're supposed to report ALL income and pay taxes on that income).

Unless the individual performs the same work for several clients the IRS considers that person an employee and not a private contractor. That means you will have to worry about payroll taxes, issuing W-2s, paying for worker's comp insurance and possibly even unemployment insurance. There are various federal and state labor laws you will have to become familiar with.

You are better off hiring a private contractor to do those tasks. Then all you have to worry about are the Form 1099-MISCs. You won't have to worry about payroll taxes, insurance, labor laws or anything else. The private contractor could be a professional property manager (or a management company), an accountant, a bookkeeper, an accounting firm or whatever. Just remember, whoever you hire, the person must be self-employed in order to be considered a private contractor. Otherwise, that person is an employee. (BTW - a self-employed person could still have a full or part time job for an employer, but does "outside work" for several clients and files a Schedule C each year to report the self-employment income with his or her regular tax return.)

Your two best choices are:
1) Continue to do the work yourselves without compensation; or
2) Hire a private contractor (self-employed person) to do the work for you.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By BruceF1 on 08/29/2013 11:51 AM

Posted By CathleenH on 08/28/2013 3:04 PM
I am the Secretary of a 5 member Board. We recently removed most of the prior Board, so 4 of 5 members are new, including Secretary, Treasurer and President. The other two are non-officer Board Members. Something that has come up is paying Board Members. Per our Bylaws, the positions are volunteer but the question has been raised about services Board Members, complete over and above officer duties that maybe a Management Company would have been paid to complete. My thought is the positions are volunteer period but that's not the how other members feel. Our President feels as I do. I'm looking for some advice from more experienced Board Members. Thank you.

Have any of your board members ever owned or managed a business that has employees? If not, don't even consider paying board members for performing certain duties, whether those duties are normally done by a property manager, a bookkeeper, an accountant, or not.

First, you cannot simply compensate someone for doing a task and that's the end of it. Any income has to be reported to the IRS and even if the individual chooses to leave the income out of his tax return, you would be irresponsible to take the risk of your association getting into trouble by not doing things properly, or "by the book" as they say. Furthermore, your D&O insurance will not cover you if you knowingly break the law (or should have known, and everybody knows you're supposed to report ALL income and pay taxes on that income).

Unless the individual performs the same work for several clients the IRS considers that person an employee and not a private contractor. That means you will have to worry about payroll taxes, issuing W-2s, paying for worker's comp insurance and possibly even unemployment insurance. There are various federal and state labor laws you will have to become familiar with.

You are better off hiring a private contractor to do those tasks. Then all you have to worry about are the Form 1099-MISCs. You won't have to worry about payroll taxes, insurance, labor laws or anything else. The private contractor could be a professional property manager (or a management company), an accountant, a bookkeeper, an accounting firm or whatever. Just remember, whoever you hire, the person must be self-employed in order to be considered a private contractor. Otherwise, that person is an employee. (BTW - a self-employed person could still have a full or part time job for an employer, but does "outside work" for several clients and files a Schedule C each year to report the self-employment income with his or her regular tax return.)

Your two best choices are:
1) Continue to do the work yourselves without compensation; or
2) Hire a private contractor (self-employed person) to do the work for you.

I agree with this.

Also, paying BOD Members can open a Pandora's Box of accusations.

Bottom line, best not done for many reasons.

CathleenH (Wisconsin)
Posts: 22

Posted:

Thank you for the responses!

We've only been the Board since July - getting rid of the last Board was a huge step in the right direction. They've been mismanaging funds, I'll leave it at that. The new board members have Accounting, Communications, IT and Project Management backgrounds.

Regarding the question of duties over and above, the President has been been filling out 8-10 page documents for banks and realors regarding foreclosures, sales, and refinances. We had two foreclosures - one has sold, then other is going through the sherrif's sale. Our President's not making a big deal about it but my thought is other members don't want him to get burnt out. Are the length of those documents normal or even documents he should be doing? Maybe the question isn't can a Board Member be paid but can we charge a bank or realtor on behalf of the Association for these services?

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By CathleenH on 08/29/2013 1:53 PM
Regarding the question of duties over and above, the President has been been filling out 8-10 page documents for banks and realors regarding foreclosures, sales, and refinances. We had two foreclosures - one has sold, then other is going through the sherrif's sale. Our President's not making a big deal about it but my thought is other members don't want him to get burnt out. Are the length of those documents normal or even documents he should be doing? Maybe the question isn't can a Board Member be paid but can we charge a bank or realtor on behalf of the Association for these services?

HUD (and Fannie Mae and Freddie Mac) lending requirements have tightened considerably since the housing bust and to meet those requirements the lenders are asking for a lot more information. Without this information mortgage underwriters will not write loans for homes that are in condo or homeowners associations because they cannot get HUD backing and the mortgages cannot be sold on the secondary market. Yes, the forms are quite lengthy, but most of the information asked for is the same regardless of the lender. You might be able to save some time by keeping copies so you can fill out new questionnaires using the information from the forms you previously filled out.

It is reasonable to charge a fee for completing the form but you are not likely to see any money until the sale closes. The fee will probably be included in the final closing costs on the HUD-1 settlement statement. Keep in mind that any fee so charged represents taxable income for the association since such fees are not considered exempt function income (like assessments) for the HOA.

Although you have professionals on your board that does not mean they have the experience, education or knowledge to deal with having employees.

You stated that many of you are new to the board. You all have much to learn. You are running a corporation now. You need to make annual filings with the Secretary of State; you need to make sure you have a Registered Agent; you need to complete the appropriate tax forms; and on and on.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Cath

It is reasonable and common to charge for things that take the BOD's time and cost the association money. That said, the money goes into the BOD General (whatever) Fund, not to a specific member of the BOD.

If on the behalf of the BOD I have to copy something, take it to the post office, and mail it (time, mileage, postage, etc.), could become rather pricey.

As I said on an different post, we already know what I am. We are just arguing over price now.

KarenC15 (Florida)
Posts: 118

Posted:

FL statutes forbid payment to board members. I think this would be a very bad idea in any case. When someone is recalled, or not re-elected, would they have employment rights...?

Hatred is contagious, so one should work to avoid it.

CathleenH (Wisconsin)
Posts: 22

Posted:

Yes, we do have a lot to learn. Which is why I'm so glad I found this forum. I'll probably be back soon with another question! Lol! Thanks again for the responses!

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By BruceF1 on 08/29/2013 3:11 PM
Yes, the forms are quite lengthy, but most of the information asked for is the same regardless of the lender. You might be able to save some time by keeping copies so you can fill out new questionnaires using the information from the forms you previously filled out.

We actually created a PUD (planned unit development) statement that answers all the questions we have been asked. This statement is updated every 6 months (99% of the info doesn't change) and signed by the President of the Association.

We offer that statement (along with a copy of the insurance disclosure statement) for free (typically e-mailed to the lender). If they want the information filled out on their form, we charge a $25 fee. Out of the last 30 requests, we only had one lender want it on their form.

CathleenH (Wisconsin)
Posts: 22

Posted:

TimB4,

Do you have a general template of the PUD you could share?

Thank you,

Cathleen

CathleenH (Wisconsin)
Posts: 22

Posted:

TimB4,

Do you have a general template of the PUD you could share?

Thank you,

Cathleen

TimB4 (Tennessee)
Posts: 21,059

Posted:

Cathleen,

I'd be happy to.

As I said, this was initially developed by looking at what other Assocaitions were providing (found with an internet search) and modified based on the various lenders questionnaires.

Hope it helps,

Tim

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CathleenH (Wisconsin)
Posts: 22

Posted:

Thanks Tim, those templates were extremely helpful!!

GnomeX (Washington)
Posts: 253

Posted:

Quote:

Posted By CathleenH on 08/29/2013 1:53 PM
Thank you for the responses!

We've only been the Board since July - getting rid of the last Board was a huge step in the right direction. They've been mismanaging funds, I'll leave it at that. The new board members have Accounting, Communications, IT and Project Management backgrounds.

Regarding the question of duties over and above, the President has been been filling out 8-10 page documents for banks and realors regarding foreclosures, sales, and refinances. We had two foreclosures - one has sold, then other is going through the sherrif's sale. Our President's not making a big deal about it but my thought is other members don't want him to get burnt out. Are the length of those documents normal or even documents he should be doing? Maybe the question isn't can a Board Member be paid but can we charge a bank or realtor on behalf of the Association for these services?

We are self managed as well. It is a burden I know. Especially when things like this come up. We had a rash of bank foreclosures and they were hitting us with a ton of documentation requests and paperwork to fill out. They also were demanding we fill it all out in order to get paid any dues after the foreclosures.

What I did was to get the Board to approve hiring a temp employee from a local employment service. It kept me from going crazy trying to keep up.

Also we drastically increased our transfer fees to offset the cost of hiring the temp.

Just an idea.