Compensation

Started by GlenM4 • 28 replies • 1179 views

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GlenM4 (Tennessee)
Posts: 141

Posted:

for last 2 years we have been letting the directors "not have to pay dues" for a few reasons, 1. everyone agrees its a lot of work and this is a small token of appreciation. 2. we usually don't have more people running for the positions then needed.

We vote on this at the annual meetings always 100% yea. But my question is can we do this?

our bylaws say this.

Compensation - Compensation shall be paid to the president and / or secretary/Treasurer only with the affirmative vote of the BOD and members. nothing herein stated shall present any officer, director or committee member from being reimbursed for out-of-pocket expenses or compensated for services rendered in any other capacity to or for the association; provided, however, that any such expenses incurred or services rendered shall have been authorized in advance by the Board of directors.

From reading this it looks like only 3 of the 5 BOD can be compensated. But farther down it says "or compensated for services rendered in any other capacity to or for the association."

Thoughts?

SheliaH (Indiana)
Posts: 6,964

Posted:

You and everyone else may think it's a "small token of appreciation", but it really isn't a good idea. It can throw the budget off whack which should be based on EVERYONE paying dues. There may also be tax implications which would require you to issue some sort of form, as this may be considered income. This isn't the same as reimbursing for out of pocket expenses - everyone should be submitting receipts and there should be documentation to this effect in your board meeting minutes.

I don't know if anyone else has suggested it, but in reading some of your previous posts, it would appear you really don't know a lot about your documents, so it's past time you have the association attorney sit down with you and everyone else on your board to help you go through them so you will have some idea how to proceed. That doesn't mean you can't come here with questions - often people's interpretation of what they think the CCRs say is right on the money, but remember, we don't have your documents so even if you quote part of it, there may be language before and after that section that can turn your view on its head. Yes, it may cost some money and some time, but better to ensure you're getting the correct interpretation before you go off and do something crazy.

And consider going to the community association institute (CAI) website and invest in some education materials that address a number of HOA issues. It's a great way to help you better understand your documents as well as consider adapting best practices to your community. Good luck!

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

SheliaH (Indiana)
Posts: 6,964

Posted:

Oh, and if you really want to thank the directors for their efforts, what's wrong with passing the hat and getting them a gift card? Some people allow for small gifts via a line item on the annual budget, but that may not be a good idea either, as people may begin to grumble about favoritism and such.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

MelissaP1 (Alabama)
Posts: 13,836

Posted:

NEVER EVER EVER NEVER EVER do this as "appreciation" for their work. Forgiving of ANY dues is the worst idea ever. Plus remember gift cards or other gifts come from EVERYONE's money. Do you think everyone wants their money spent on gifts to board members? Talk about favoritism talk...

If you ever forgive dues, what happens when this person stops paying out of "Protest". (It happens all the time). When does your HOA prove how much money they owe when filing a lien? The argument is what point do you pick up non-payment? Plus your making the OTHER HOA members pay more in their dues to cover the non-payment.

A HOA is ONLY funded by it's members for it's members. There is a reason everyone has to pay their fair share. Not paying it, means those who are pay more to cover them.

Former HOA President

TimB4 (Tennessee)
Posts: 21,062

Posted:

Typically, Directors are not paid. In some Associations, Officers are paid. If paying an Officer, things there can be repercussions:
Glen,

NEVER waive assessments. Typically, this is a violation of the covenants. Assessments should be collected and any payments be by check.

Keep in mind the following issues when paying any Officer, Director or Committee member:

1) Perception - members don't always understand the difference between Officers and Directors. Therefore, it may appear that the Board is paying themselves.

2) Accounting - payment should never be in the form of reduced assessments. The individual should pay assessments in full and the Association should write a check for work done based on an invoice. A CPA will show this.

3) IRS - A 1099-misc will need to be issued if they are paid $600 or more. If an employee, there are various taxes and withholding's that must be done. Additionally, waiving the assessments requires a 1099-C cancellation of debt (as the Association is a creditor and the contract creating the debt is the CC&Rs.

Note: The IRS can choose to make the determination for the Association if the individual is a contractor or employee.
See: Independent Contractor (Self-Employed) or Employee? from the IRS

4) Protections under the law - Being paid means you are considered a professional vs. a volunteer. This eliminates the protections one may have under the law.
See: VOLUNTEER PROTECTION ACT OF 1997 and We Don’t Need Insurance—Volunteer Protection Act of 1997

KerryL1 (California)
Posts: 14,550

Posted:

Pease pay attention to Sheila's advice Glen. You can learn from us, but it seems there's SO you don't know yet. You need another source of information besides us.

AugustinD
Posts: 5,144

Posted:

I wonder if the phrase "in any other capacity" might mean that a director may be compensated if she or he performs tasks outside the scope of being a director. If this Bylaw is saying that directors can be paid just for doing directors' duties, then why was the qualifier "in any other capacity" used?

I am aware that it is usual for directors to be volunteers. But I think this practice is the main cause of incompetent people serving on boards and apathy among members in general. I say that, if the Bylaws allow compensation, then pay the directors along with officers. Notice that City Councilors are paid a half-decent wage, plus they have many more resources legally at their disposal to help solve problems. Not so for the typical HOA director.

GlenM4 (Tennessee)
Posts: 141

Posted:

Its not over 600. Its about 350. The management company that use to run this while developer had control, said we could wave the fees for board members.. i think they said that cause we only had 2 of 5 that wanted to join at that time.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By GlenM4 on 04/28/2018 7:56 AM
Its not over 600. Its about 350. The management company that use to run this while developer had control, said we could wave the fees for board members.. i think they said that cause we only had 2 of 5 that wanted to join at that time.

The MC gave you bad info.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Noticed you said that it was the MC during the Developer time. When the Developer is in charge, board members don't have to be owners in the HOA. So they wouldn't be paying dues to the HOA anyways. Now that it's owner owned, the members should be paying dues.

Former HOA President

BenA2 (Texas)
Posts: 1,273

Posted:

I don't see a big issue with waiving dues for board members, especially if the dues are a nominal amount. We do it but most board members pay them anyway because of the possible bad optics. Our dues are only $89 per year so it's not like anyone is going to run for the board to avoid paying dues.

The problem I see with waiving dues is that your Covenants, Conditions and Restrictions (CC&Rs), which require the dues, do not make an exception, at least not that you have mentioned. It's good that all of the members attending the annual meeting agree with it but I would suggest at least putting it in the bylaws so all members have a chance to vote on it (assuming the membership has to approve the bylaws).

BenA2 (Texas)
Posts: 1,273

Posted:

Quote:

The management company may have had good reason for giving that advice. If you have contact information for them you could ask them to justify it. It is possible that there is a state law or caselaw that allows it.

As always, if you aren't sure, you should ask an attorney.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

There is a HUGE issue of waiving fees for board members Ben. Also see Tim's advice. It is a bad idea. The HOA is ONLY funded by it's members for it's members. The ONLY income it has is what it collects in dues. So if you have 100 members and 5 of those are Board members. Those 5 board members are NOT paying dues then your HOA is only collecting from potentially 95 members. Let's say the dues are $100 a month. Your HOA is losing $500 dollars a month of it's possible income. Plus HOA dues are to be divided EQUALLY amongst ALL the members. Which means the 95 are paying dues that are to be split by 100. It's basically if the 95 owners are compensating for the 5 guaranteed non-payers.

A HOA is run by volunteers. If the board member wants compensated, then they should pay their dues and have the HOA cut them back a check. Otherwise, if there is ever a need to lien/foreclose on this person, a clear line of when dues are owed is established.

Many of us here are or have been on boards. We understand we are volunteers. We do it not for the compensation. It's done because we care about our community and want to be a responsible part of it. Our reward is knowing we are participating and making change in our surroundings. It's not something money can touch.

Former HOA President

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By BenA2 on 04/29/2018 3:58 AM

I don't see a big issue with waiving dues for board members, especially if the dues are a nominal amount.

Ben,

Typically, it's a violation of the covenants to waive assessments. Boards can waive late charges but most covenants require that assessments are shared equally (or by percentage owned) between members. If a Board waives assessments, then they are violating that section of the covenants.

BenA2 (Texas)
Posts: 1,273

Posted:

Quote:

Posted By TimB4 on 04/29/2018 9:06 AM

Posted By BenA2 on 04/29/2018 3:58 AM

I don't see a big issue with waiving dues for board members, especially if the dues are a nominal amount.

Tim, I'm sure you agree that what is "typical" and in "most" covenants is not in all covenants.

In my post I said I saw a problem if the CC&R's do not allow a waiver of the assessments, so I essentially agree with you.

Melissa, I understand your point but all associations are different. Ours has about 450 owners so even if every board member took the waiver it would have a negligible effect on our finances. Most do not take the waiver and at $89 a year, those who do are not doing it for the money. I was on the board for 5 years and always paid the assessment but I don't begrudge those who do. It is, in our case, in the governing documents and is only a small token. Not a single owner has ever complained, to my knowledge.

SheliaH (Indiana)
Posts: 6,964

Posted:

Just because no one's said anything doesn't make it right - maybe no one's said anything because no one cares (that apathy business again). Then they're shocked, SHOCKED when they find out the board members have done a lot more than waive assessments of the officers and now cleaning up the mess will cost everyone far more in time and money.

Simple math would also dictate this is a dumb idea. In my own community, we pay $165 a month. There are 156 homes in this townhouse community, so our total income should be $25740 a month. If you get even 5% who aren't paying (I'll round that up to 8), the association loses $1320 a month. That may not seem like a lot - until a year later, when this escalates to $15840 in unpaid assessments. Meanwhile, our contractors charge us for maintenance for the ENTIRE community. They don't deduct $1320 because 8 homeowners didn't pay - they want all of their money.

I was on my board for 10 years and didn't get paid anything, but paid my assessments in full and on time every month. Sure, it would have been great if it could have been waived because I also served as newsletter editor, CAI rep and treasurer during that time, but it didn't happen. We also had a big delinquency problem and it's taken YEARS to bring that down, so we couldn't have waived anything even if we wanted to.

Glad the small token works out for your community and I certainly hope you're filing the proper tax documents as Tim mentioned because years of this could come back to bite you in the behind.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

JohnC46 (South Carolina)
Posts: 14,265

Posted:

While I am against BOD Compensation, I would not want dues waived and in some cases it could be illegal. If you are going to compensate BOD Members, show it as an expense and 1099 it. If under $600 you might could Casual Labor the expense but I am no tax expert.

BenA2 (Texas)
Posts: 1,273

Posted:

Quote:

Posted By SheliaH on 04/29/2018 4:35 PM
Just because no one's said anything doesn't make it right - maybe no one's said anything because no one cares (that apathy business again). Then they're shocked, SHOCKED when they find out the board members have done a lot more than waive assessments of the officers and now cleaning up the mess will cost everyone far more in time and money.

Simple math would also dictate this is a dumb idea. In my own community, we pay $165 a month. There are 156 homes in this townhouse community, so our total income should be $25740 a month. If you get even 5% who aren't paying (I'll round that up to 8), the association loses $1320 a month. That may not seem like a lot - until a year later, when this escalates to $15840 in unpaid assessments. Meanwhile, our contractors charge us for maintenance for the ENTIRE community. They don't deduct $1320 because 8 homeowners didn't pay - they want all of their money.

I was on my board for 10 years and didn't get paid anything, but paid my assessments in full and on time every month. Sure, it would have been great if it could have been waived because I also served as newsletter editor, CAI rep and treasurer during that time, but it didn't happen. We also had a big delinquency problem and it's taken YEARS to bring that down, so we couldn't have waived anything even if we wanted to.

Glad the small token works out for your community and I certainly hope you're filing the proper tax documents as Tim mentioned because years of this could come back to bite you in the behind.

Shelia, at least have the courtesy of reading my posts if you are going to respond so rudely. Like you, I served on the board and did not take any compensation. I don't think assessments should be waived, but I was not involved in writing our CC&Rs. It is not a board decision.

The disagreement is that I don't see it as big of a problem as others do, IN SOME CIRCUMSTANCES. There is a HUGE difference between $1,980 per year that you pay in assessments and the $89 per year that we pay. $89 doesn't even cover gas, ink, and paper that most of our board members use for board business. But the important point is that even though it is waived, most of us pay the assessment anyway because we care about our community. I understand some people believe it is still a terrible idea and I can respect that.

Your insinuation that we do a "lot more than waive assessments of the officers" and are creating a mess is insulting and uncalled for. In the years that I have lived here, the vast majority of board members have worked hard in the best interest of the association.

The purpose of this forum is to be helpful, not attack anyone who disagrees with you (which you often do) and tout what you would do.

MikeK22 (California)
Posts: 19

Posted:

Id really like to hear more about this. I understand that compensation is a hot topic but on small boards, it is a fair amount of work to keep the HOA on track.

In my other posts I said that we switched management companies, this along was a good 100 hours I spent on the process. Getting bids, attending meetings with prospective management companies, battling the old management company, etc. all took a lot of time.

In my complex, we are 60 units where about 25-30 are rented out. We always struggle to get new board members when needed. Now I think having our HOA fees completely waived is a bit much (200/ mo) but I think maybe 2 months waived a year would be a nice token for the amount of effort.

In larger HOAs/boards, I think it easier since you can have committees and divide up the work among the different members. For example, our board has 3 members and each expense over 500 dollars requires 2 officers to sign. So anytime that we have one of these expenses. 66% of the time I have to get involved. I've read about having committees for parking, landscape, etc. but none of that is possible due to our size.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Our HOA offers the liability insurance so that you are protected personally. Which is the incentive we offer board members. Otherwise, we would not waive dues. It's important that we collected as much dues as possible. We had 107 owners. 7 were board members. We'd have atleast 5 - 8 non-payers for various reasons. So you can see the effect if we waived them.

For me the privilege of serving on the board is payment enough.

Former HOA President

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By MikeK22 on 04/29/2018 8:29 PM

Id really like to hear more about this. I understand that compensation is a hot topic but on small boards, it is a fair amount of work to keep the HOA on track.

Mike,

I agree it's a lot of work to do the job correctly. Due to apathy, I've spent almost 20 hours a month on HOA business. That said, as Treasurer, I also absorb the bookkeeper duties. This saved $450 per month. I absorbed the duties because I was diligent and spot checking. Hence, basically doing the work anyway.

We are all volunteers.

130 lots.
Self Managed.

Now, this new board in my Association seems to have individuals who vary on how much effort they want to provide. If the issue seems to impact them or something they want done, they are all for putting in as much effort as needed. For other things, not so much. Example: we had a mailbox enclosure (holding multiple rural mailboxes) broken from being hit by a vehicle. This has happened in the past and when I was maintenance officer, I took a couple of hours and repaired/rebuilt the enclosure. That mailbox was broken for a month while the current maintenance officer solicited bids (only to be blown off because of the size of the job). Finally, a resident chose to fix it themselves. Had I not seen them doing it, the board would have never known who fixed it.

Now, each methodology (do the work yourself or hire a contractor) is correct. One method simply takes longer and, in my opinion, makes the development look bad.

GlenM4 (Tennessee)
Posts: 141

Posted:

I did post upntop what the bylaws say about being compasated does that section mean anything?

SueW6 (Michigan)
Posts: 814

Posted:

"Waiving" dues = not a good idea.

"Compensating" board members and officers = permission is given in your own bylaws.

We paid our treasurer $1,000 per year plus approved hourly rate for additional time spent billing & collecting water bills for 250 families. Sometimes a headache.

We also compensated a board member for hourly work who was a certified water specialist to monitor our water system. She was licensed by the state to do this.
The perception should not be one of "paying" someone to be on the board. But there is nothing wrong with compensating any member for work done, if they have special expertise and the job went out for bid.

Perhaps a line item in your annual budget for $XXX in social programs for a party in honor of the board at the end of the year.

GlenM4 (Tennessee)
Posts: 141

Posted:

Also some were saying to use a 1099-MISC form , I don't see this in Tennessee. Does anyone know if this is needed in Tennessee?

AugustinD
Posts: 5,144

Posted:

Glen, it is the IRS that requires a 1099-Misc for anyone the HOA has paid $600 or more for the year. See https://www.irs.gov/forms-pubs/about-form-1099misc

BenA2 (Texas)
Posts: 1,273

Posted:

Quote:

Posted By GlenM4 on 04/30/2018 6:12 AM
Also some were saying to use a 1099-MISC form , I don't see this in Tennessee. Does anyone know if this is needed in Tennessee?

I really don't think a 1099 is required. Not collecting money is not the same as paying someone, but I'm not an expert. If you have a tax professional do your taxes, they should be able to tell you and may do the 1099s for you.

DouglasK1 (Florida)
Posts: 2,046

Posted:

My understanding is that as far as the IRS is concerned, waiving payment of money otherwise due is considered compensation no different than writing them a check. Some people also think they can get around requirements to report and pay taxes by trading or bartering goods or services, this is also taxable income as far as the IRS is concerned.

Escaped former treasurer and director of a self managed association.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By DouglasK1 on 04/30/2018 10:18 AM

My understanding is that as far as the IRS is concerned, waiving payment of money otherwise due is considered compensation no different than writing them a check.

Correct. See the link in reason #3 of my initial post on this thread.

CjC
Posts: 210

Posted:

in the height of short sales some sellers received 1099's for the part that was "forgiven" by the lender. You DO receive 1099 for money you actually never "see"

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