Condo HOA Board - Dues as Compensation?

I'm a new member on my condo HOA board. Questioning some of the current processes. Our bylaws allow for compensation if it's voted on by the members and receive a 2/3rd vote. This occurred in the early 2000's and passed as evidenced by meeting minutes. No amount of compensation was ever determined. Since then, board members have compensated themselves by eliminating the need to pay monthly dues. Doesn't sit right - - doesn't all compensation need to be reported using a 1099?

Are there other condo HOAs out there that handle it this way? Seems a tad shady (maybe illegal)?

Pay attention to Douglas, Jennifer.

I did a search of recorded documents on my county's website, since it indicates that the CCRs would be recorded there. Well, there's no such document listed. Also,checked with a long-standing board member. He cannot recall such a document. Could it be possible that there are no CCRs for a condo development??

This IS NOT a good idea. first of all, if the board members aren't paying dues in exchange for them serving as board members, that's a form of compensation which is reportable to the IRS and your state (and possibly local) tax authorities. This means income taxes come into play - do you really want to add this to whatever else you're going through to prepare your taxes.

Second, it throws off the annual budget. All of the expenses of the association are to be shared by every homeowner, and that's what the board members are. If they're not going to pay, that reduces the pot of money available for routine expenses and reserves, and the other homeowners would have to pay more to make up for that money.

Finally, if board members are going to be paid, there should be another way of evaluating their performance to see if they should continue to serve, and I'm not talking about just voting them off. I think they should be responsible for pursuing continuing education so they can learn how to do the job more effectively - and since they're not paying assessments, they can use the money they're saving from that to pay for it. Or the association could pay - but make all training mandatory, complete with tests to show how well they've learned. There might also be work improvement plans for board members who are failing at the job and if they don't shape up within a certain amount of time, they should be booted from the board. Of course, you'll have to figure out what the job performance standards are, who should judge how well they're doing, etc.

See how twisted all this can get?

Check your documents and bring all this to the board, telling them they need to run this by the association attorney and all the homeowners if they want to pursue this. If the homeowners are ok with it, then talk to tax professionals about setting things up so the proper tax forms are filed.

About as much chance as landing a human on the surface of the Sun.

Thanks for steering me in the right direction. I reviewed the Master Deed, which didn't address any board-related items that I needed.

I did, however, find the Articles of Incorporation. It discussed board members being volunteer directors within the meaning of Act 170 of the Public Acts of 1987. (The condo development was established in the late 80s).

From my research, I believe that the Articles of Incorporation Trump the bylaws. If that's the case, then I'm opening up a can of worms.

Unless the Michigan Condo Act prohibits compensation for board members the answer is No - unless your bylaws state that they can be compensated.

Is it a good idea? Who knows. Past years may have made it impossible to fill board position and waiving dues acted as an incentive.

How much are we talking about? There is the $600 threshold for 1099-Misc Income statements to be issued.

Well, the issue is they are not paying dues. There is no record of them paying dues. And legally, the HOA board probably does not have the right to waive dues. Most do not.

The second issue is there is no record of the HOA compensating them.

So any homeowner at any time can bring up this legal issue of them not paying dues and they will owe all back dues that were never paid. Yes, this happens.

Interesting idea. Worth getting clarification from a local corporate or HOA lawyer.

Typically, Bylaws allow Officers to be compensated.

Remember that Directors and Officers are two different positions.

Unfortunately, it's also typical for the elected Directors to serve as Officers. This tends to give the perception that the "Board" is being paid.
In reality, it's likely that the Officers are being paid. Of course, this point is subject to the actual language in the OP's bylaws.

In my opinion, 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

Note: This subject has been discussed in the past:

Subject: Compensation

Subject: President's HOA Dues waived?

Subject: Boards Paying Themselves

Subject: Officer compensation. Florida

Subject: Idea to increase volunteers for HOA officers

I appreciate everyone's comments and input on this discussion. A few comments triggered me to look into this a bit more.

Tim was correct -- compensation listed in the bylaws is typically only for officers. This is what our bylaws indicate. Currently, our officers AND directors are all receiving their monthly dues for free.

We have a buildings and grounds director of the board that works his tail off. According to the bylaws, he shouldn't be getting paid. Yikes!

OR, do you have an individual who was elected to serve as a director and appointed by the board to be the building and grounds officer?

It's highly possible that individuals who serve as board members don't even comprehend that they are likely serving two in two different positions (Director and Officer) with different responsibilities.

Directors, by majority vote, make the decisions for the Association.

Officers implement said decisions and handle the day to day tasks of running the corporation.

It means you can't pay them to be officers, but you can pay them to cut the grass (or other service).

A person can potentially wear three hats: director, officer, and/or other worker (or contractor).

An HOA may be able to pay the Treasurer to keep the books, but not for being the Treasurer.

Lawyers seem to take delight in writing such short passages that need to be read very carefully to see what can and can't be paid.

NpS, what exactly do your docs say?

Jennifer, your buildings and grounds director may be entitled to be paid for non-director work. What is the wording?

Geno

My interpretation would be if an Officer was doing work such as cutting grass, painting the clubhouse, incurring expenses like printer ink, etc. they could be compensated. I would not interpret it as compensation for standard BOD stuff like meetings, etc.

From my bylaws:

Directors shall serve without compensation but may be reimbursed for reasonable expenses incurred in the performance of their duties.

Officers shall serve without compensation but may be reimbursed for reasonable expenses incurred in the performance of their duties.

Small accomplishment! The auditor responded to the treasurer today. He told him that 1099s definitely needed to be issued to board members receiving compensation.

Adding my congratulations, Jennifer. That's no small thing.

The saga continues . . . We had another board meeting last week. On the agenda was board compensation. This had been tabled since last fall. There are two officers that currently have their monthly dues waived. The discussion was whether or not additional board members should get this perk. I'm still adamant that this should be a volunteer position for everyone -- plus, it helps protect the board from personal lawsuits. The treasurer is now backtracking from last year and saying that 1099s aren't a requirement. I also questioned why the treasurer is getting paid $400 per month plus having his monthly dues waived. He said that the $400 is for his accounting services, while the waiver of his dues is for his position as treasurer. I feel this is an endless battle. The other board members are mostly silent on the issue.

If they're taking money without getting a 1099 then report them to the IRS. Let them know ahead of time you plan to do this and see if that changes any of their minds.

That BOD is scamming the HOA.

It is an endless battle, supported by those condo members there who do not care.

Is the treasurer a CPA? If so, then in an ideal world one could report him to https://www.micpa.org/resources/ethics) for violating Michigan statute 339.734 . See
http://www.legislature.mi.gov/(S(4pqvx2b5gem4b544prz51ubr))/mileg.aspx?page=getObject&objectName=mcl-339-734

Do expect revenge.

Reporting these violations of the Internal Revenue Code will likely require a processing time of a year or more. The IRS is backlogged and underbudgeted. COVID-related issues have priority.

If the treasurer is getting paid for financial services he needs to have a contract. Ask him for a copy of this.

Interesting, Geno. I would hand the settlement back over to the association to place in the reserve account. This, of course, is assuming that the treasurer would be ousted by that time.

I think what was meant by having a contract provided is because the treasurer of the HOA is having his monthly dues waived since he's an officer. Plus, he's charging the association $400 per month for his "accounting" services.

It's bad business.

You definitely want board members to pay monthly dues (creating a record of payment) and then reimburse them, as allowed, as an expense. Yes, compensation would need reporting to the IRS.

I'll not launch into debate over whether board members should be compensated...another time.