How Much Do Nonprofit Board Members Get Paid? A Complete Guide to Understanding How Nonprofits Compensate Board Members

Figuring out the laws for how nonprofits make and spend money can be confusing. If the organization is nonprofit, do their employees earn a salary? Are their board members compensated? What's the difference between paid staff members and board members?

Don't worry. We've set out to answer all of your questions in one convenient article. If you still have questions, feel free to send us an inquiry for personalized assistance. 

Do any Staff Members Get Paid in a Nonprofit?

The short answer is yes. In many ways, a nonprofit is like any other business that relies on employees to run day-to-day tasks and earn revenue. Employees and staff members get paid just like they would in any other business. However, what makes an organization nonprofit is it qualifies for tax-exempt status by the IRS because of its mission to further a social cause that benefits the public.

The majority of their monetary funds are spent furthering their mission. For the sake of transparency, nonprofits are required to make financial and operating information public so donors can see how their money is being used.

This includes compensation given to employees and board members.

What is the purpose of nonprofit board members?

The board of directors oversees the nonprofit's activities, advances the mission, and ensures all money is spent appropriately. They operate as the top tier in the chain of command, making decisions about how the organization operates and managing legal and financial risk.

While employees handle day-to-day activities, board members handle the "big picture." They create strategic plans for growth and outreach opportunities and keep the nonprofit on mission. As the nonprofit grows, the board members' duties typically do too.

What is the law concerning board members?

The IRS requires a minimum of three board members. The members cannot be related to one another by blood, marriage, or business (meaning business partners). Having unrelated board members ensures no conflicts of interest within the organization. 

The exception to this rule is with private foundations. Private foundations do not have to pass a public support test like private charities and are required to distribute at least five percent of their assets each year to their charitable priorities, often through grants, scholarships, or other donations to public charities. 

There are a few laws that impact the compensation of nonprofit board members:

1. the Federal Volunteer Protection Act of 1997 (42 U.S.C. §14501 et seq.), which is intended to encourage volunteerism. Meaning that nonprofit board members should be volunteers, not paid staff.
2. IRS form 990, also known as the “Return of Organization Exempt from Income Tax,” requests thorough and complete information about an organization’s compensation arrangements, as well as possible conflicts of interest for officers and others. This law is particularly important because it keeps nonprofit board members from earning an excessive salary that would make donors question the integrity of the nonprofit and how their funds are being used.
3. Private inurement and excess-benefits regulation directly affects the amount of compensation nonprofits may provide to board members. Section 501(c)(6) of the Internal Revenue Code prohibits any part of net earnings benefiting individuals. Section 501(c)(3) contains excess benefits rules, which bar board directors and officers from profiting from their positions within a nonprofit organization.

While it is not against the law to compensate nonprofit board members, because of the above information, the majority of nonprofits do not pay their board members a regular salary.

Who can Serve on the Board?

Anyone can serve as a board member as long as they are not related to another board member through blood or marriage. It's also preferable for the members to share a passion for the nonprofit's mission.

When choosing board members, some nonprofits pay special consideration to recruiting BIPOC (black, indigenous, people of color) volunteers. Some nonprofits seek to recruit BIPOC individuals as board members because their history and lived experiences are believed to be more beneficial to nonprofits than white individuals.

Some organizations believe BIPOC board members experience more emotional strain on their personal lives while serving the nonprofit and are tempted to pay them a salary that other members do not receive. This preferential treatment can not only be insulting to both BIPOC and white individuals but may also be in violation of civil rights laws.

In lieu of giving preferential treatment to any individual based on race, nonprofits can consider employing an equity task force.

What is an equity task force?

An equity task force creates and modifies policies and practices to build more inclusion and equity throughout the organization. While members of this task force can also serve on a board of directors, their role for equity inclusion includes separate duties and can be compensated differently.

If paying equity task force members, the nonprofit should enter into a written contract with each member, agreeing that these services are separate from any service they provide as a board member and that the payments were determined to be reasonable to the charity.

Nonprofits who wish to compensate these individuals should keep in mind the IRS regulations against paying excessive wages.

How are board members compensated?

While nonprofit board members can receive compensation for their work, they are meant to be volunteers who share a passion for the nonprofit's mission. But in many cases, it is fair to compensate them for their time in one way or another unless prohibited by state laws or the nonprofit's bylaws.

If compensation is deemed appropriate, the amounts should be determined by independent directors or an independent compensation committee with input from outside advisors. It should be clear that compensation does not imply monetary profit for the board members. Compensation should also be comparable to that of other nonprofit organizations and not deemed excessive by the IRS, which can incur penalties.

Appropriate compensation can look like reimbursement for travel funds or other expenses directly related to their work with the nonprofit.

There are also many non-monetary ways nonprofit board members can be compensated for their work. The most obvious, yet probably overlooked, is the emotional reward of furthering a social cause important to the board member. Volunteer board members typically have their own careers and can expand their personal and professional networks as a result of their service. 

Why aren't board members paid a regular salary?

There are a number of reasons why nonprofit board members are not paid a regular salary. One reason is that if a board member is paid a wage deemed "excessive" by the IRS, the organization can lose its tax-exempt status or even face steep personal fines.

Over-compensating board members can also result in a loss of trust from donors. Remember, all nonprofit spending must be made public. So if a donor sees their money being given to someone who should serve as a volunteer instead of furthering the mission, they might be less likely to donate in the future.

Do I need to fill out an IRS form for board members?

You do not need a separate form for a board member, but you should be mindful of the IRS regulations concerning inurement (excessive benefits). If the IRS determines the compensation given to volunteer board members is excessive, the nonprofit could lose its Section 501(c) tax-exempt status.

If a nonprofit is found guilty of inurement, each board member could be fined 25 percent of their compensation. If the organization does not quickly comply with the IRS regulations, that fine could skyrocket to 200 percent.

The Choice is Yours

It's up to you whether or not you want to pay your board members an hourly rate, monthly stipend, or not at all. Here's a quick guide to help you weigh the pros and cons while making your decision.

Reasons not to compensate board members:

• Board members should be volunteers.
• Donors expect their gifts to be spent on services.
• Members should be willing to give of their time and resources to further a cause.
• Nonprofits function to serve a mission.
• Paying board members could discourage volunteering.
• Paying board members could discourage charitable giving.
• Paid board members could be considered the same as staff.
• Companies who pay board members risk losing the protective status offered in the Volunteer Protection Act.

Reasons to compensate board members:

• Compensation promotes professionalism rather than amateurism.
• Compensation attracts the most qualified individuals.
• Compensation awards, in a tangible way, valuable personal time and contributions made for the cause.
• Compensation can result in better attendance at board and committee meetings.
• Compensation holds board members more accountable for performance.

We hope you this article has helped you determine how much, if at all, to compensate your board members. If you're looking for information concerning how to pay other other nonprofit staff members, check out this article.

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