Compensation for BOD

Started by JerryC12 • 18 replies • 400 views

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JerryC12 (Missouri)
Posts: 9

Posted:

Our bylaws and applicable state statutes specifically state that members serving on the BOD as Pres, VP, Treasurer or Secretary cannot receive any compensation for doing so. Several years ago, the members apparently requested a vote be taken to allow a "small" monthly salary to be paid to the treasurer as an incentive to encourage them to stay. The BOD also voted several years ago to exempt anyone serving as Pres, VP, Treasurer or Secretary from having to pay Mthly dues. I have mentioned this before as our bylaws/state statutes specifically prevent and was told that, in both cases, it was approved by the members and the BOD so it was ok. I have indicated to concerned members that this is definately a problem. Most of the other members apparently don't have a "clue". This and the fact that since the HOA beginning in the middle 90's, there has apparently never been audit of any kind done. Suggestions???

MichaelS56 (Minnesota)
Posts: 858

Posted:

One of the greatest responsibilities that the Board of Directors have is the fiduciary responsibilities. On the outside, it appears that some past Board members circumvented the compensation rules of your HOA. The present Board needs to put a stop to this practice. Second of all, an audit needs to be done, so the present Board will know what financial issues found by the auditor. This will take some strong action and a lot of time.

WendyM5 (North Carolina)
Posts: 1,522

Posted:

Boards can't just vote to make changes like that.
Most bylaws will state that to make changes you need a 75% or 66% approval from the membership and the changs wont' take place till a lawyer submits them to the Sec of state or other legal entity.

I guess you could sue the board or drum up a recall election might be easier, if you know people that want to volunteer for free. Cause recalling someone without a replacement is just a waste of time.

vis ta vie

KerryL1 (California)
Posts: 14,550

Posted:

Are you on the board, Jerry? Btw, do TX statutes require your assn conduct an audit or even a review every so often?

ElleN (Idaho)
Posts: 4,420

Posted:

Texas statutes permit directors and officers to be compensated. This doesn't mean they have to be compensated. It just means that the bylaws can authorize compensation. Whether the vote of the owners amounted to a bylaw amendment maybe is the right question to ask here. Second issue: If the exemption from dues adds up to at least $600 per director or officer, then the HOA has tax reporting responsibilities.

JerryC12 (Missouri)
Posts: 9

Posted:

Quote:

Posted By JerryC12 on 11/30/2022 2:03 PM
Our bylaws and applicable state statutes specifically state that members serving on the BOD as Pres, VP, Treasurer or Secretary cannot receive any compensation for doing so. Several years ago, the members apparently requested a vote be taken to allow a "small" monthly salary to be paid to the treasurer as an incentive to encourage them to stay. The BOD also voted several years ago to exempt anyone serving as Pres, VP, Treasurer or Secretary from having to pay Mthly dues. I have mentioned this before as our bylaws/state statutes specifically prevent and was told that, in both cases, it was approved by the members and the BOD so it was ok. I have indicated to concerned members that this is definately a problem. Most of the other members apparently don't have a "clue". This and the fact that since the HOA beginning in the middle 90's, there has apparently never been audit of any kind done. Suggestions???

When I originally typed in my inquiry, my screen profile indicated that I was in/from Texas which might have resulted in some responses reflecting that. I have since changed my profile to reflect that I am a HOA member in Missouri. My apology.

JerryC12 (Missouri)
Posts: 9

Posted:

Quote:

Posted By WendyM5 on 11/30/2022 2:26 PM
Boards can't just vote to make changes like that.
Most bylaws will state that to make changes you need a 75% or 66% approval from the membership and the changs wont' take place till a lawyer submits them to the Sec of state or other legal entity.

I guess you could sue the board or drum up a recall election might be easier, if you know people that want to volunteer for free. Cause recalling someone without a replacement is just a waste of time.

Our current BOD's list consists of a Pres that has basically been there from the beginning; the VP was recently voted in about 3 yrs ago, the Treasurer was voted in October of 2020 and the Secretary was voted in Oct 2017. After moving here in March 2022, I attended several mtgs and immediately saw red flags in the HOA docs and minutes of past mtgs. When I questioned the salary being paid to the Treasurer and the waiving of mthly dues for BOD members, the response was, the BOD aapprove it or the members voted to approve. When I advised them that both actions were clearly prohibited the bylaws and Mo state statues, they did not respond. You cannot violate the rules or pick and choose which to enforce.

JerryC12 (Missouri)
Posts: 9

Posted:

Quote:

Without getting to lengthy, our bylaws need a definated revision as the members have very have few avenues of recourse; etc, there is a line in the bylaws that state the BOD can make changes without member approval. There are no steps for members to take to recall any BOD member. Only BOD members can voye to remove a fellow member. % votes for approval of anything is all over the place so one really has to pay attention to how thing are written.

JerryC12 (Missouri)
Posts: 9

Posted:

Quote:

Posted By KerryL1 on 11/30/2022 3:32 PM
Are you on the board, Jerry? Btw, do TX statutes require your assn conduct an audit or even a review every so often?

As I indicated in corrections to my original, I originally was a board member of a HOA in Texas but have since moved to Missouri in March 2022 where we bought a Townhouse has a HOA. Missouri apparently does not have a HOA specific statute but falls under the Mo statute (355) rules for non-profit corporations. After reading "all" of the board minutues and financials from 2016 to 2022 current, it's very obvious why a audit it highly recommended.

ElleN (Idaho)
Posts: 4,420

Posted:

JerryC12, Missouri statutes 355.346 permit removal of directors, that were elected by owners, by a vote of owners. See 355.346 for details.

It's unusual but not uncommon for bylaws to permit the board to amend the bylaws. Missouri statutes also permit a simple majority of owners to amend the bylaws.

JerryC12 (Missouri)
Posts: 9

Posted:

Quote:

Posted By ElleN on 11/30/2022 4:28 PM
Texas statutes permit directors and officers to be compensated. This doesn't mean they have to be compensated. It just means that the bylaws can authorize compensation. Whether the vote of the owners amounted to a bylaw amendment maybe is the right question to ask here. Second issue: If the exemption from dues adds up to at least $600 per director or officer, then the HOA has tax reporting responsibilities.

As previously stated, I failed to note and have since corrected my profile to indicate Missouri instead of Texas, where we originally belonged to an HOA. Our HOA in Texas consisted of 424 individually owned lots which could have any of the following on them: a S&B house, Park Model or certain types of Rv's (Class A, C, 5th Wheel, bumper pull rv but no truck campers or tents. In Missouri, we own (1) of (96) townhomes divided amongs 16 bldg's and the bylaws specifically state "no compensation" for BOD members as does the Mo statute governing non-profits. Interesting info about dues exemption amount $600 per director has to be reported by the HOA for tax purposes. Each board member(4) receives $1620 per year in waived dues or $6480 total.

MichaelT21 (Arkansas)
Posts: 462

Posted:

I volunteer about maybe 500 hours per year, and our dues run $1000 per year. Thus, if I received a waiver in HOA dues, I would be compensated $2/hr for my time, which is a pittance. I don't want to do a job that pays $2/hr, my time is worth more than that.

Also, it is nice to remind homeowners that we pay dues too, so we feel the pain of dues increases just as everyone else. That is good social lubricant for handling difficult conversations at budget meetings.

I think waiving dues for Board members is stupid for many reasons: It gives the appearance of self-serving, it is inadequate compensation, and it violates the intent of homeowners associations nationwide.

ElleN (Idaho)
Posts: 4,420

Posted:

Jerry, Missouri statutes defer to the bylaws with regard to director compensation. I agree Missouri statutes prohibit the directors, by themselves, to amend the bylaws. A vote of the owners as given in 355.596 must occur, and 355.596 has some strict, notice requirements. Yeah the HOA is likely violating tax law, too. You'd have to rally the owners to stop this, or hire a lawyer.

MichaelT21 (Arkansas)
Posts: 462

Posted:

A Director voting to waive dues for themselves would be like a member of Congress voting to waive paying income tax on their congressional salary.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Jerry

I would say there would have had to be Amendments to the Bylaws to allow such. Not just some vague response like the Members approved it.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Jerry,

First thing to keep in mind is that Directors and Officers are two different positions, even when filled by the same person.
Typically, Directors may not be compensated.
However, it's also typical that Officers may be compensated for their duties.

There is a right way and a wrong way to compensate.
From what you describe, your Association is doing it the wrong way.
The right way would be for everyone to continue to pay assessments and the board issue a check to the individuals for their service (i.e. a pay check).

Note, there are some IRS issues that need to be considered as well.

1) Is the individual acting as an independent contractor or an employee?
If an employee, there are payroll taxes that have to be considered.
Personally, I think the IRS would determine them to be employees of the Association.

2) Was the compensation properly reported?
1099-C for cancellation of debt (waiving of assessments)
1099-misc for independent contractors
W-2 for employees

3) Are the individuals aware that, as paid professionals, they lose some legal protections that volunteers have?

See (all from the IRS):

Independent Contractor (Self-Employed) or Employee?

Topic No. 762 Independent Contractor vs. Employee

Publication 15 (2022), (Circular E), Employer's Tax Guide

About Form W-2, Wage and Tax Statement

About Form 1099-MISC, Miscellaneous Income

About Form 1099-C, Cancellation of Debt

Regarding loss of protections:

VOLUNTEER PROTECTION ACT OF 1997 federal statute

Community association directors beware! Practical and legal issues regarding director compensation from a MN attorney but still has good info

From my point of view, your options are simple:

1) Inform the board of the IRS issues and loss of protection issues and hope they do the right thing.
2) Inform the IRS directly and let the chips fall where they may.
3) Live with the fact that you are aware the Board is in violation of governing documents and statutes

MarshallT (New York)
Posts: 414

Posted:

Reach out to the organization that governs HOA communities in your area and see if they can offer some recommendations. It sounds like the board needs to be replaced - all members are required to pay dues, regardless of their role. Legal action may be necessary, but you will have to have proof that these things occurred in order to win your case.

JerryC12 (Missouri)
Posts: 9

Posted:

Quote:

Posted By JohnC46 on 12/01/2022 12:33 PM
Jerry

I would say there would have had to be Amendments to the Bylaws to allow such. Not just some vague response like the Members approved it.

There does not appear to be any indication in past minutes that the bylaws were amended to allow the payment of a small mthly salary(she supposedly received a 1099 at the end of each yr) to the secretary per request of some owners back in 2000. The BOD's themselves voted to approved the waiver for themselves not having to pay mthly dues as an incentive to get people to volunteer for those positions. As of this writing, no mention of any notification has been noticed in past minutes. Both topics, when mentioned, are quickly addressed by the BOD, before moving on to some other matter.

JerryC12 (Missouri)
Posts: 9

Posted:

Quote:

Posted By TimB4 on 12/01/2022 1:04 PM
Jerry,

First thing to keep in mind is that Directors and Officers are two different positions, even when filled by the same person.
Typically, Directors may not be compensated.
However, it's also typical that Officers may be compensated for their duties.

There is a right way and a wrong way to compensate.
From what you describe, your Association is doing it the wrong way.
The right way would be for everyone to continue to pay assessments and the board issue a check to the individuals for their service (i.e. a pay check).

Note, there are some IRS issues that need to be considered as well.

1) Is the individual acting as an independent contractor or an employee?
If an employee, there are payroll taxes that have to be considered.
Personally, I think the IRS would determine them to be employees of the Association.

2) Was the compensation properly reported?
1099-C for cancellation of debt (waiving of assessments)
1099-misc for independent contractors
W-2 for employees

3) Are the individuals aware that, as paid professionals, they lose some legal protections that volunteers have?

See (all from the IRS):

Independent Contractor (Self-Employed) or Employee?

Topic No. 762 Independent Contractor vs. Employee

Publication 15 (2022), (Circular E), Employer's Tax Guide

About Form W-2, Wage and Tax Statement

About Form 1099-MISC, Miscellaneous Income

About Form 1099-C, Cancellation of Debt

Regarding loss of protections:

VOLUNTEER PROTECTION ACT OF 1997 federal statute

Community association directors beware! Practical and legal issues regarding director compensation from a MN attorney but still has good info

From my point of view, your options are simple:

1) Inform the board of the IRS issues and loss of protection issues and hope they do the right thing.
2) Inform the IRS directly and let the chips fall where they may.
3) Live with the fact that you are aware the Board is in violation of governing documents and statutes

Thank for the IRS doc information.

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