The starting point is that a charity cannot pay its directors or trustees, other than the reimbursement of expenses which are both reasonable and have been properly incurred.
A charity can, however, pay its directors/trustees if payment to the directors/trustees is permitted by the charity’s constitution, subject to the overriding requirement that the payment is considered by the directors/trustees of the charity to be in the best interests of the charity.The provisions of section 67 of the Charities and Trustee Investment (Scotland) Act 2005 are sometimes overlooked by the directors/trustees of a charity when payment to the directors/trustees of the charity is permitted by the charity’s constitution.
Not only must any payment by a charity to one of its directors/trustees comply with the provisions in the charity’s constitution permitting payment by the charity to its directors/trustees (and those provisions will have been approved by OSCR as the regulator of Scottish charities when OSCR confirmed the charity’s charitable status) but must also comply with section 67.
Section 67 prohibits a director/trustee of a charity from being paid for services provided to the charity (including services provided as an employee of the charity) unless the conditions in section 67 are satisfied.
Those conditions are that:-
- the maximum amount of the remuneration which may be paid by the charity to the director/trustee is set out in a written agreement between the charity and the director/trustee who is to provide the services to the charity;
- the maximum amount of the remuneration is reasonable in the circumstances;
- before entering into the agreement, the directors/trustees of the charity are satisfied that it is in the interests of the charity for the services to be provided by the director/trustee for the stated maximum account;
- immediately after entering into the agreement less than one half of the directors/trustees of the charity are entitled to receive remuneration from the charity; and
- the charity’s constitution does not contain any provision in which it specifically prohibits the director/trustee from receiving the remuneration.
So if a charity is looking to pay any of its directors/trustees then:-
- the directors/trustees of the charity need to check the charity’s constitution to ensure that the constitution allows the payment to be made and, if the constitution does allow the payment to be made, the conditions in the constitution on the payment of the remuneration need to be satisfied;
- the remuneration can only be paid if the directors/trustees of the charity have, acting in good faith, decided that the payment of the remuneration is in the best interests of the charity and is reasonable in the circumstances; and
- the conditions of section 67 summarised above must be satisfied.
If you would like to discuss this further please contact our charity law experts below.
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