OG515-9 Trustees becoming employees

Last reviewed:
Last updated:
19 November 2014

Policy Statement/Overview

The Commission's overall policy on payment to charity trustees is set out in Trustee Expenses and Payments (CC11). Section G of CC11 deals specifically with the employment of a trustee or connected person. Staff need to read that guidance for a full understanding of how we describe our policy on trustee payments.

This guidance deals with cases where a:

  • serving trustee
  • recently retired trustee or
  • person connected to a serving, or recently retired, trustee

is to become an employee of the charity (or of an organisation controlled by the charity, for example, a trading subsidiary).

We have a regulatory interest in this kind of case because:

  • where the trustee will benefit financially, the benefit will need express authority and there will be a conflict of interest that will need to be managed. This applies whether the benefit is derived directly by the trustee as employee, or indirectly, via an employed connected person with whom the trustee is financially interdependent
  • even where the trustee will not benefit financially, for example where the employment involves a connected person but there is no financial interdependence, there will be a conflict of loyalty that will need to be managed even though express authority from the Commission may not be required.

Where authority is required this may be provided by an existing power in the charity's governing document. If there is no such power, the trustees must apply for our authority before the employment begins. This applies in all cases except where the trustee, or connected trustee:

  • had no involvement in the decision to create the paid position
  • was not involved in devising the recruitment process or in setting the terms and conditions of the post
  • did not lobby or canvass for the post or otherwise identify themselves or the connected person as being the most suitable candidate, and
  • resigned before the job offer was made.  

Where these conditions apply, our authority is not needed as there is no trustee benefit.   

Where we receive an application for authority we will consider this in the context of our Risk Framework. We will also look at the charity's records and the trustees' proposals for dealing with the conflict of interest. Having done this, if there is nothing that might cause us concern, our policy is that: 

We will provide authority where we are satisfied that employing the trustee or connected person is expedient in the interests of the charity.  

We might decide not to provide authority where:  

  • the trustee is to be employed to fill a vacancy in an existing post and it is not clear that the trustees have fully considered whether or not the post is still needed by the charity. In this case there may be a question that the post has been retained specifically to benefit the trustee rather than the charity
  • the trustee will take up a newly created role and it does not appear reasonable for the particular type of charity to appoint a paid employee to carry out the proposed role. In this case there may be a question that the role was created specifically for the trustee
  • the proposals for managing the conflict of interest appear inadequate, or
  • the employment might result in one individual becoming too powerful in the charity (for example, where the Chair of the trustees is to become Chief Executive of the charity).

Where any of the above or a similar situation applies we should ask for further information. If the trustees' response does not satisfy our concerns we can refuse to authorise the employment.  

Throughout this guidance, where we refer to the employment of a trustee we mean the employment of a trustee, or person connected to a trustee, by the charity of which they are trustee, or by an organisation 'connected' to that charity (see E3 Definitions).

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Summary of the guidance

This guidance is intended to help caseworkers to:

  • recognise the issues attached to a proposal to employ a trustee
  • handle initial queries regarding the proposed employment of a trustee  
  • consider an application for authority; and
  • decide whether or not to authorise the proposed employment.     Top of page

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Casework Guidance

B1 Caseworking key points

  • Where we are approached by trustees who are considering employing a trustee or connected person we will signpost to our web article on payments and expenses for trustees. This contains links to CC11 and to the online application form
  • Trustees should use the form to apply for authority. This will ensure that we are given all of the information we need to consider the case and therefore reduce the number of exchanges of correspondence during a case. Where there is any information missing we will return the form as incomplete.
  • When considering an application for authority we should check the information provided to ensure that the proposal relates to the contracted employment of a trustee or connected person and that our authority is required because there is no existing power in the charity's governing document or, where there is, the trustees cannot comply with any conditions attached to the use of that power.
  • Where the level of payment means that this will fall within our small payments policy, that is, the total of all payments to all trustees in the charity's financial year is £1,000 or less (see OG515-7) we will inform the applicant of this and close our case. Where the form is correctly completed, this should be made clear to the applicant so we should not see any forms where this applies, but it is still a reasonable use of our time to check this when we receive a completed form. 
  • We will consider the case made in the context of our Risk Framework and having checked the charity's accounts and case history.
  • We will consider the level of the proposed payment against the role, and in the context of any benchmarking exercise, to decide if this appears reasonable.  
  • Having fully considered the case made, and the trustees' proposals to deal with the conflict of interest, if we are satisfied that the proposed employment is expedient in the interests of the charity, we will authorise the proposal.
  • How we grant authority depends on the circumstances of the case, how the charity is constituted and the contents of the charity's governing document.
  • Where we are not satisfied with the case made, or where the trustees' proposals for dealing with the conflict of interest appear inadequate, we will ask for more information. Having done this, if we are still not satisfied that authorising the proposal is expedient in the interests of the charity we can refuse to authorise the proposal.  

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B2 Handling an initial approach by trustees who are considering employing a trustee or connected person

In all cases, we should refer the enquirer to the payments and expenses for trustees page on our website. This provides general information about the issues surrounding payments to trustees and connected persons. This page contains links to CC11 and to the online form that trustees should use to apply for authority to make payments to a trustee, including the employment of a trustee, former trustee or connected person.

We should explain that if, having considered the information on the website, the trustees are satisfied that employing the trustee is in the best interests of the charity, and if there is no existing power to employ a trustee in the charity's GD (see B3.1), they should submit a completed online application form. (This also applies if there is an existing power but the trustees cannot comply with any conditions attached to the power.) Using the form will ensure that we are given all of the information we need to consider the case and will help to reduce the number of exchanges of correspondence during the case.

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B3 What do we do when we receive a completed application form?  

When we receive a completed online application form there are some standard checks to carry out before we consider the substance of the case made in support of the application, these are set out below.

B3.1 Is there an existing power to employ a trustee in the charity's governing document?

There may be a power to employ a trustee or connected person within the charity's governing document. If there is, the action we need to take depends on whether or not the power is conditional on our consent.

Where the power is conditional on the consent of the Commission

If a charity's governing document contains a power to employ a trustee, subject to the consent of the Commission (a 'conditional power'), we will consider the case made in the same way as we would if there was no existing power.

Having considered the case, if we are satisfied that:

  • the employment is expedient in the interests of the charity
  • the conflict of interest can/will be adequately managed, and
  • the trustees can comply with any other requirements of the employment clause,

we will give our consent in accordance with the terms of the governing document.

Where the proposed employment relates to a connected person this may fall within the terms of the employment clause. Even if the employment of a connected person is not specifically mentioned, the conditional power might still apply, this would depend on the wording of the GD as a whole.

If there is any doubt about the extent of a conditional power, caseworkers should take legal advice.

Where the power to employ a trustee is not conditional on the consent of the Commission

Where there is an existing power to employ a trustee in the charity's governing document, and this is not a conditional power, as long as the trustees can comply with the terms of this power we do not need to be involved and we do not need to provide authority. We should inform the trustees of this but should also explain that the presence of a power in the GD does not mean that the trustees can make the payments without fully considering the case. They must be satisfied that employing the trustee is in the best interests of the charity. We should refer the trustees to It's your Decision to help with this. The trustees should keep a formal record of their decision making process leading up to the employment.

B3.2 Does our small payments policy apply?

If there is no existing power to employ a trustee we should look at the level of the proposed payment to see if this might fall under our small payments policy (that is, the total of all payments to all trustees in the financial year is £1,000 or less). This is unlikely in the case of the contracted employment of a trustee but might apply if the post is part time and involves very few hours a month. If there is a possibility that our small payments policy might apply, caseworkers should refer the applicant back to the form to run through the small payments process and then close our case.

B3.3 Did the trustee resign before the job offer was made?

If the candidate took part in a fair and open recruitment exercise, and the trustee to be employed resigned before the job offer was made, as long as the trustee: 

  • had no involvement in the decision to create the paid position
  • was not involved in devising the recruitment process or in setting the terms and conditions of the post
  • did not lobby or canvass for the post or otherwise identify themselves or the connected person as being the most suitable candidate

our authority is not required because there is no trustee benefit. The trustees must keep clear records of this with any documentation attached to the recruitment exercise and also record this in the minutes of the trustee meetings where this is discussed.   

If the applicant has followed the form correctly, we should not see any forms where the above conditions apply. The form is designed to flag up that our authority is not needed in this case. However, it is a reasonable use of our time to check that the applicant has not submitted a form in error where all of the above applies.

If it is clear that our authority is required, we will check that the charity is up to date with its filing obligations. If so, we will consider the application against our Risk Framework and look at the charity's other records, to see if there is anything to cause us concern. Having done this, we will consider the contents of the form to decide if we are prepared to authorise the proposed appointment.

B3.4 Is the charity up to date with its filing obligations to the Commission?

This is important not only because it is our policy not to provide authority to non-compliant charities, but also because we must have up to date financial information, including details of any other trustee benefit, when deciding whether or not to authorise the employment. Equally, a poor filing history might be a reason to give an application further scrutiny. 

If the charity's income means that the trustees are required to submit accounts annually, the form asks the applicant to check the register to see if we have already received the latest accounts. If not, the applicant should upload the accounts along with the form.

Where the charity falls below the income threshold for accounts submission the form asks the applicant to upload the latest accounts to help us consider the case.

If an application is submitted without our having access to the charity's latest accounts we will return the application as incomplete and suggest that the applicant reapplies for authority, using the online form, once the accounts are available.

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B4 Considering the case in support of the application

We will always consider each case on its merits, by looking at the answers to the questions on the form and taking into account any other relevant information we have about the charity. That said, to help in making our decision, the questions on the form are set out below along with, where appropriate, some indicative advice of when we might, or might not, authorise the employment. When we have made our decision we must record our reasons for this on the case file.

Name of the person to be employed (and, if applicable, the connected trustee)

We need the name of the person to be employed as we will usually need to include this in any authority we give. We need the name of the connected trustee, if applicable, partly so that we can include this in any authority we give and partly to enable us to check that the trustee is still serving to decide if the connection means that the employment needs authority.

Amount of payment

We need details of the level of payment so that we can check if our small payments policy might apply and also to help us to decide if this seems reasonable for the type of employment being proposed.

When will the arrangement start (and finish)

We need this date to ensure that the employment has not already started as we cannot authorise the employment retrospectively (see B9). Additionally, where the employment is for a fixed term, any authority we give may be time limited to expire when the employment is due to end.

What is the role for which the payment is to be made?

Where the trustee is to be employed to:

  • fill a vacancy in an existing post, where this post is still needed by the charity, or
  • take up a newly created role, where it appears reasonable for the particular type of charity to create the role

and there is no question that the role was retained, created or tailored specifically for the trustee, we would usually consider the case made without further question. However;

  • where the trustee is to be employed to fill a vacancy in an existing post, and it is not clear that the trustees have fully considered whether or not the post is still needed by the charity, there may be a question that the post has been retained specifically to benefit the trustee rather than the charity, or
  • where the trustee will take up a newly created role, and it does not appear reasonable for the particular type of charity to create this role, or if there is any possibility that the role might have been created or tailored specifically for the trustee,

we should ask for further information. If the trustees' response does not satisfy our concerns we can refuse to authorise the employment.

Why do the trustees consider that the level of payment is reasonable in relation to the proposed employment? (Including details of any benchmarking exercise that has taken place)

Where the trustees have carried out an appropriate benchmarking exercise, by comparing the role to similar roles in similar sectors locally, and have set the rate of pay at, or below, those comparative figures, this will usually satisfy us on this point. Where the trustee is to be employed into an existing vacant post, we would expect the rate of pay to be the same, or below, the rate paid to the trustee's predecessor. Where it is not, the trustees must provide a reasoned case why it is necessary to raise the rate, including reference to any benchmarking exercise that has taken place.  

However, where the employment relates to a newly created post, if the trustees have:

  • set the rate of pay without carrying out a benchmarking exercise; or
  • carried out a benchmarking exercise but then set the rate of pay at a higher level than this suggested might be reasonable,

and their explanation for doing this is unsatisfactory we can refuse to authorise the employment. Where the explanation is unclear we will return the application as incomplete and ask for more information before considering the case further.

As a general rule, when we are considering an application, we should consider the level of payment against the role, to decide if, in our opinion, the payment looks reasonable for the role to be carried out. If it does not we will seek further information. If the trustees' response does not satisfy our concerns we can refuse to authorise the employment.

Why do the trustees consider that employing this person is in the best interests of the charity? (And include details of how the conflict of interest will be managed.)  

We might decide to authorise the employment where it is clear from the information provided that:

  • there is a need for the work to be carried out
  • the trustee has the appropriate knowledge, skills and experience for the job 
  • the trustees have considered any risks attached to the proposal and, having done so, are satisfied that the advantages brought about by employing the trustee, rather than someone unconnected with the charity, clearly outweigh any potential disadvantages
  • there is no suggestion that the employment might result in one individual becoming too powerful in the charity (for example, where the Chair of the trustees is to become Chief Executive of the charity)
  • the trustees' proposals for dealing with the conflict of interest appear robust and workable (and in line with a written conflict of interest policy)
  • the trustee is clearly the best person for the job. (Where the recruitment exercise puts forward two candidates who are equally matched, we would expect the trustees to employ the person who is not connected to the charity rather than the trustee or connected person.)

However, if it is not clear that all of the above apply, we should seek more information before considering the case further. If the trustees' response does not satisfy our concerns we can refuse to authorise the employment.

Give details of any fair and open recruitment process, if there was no recruitment process explain why not

In all but exceptional circumstances we would expect the trustees to have carried out a full, fair and open recruitment exercise before reaching their decision to employ the trustee. We may ask for copies of any recruitment materials to help us consider the application.

The recruitment exercise should usually include a properly targeted advertising campaign, this might include advertising the post;

  • in the local or national press
  • on the charity's website 
  • in a jobcentre
  • via recruitment agencies.

How the post is advertised is a matter for the trustees (and any recruitment advisors) to decide and will depend on the role being advertised. It may be appropriate to advertise for an administrative assistant in the local press but we would usually expect the recruitment campaign for a Chief Executive of a larger charity to be advertised in the national media, via a recruitment agency, and on the charity's website, for example.

Following the advertising campaign there should be a robust selection and interview process that might usually include independent representatives (perhaps from the recruitment agency).   

Where the trustees have carried out a recruitment process but:

  • this appears inadequate to achieve its aim of gathering a reasonable field of suitably qualified candidates, for example, advertising for a specialist scientific researcher in local press but not in the sector press or through a specialist recruitment agency; or
  • the selection or interview process appears to have been tailored to favour the trustee over any other candidates, perhaps by calling for specific knowledge of the charity itself rather than general skills and experience relating to the role

we will seek further information and may, in exceptional circumstances, ask that the recruitment exercise is rerun before we consider the case further.

Where the trustees did not carry out a recruitment exercise and their reasons for this are unconvincing, for example they may say that the trustee identified themselves as the best candidate and that they would take on the role without going through a recruitment exercise, we are unlikely to accept this explanation and can refuse to authorise the employment. We may also suggest that the trustees carry out an appropriate recruitment exercise before reapplying for authority.

That said, the trustees might tell us that they have decided that the likelihood of finding suitable alternative candidates is so small that it would not be a good use of time and resources to go through a recruitment process. The reasons for this will vary but this might apply where:

  • the trustee will clearly be the best candidate for the job because of particular life experience, or special knowledge of the charity’s work, which cannot be found elsewhere
  • the charity works in such a specialised field that there will be no other candidates as well placed to take on the role. In deciding this, the trustees may have taken informal soundings from possible candidates in the field in which the charity works.

In this case we may decide to authorise the employment even though there has been no recruitment campaign.

In certain circumstances, the employment of the trustee may be an emergency appointment, for a short term, perhaps to fill a vacancy quickly while a full recruitment exercise takes place. In this case, we might decide to give time limited authority to the appointment without a recruitment exercise having taken place.

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B5 Making our decision - to authorise or not

When making our decision whether or not to authorise the proposed employment we will consider:

  • all of the information provided by the charity on the form
  • any additional information and evidence we have requested
  • any other information we might hold relevant to the application.

approveHaving done this, if we are satisfied that employing the trustee or connected person is expedient in the interests of the charity we will authorise the proposed appointment. How we grant authority depends on the circumstances of the particular charity (see B7).

 

refuseIf, for any reason, we are not satisfied that employing the trustee is in the best interests of the charity, we will usually seek further information. Having done this, if we are still not satisfied that the employment is expedient in the interests of the charity we can refuse to authorise the proposal.  When we refuse to authorise the proposed employment, we should inform the applicant of the reasons for this and refer to our decision review process. We may also decide to mark the charity for monitoring if the circumstances of the case suggest this would be appropriate.

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B6 What are the additional considerations where the trustee is employed by a connected organisation?

Where the trustee is to be employed by a connected organisation (this would usually be a subsidiary trading company) the basic principles are the same regarding the need for authority, setting rates of pay, etc. However, the conflict of interest will be different in that the trustee will be conflicted whenever the charity's trustees discuss any aspect of the relationship between the charity and the connected organisation, as this might have a bearing on the employment of the trustee. This can be most effectively illustrated should the trustees have to decide whether or not to wind up the connected organisation.

The trustees may be able to use an existing conflict of interest policy to manage the conflict. If there is no conflict of interest policy, or if an existing policy does not extend to setting out how to deal with conflicts via a connected organisation, the trustees should ensure that they put an appropriate policy in place.   

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B7 Granting authority

How we authorise the employment depends on the circumstances of the case, and the charity, and whether or not there is an express prohibition in the charity's governing document.

B7.1 Where there is no prohibition in the charity's governing document

If there is no prohibition on trustee benefit in the charity's governing document and where the proposal would involve the one-off employment of a named trustee, we would usually authorise the employment by s105 Order (there are a number of model Orders in the Operations training pods and the Order manual). Where the proposal is to allow any trustee to take on contracted employment now or in the future, for example to a specific post in the charity, there is a model Order that authorises this.

B7.2 Where there is a conditional power in the charity's governing document  

Where the charity's governing document contains a conditional power to employ a trustee (see B3.1) we will give our consent in accordance with the terms of that power, this would usually be simply in writing, by email.  

B7.3 Where there is a prohibition in the charity's governing document

If the charity's governing document expressly prohibits trustee benefit generally, or the employment of a trustee specifically, this prohibition will need to be removed before we can authorise the proposed employment. We can usually remove a prohibition by making a Scheme, for an unincorporated charity or, if the charity is a company or CIO, we will give s198 or s226 consent to allow the trustees to make the amendment.

lawyer_referThe extent of a prohibition may not be clear, this is particularly the case where the employment involves a connected person or organisation. Caseworkers should take legal advice where there is any doubt about the extent of a prohibition.    

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B8 Managing the conflict of interest   

Whether or not our authority is required for the employment, there will be an ongoing conflict of interest that will need to be managed. The charity's governing document might contain provisions on how to handle conflicts of interest, or the charity may have an existing stand alone conflicts of interest policy. Where there is no existing policy, the trustees should adopt a suitable policy before the employment begins.

If we are asked to advise about handling conflicts, we should refer the trustees to our web guidance Managing conflicts of interests: a guide for trustees. Broadly, in trustee payment cases, we would expect the trustee who is the employee, or who is connected to the employee, to:

  • declare an interest if a meeting includes discussion about any aspect of the employment, or something that may affect that employment, for example discussion about a trading subsidiary if they are employed by the subsidiary 
  • leave the meeting before the item is discussed and not vote on the matter (there must still be a quorum when the trustee has withdrawn and the decision taken).

The declaration of interest and withdrawal of the trustee should be recorded in the minutes of the meeting. 

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B9 What if the employment has already started?

If the employment has already started without authority any benefit to the trustee will be unauthorised trustee benefit and may need to be repaid.

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B10 Disclosing and reporting trustee payments in the charity's accounts

The charities’ Statements of Recommended Practice (SORPs) set out how trustee payments should be reported in a charity’s accounts. Reporting trustee payments in the charity’s accounts is a legal requirement for companies, and larger charities, and a matter of good practice for other charities (sections 9.1- 9.32 of the applicable Charities’ SORP 2015).

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Case Studies

D1 Where we authorised the employment of a trustee

The charity

Income - circa £40 million pa.

Purposes - The charity works to advance the Christian Faith. 

Number of trustees – 8.

The case in support of the application

An employee of the charity submitted a completed application form seeking authority to employ a trustee into the newly created post of Director of Operations. The trustee had resigned before the job offer was made but had played a part in the initial decision to create the post.

First of all, we checked that the charity was up to date with its filing obligations. Having done this, and being satisfied that there was nothing to suggest that the employment was being proposed other than in the best interests of the charity, we considered the application against our Risk Framework and checked the records we held for the charity to ensure there was no cause for concern. We then considered the information provided by the trustees in support of the application in order to make our decision: 

Explain the role for which the payment is to be made.

The Director of Operations would be a member of the senior management team and would take on several of the tasks currently carried out by the Chief Executive Officer. This would include managing the majority of the staff, overseeing IT projects and leading a review of the charity's overarching strategy.  

Why do the trustees consider that the level of payment is reasonable in relation to the proposed employment? (Including details of any benchmarking exercise that has taken place.)

The salary had been set in line with a salary survey that had been carried out by a recruitment agency in the previous year. The salary was set at the lower end of the range suggested by the benchmarking exercise that formed part of this survey.

Why do the trustees consider that employing the person is in the best interests of the charity? (and include details of how the conflict of interest will be managed.)

The trustees believed the appointment would be in the best interests of the charity because:

  • the post is necessary to free up some of the CEO's time to concentrate on the core aspects of that job; and
  • the skills, knowledge and experience of the trustee to be employed meant that they were clearly the best person for the job. 

Give details of any fair and open recruitment process, if there was no recruitment process explain why not.

The charity had engaged a recruitment agency to carry out the entire recruitment process. This included drawing together a job description, devising the advertising strategy, carrying out the initial sift and co-ordinating the interview process.

The post had been advertised in the charity and Christian sector press as well as on a number of websites and via recruitment agencies.

11 candidates were shortlisted and it was only at this stage that the other trustees were made aware that the trustee had applied. At this point the trustee resigned as trustee.

Following a series of tests and two rounds of interviews the interview panel, made up of trustees and representatives of the recruitment agency, were unanimous in their decision that the (now former) trustee was the best person for the job.               

Our decision

We were satisfied that:

  • there was a need for the post in order to improve the effectiveness of the charity
  • the trustees' exercise to ensure that the rate for the job was reasonable was sufficiently robust
  • the advertising campaign was well targeted to gather a pool of candidates with sufficient skills, knowledge and experience to take on the role
  • the recruitment process was sufficiently robust and independent so that there could be no question that the trustee gained any particular preference because of the trusteeship
  • there was nothing in the charity's records that might cause us to question the application.

We decided that it was in the best interests of the charity to employ the trustee so we authorised the appointment by s105 Order. This decision was taken in line with our Authorised Officer policy (see OG702). We recorded the reasons for making our decision on the case file.  

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D2 Where we refused to authorise the employment of a trustee

The charity

Income - circa £50,000 pa.

Purposes - The charity provides education and support to young people. 

Number of trustees – 4.

The case in support of the application

A trustee of the charity submitted a completed application form seeking authority to appoint a serving trustee to the newly created post of general manager. The applicant appeared to be connected to the trustee to be employed.

First of all, we checked that the charity was up to date with its filing obligations. Having done this, and being satisfied that there was nothing to suggest that the employment was being proposed other than in the best interests of the charity, we considered the application against our Risk Framework and checked the records we held for the charity to ensure there was no cause for concern. The charity's case records showed that there had been a previous application to employ the same trustee that we had rejected on the grounds that the trustees had not made a sufficiently convincing case in support of the application.

We then went on to consider the information provided by the trustees in order to make our decision: 

Explain the role for which the payment is to be made.

The trustee runs the charity predominantly alone, this includes organising events, publicising the work of the charity, visiting schools and maintaining the accounts. This new post of general manager would have responsibility for these tasks.    

Why do the trustees consider that the level of payment is reasonable in relation to the proposed employment? (Including details of any benchmarking exercise that has taken place.)

The salary had been set to match the salary that the trustee was receiving in his current job as a warehouse manager (£16,500pa). This was the minimum salary required to enable the trustee to give up his current job to work for the charity. The trustees thought that it was reasonable to pay this amount so that the trustee would not lose out financially by becoming an employee of the charity.  

Why do the trustees consider these payments are in the best interests of the charity? (And include details of how the conflict of interest will be managed.)

The role that the trustee carries out is vital for the success of the charity. The trustee's youth means that the young people that the charity works with are more likely to relate to the trustee's messages. The trustee is fully committed to the work of the charity.  

Give details of any fair and open recruitment process, if there was no recruitment process explain why not.

Because the trustee was instrumental in setting up the charity, and fundamental to its current activities, the other trustees decided not to run a recruitment process to seek other candidates with the necessary skills and experience to take on the role. It was clear to them that the trustee would be the best person for the job whoever they were competing against.  

Our decision

Having considered the information provided, we had various concerns about the application for authority, specifically:

  • the work to be carried out as paid employee did not appear to be anything more than that which we would expect a trustee to carry out as part of normal trustee duties for a charity of this size. Nor was it clear that the trustees had tried to share the workload among the existing trustees and/or recruit additional volunteers to take on the various roles that the proposed employment would encompass
  • the trustees had not made sufficient effort to set a rate of pay that was reasonable for the role. This should be linked to the role to be carried out by the trustee and not to the trustee's employment elsewhere. As well as this, we would usually expect the trustees to carry out a robust benchmarking exercise, there was none in this case
  • the reasons that the trustees gave why employing the trustee would be in the best interests of the charity did not demonstrate that the trustees had fully explored all reasonable alternatives before deciding to employ the trustee. It would be usual to expect a trustee to be fully committed to the charity, while the advantages brought by the trustee's youth ought to be easily found elsewhere
  • the trustees' reasons for deciding not to carry out a recruitment exercise were unconvincing. The skills, knowledge and experience required to carry out the role were not so specialised that it might be difficult to find these elsewhere
  • there were insufficient unconflicted trustees to adequately manage the conflicts of interest. As there were only 4 trustees, with one being paid and one connected to the one being paid, the remaining trustees could not form a quorum to deal with issues surrounding the employment
  • it was not clear that the salary could be paid without this having a negative effect on the charity's ability to deliver its objectives to its beneficiaries. The salary, plus employer National Insurance contributions, etc, would amount to over one third of the charity's annual income.

Because of these concerns, we asked for further information in support of the application. This additional information did not adequately deal with our concerns so we decided that it was not in the best interests of the charity to employ the trustee. We made this decision in line with our Authorised Officer policy. We recorded the reasons for our decision on the case file and informed the applicant that we would not authorise the proposed employment. We also referred the applicant to our decision review procedure and marked the charity for monitoring.

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D3 Where the trustee resigned in advance of the job offer being made meaning our authority was not required

The charity

Income - circa £90,000 pa.

Purposes - The charity runs a large pre-school playgroup. 

Number of trustees – 10.

The case in support of the application

A trustee of the charity submitted a completed application form seeking authority to employ a recently retired trustee as bookkeeper. The person to be employed had previously carried out the role on an unpaid basis as trustee but had now left the trustee board as her child no longer attended the playgroup. The trustees had been advised to apply for our consent as the trustee had only recently resigned as a trustee.

The form contained the following information: 

Explain the role for which the payment is to be made.

The role involved collecting timesheets from paid employees, dealing with pay, tax & NI, arranging for the charity's bills to be paid and collating the charity's accounts.

Why do the trustees consider that the level of payment is reasonable in relation to the proposed employment? (Including details of any benchmarking exercise that has taken place.)

The salary had been set by looking at the rate paid to bookkeeper-administrators elsewhere in the locality then setting the rate at the lower end of this scale (£7.45 per hour). The overall salary package would total around £100 per month, this appeared reasonable for the expertise and particular knowledge of the charity that the person would bring to the post.

Why do the trustees consider that employing the person is in the best interests of the charity? (And include details of how the conflict of interest will be managed.)

The person had been carrying out the role for two years, unpaid, as part of her trustee duties. Now that her child had left the pre-school she had resigned as trustee. The remaining trustees had spoken to a local firm of accountants about taking on this role but this would be significantly more expensive. The trustees decided that it would be more cost-effective to engage a paid bookkeeper on a part time basis (up to 5 hours a week). 

Give details of any fair and open recruitment process, if there was no recruitment process explain why not.

The post was advertised in the local press and on noticeboards in the local area; there had been 4 applicants. Following the selection process the skills knowledge and experience of the former trustee compared to the other applicants meant she was clearly the best person for the job.

The applicant confirmed that the former trustee had no involvement in the decision to create the paid role, was not involved in devising the recruitment process and had not lobbied or canvassed for the post.   

Our decision 

We first of all looked at the level of payment to make sure our small payments policy did not apply. The proposal, as presented, would mean that the total annual payment would be around £1,200 so this was above the small payments threshold.

We then looked at the other circumstances of the case. Because the trustee:

  • had resigned before the job offer was made
  • had no involvement in the decision to create the paid position
  • was not involved in devising the recruitment process or setting the terms and conditions of the post; and
  • had not lobbied or canvassed for the post or otherwise identified themselves as being the most suitable candidate

there was no need for our authority. We informed the applicant of this, and of the accounting requirements regarding trustee payments (see B10) then closed our case.

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Legal/Policy Framework  

E1 Legal key points

  • A serving trustee can only become an employee of their charity where there is a clear legal authority to do so. This authority might be found in the charity's governing document or can be provided by the Commission or the court. Any existing authority in the charity's governing document will be construed strictly and narrowly.
  • Where a person connected to a serving trustee is to be employed by a charity, and where there is financial interdependence between the connected person and the trustee, the employment can only commence where there is a clear legal authority in place.
  • Where a person connected to a serving trustee is to be employed by a charity, but where there is no financial interdependence between the connected person and the trustee, there may be no need for express authority but the conflict of loyalty must be properly managed.
  • If the trustee to be employed (or the trustee connected to the person to be employed) resigns before the job offer is made and played no part in any decision-making about the employment there is no need for authority. 

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E2 Policy key points

  • Where we are asked to authorise a proposal for a charity, or an organisation connected to a charity, to employ a trustee, or person connected to a trustee, we will do this where we are satisfied that this is expedient in the interests of the charity.
  • How we provide authority depends on how the charity is constituted and whether or not there is an existing power in the charity's governing document. If there is no existing power, we can provide authority by s105 Order or by amending, or authorising the amendment of, the governing document. We will do this by making a Scheme or by giving s198 or s226 consent, depending on the circumstances of the particular case. 

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E3 Definitions

These definitions are for the purposes of our guidance regarding trustee benefit.

E3.1 Connected organisation

In most cases, this refers to a company that is a trading subsidiary of a charity. Less usually, it could also refer to a scenario where two charities are connected in other ways, for example where a charity establishes another charity to carry out similar, but not identical, work. Where two corporate bodies are involved they would be connected where they meet the definition of 'connected person' in s352 of the Act.

Organisations are not connected where decisions taken by the individual acting as trustee cannot affect the level of funding or strategic direction of the employing organisation. For example where a trustee of an employee benevolent fund was to become an employee of the organisation that had established the charity.    

E3.2 Connected person

'Connected person' in this guidance means the definition set out in s188 of the Charities Act where it defines 'connected person' for the purposes of the statutory power to pay trustees for the provision of services given by s185. Section 188 states:

(1) For the purposes of sections 185 and 186, the following persons are connected with a charity trustee or trustee for a charity—

(a) a child, parent, grandchild, grandparent, brother or sister of the trustee; 

(b) the spouse or civil partner of the trustee or of any person falling within paragraph (a);

(c) a person carrying on business in partnership with the trustee or with any person falling within paragraph (a) or (b);

(d) an institution which is controlled— 

(i) by the trustee or by any person falling within paragraph (a), (b) or (c), or 

(ii) by two or more persons falling within sub-paragraph (i), when taken together

(e) a body corporate in which— 

(i) the trustee or any connected person falling within any of paragraphs (a) to (c) has a substantial interest, or

(ii) two or more persons falling within sub-paragraph (i), when taken together, have a substantial interest. 

(2) Sections 350 to 352 (meaning of child, spouse and civil partner, controlled institution and substantial interest) apply for the purposes of subsection (1).

E3.3 Employment   

By 'employment' we mean the contracted employment of a trustee or connected person by a charity or an organisation connected to a charity but not the provision of services under the power given by s185 of the Act.

E3.4 Financial interdependence

'Financial interdependence' is used to define indirect trustee benefit. In the context of this guidance this refers to the employment of a connected person where this could be said to result in the trustee benefitting as a result of the employment of the connected person. This would usually only apply where the connected person shares a household with the trustee so that any benefit entering the household might be shared with the trustee.  

lawyer_referIf there is any doubt about whether or not there is any financial interdependence between a trustee and a connected person, take legal advice.

 

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E4 What are the regulatory concerns surrounding the employment of a trustee?

If the person to be employed is a trustee or is connected to, and financially interdependent with, a trustee then the payments will need authority, and the conflict of interest must be properly managed. Where the person to be employed is a connected person, but there is no financial interdependence, then there may be no need for authority. This is because the trustee will not benefit financially, but there will be an ongoing conflict of loyalty that will need to be managed. (See E3 for definitions of 'connected persons' and 'financial interdependence'.)  

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Q&A

F1 What do we mean by 'trustee becoming an employee'?

We use this to mean any instance where a serving or recently retired trustee, or person connected to a serving or recently retired trustee, becomes an employee of a charity, or of an organisation connected to a charity, for example a trading subsidiary. (See E3.2 for a definition of a connected person.)     

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F2 What do we mean by 'employment'?

This means the contracted employment of a trustee, or connected person, by the charity or the connected organisation. It does not mean the payment of trustees for the provision of services that fall under s185 of the Charities Act (see OG515-2) or the payment of trustees for serving as trustee (see OG515-5).    

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F3 When might trustees think it is appropriate to employ a trustee?

If the post is genuinely required by the charity and, in most cases, following a full recruitment exercise, where the trustee or connected person is clearly the best available person for the job, the other trustees might decide that employing the person is in the best interests of the charity. Where any recruitment exercise puts forward two candidates who are equally matched, we would expect the trustees to employ the person who is not connected to the charity rather than the trustee or connected person. This will avoid any potential accusations that the person to be employed gained an advantage because of their connection to the charity and will mean there is no need to manage the conflict of interest.  

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F4 Does the employment of a trustee need authority?

Yes, any financial benefit, direct or indirect, to a trustee from their charity or connected organisation is a trustee benefit requiring express authority before any payments can be made. Authority may be set out in the charity's governing document, if it is not, this can be provided by the Commission or the court. If payments are made without authority these may need to be repaid by the trustee or connected person (see B9).

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F5 Must there be a full recruitment exercise?

Yes, in all but exceptional cases we would only expect a trustee or connected person to be offered the job following a fair and open recruitment exercise that includes appropriate advertising (see B4).

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F6 What if the trustee resigns before the job offer is made?

If the trustee resigns before the job offer is made then, depending on the role the trustee played in the recruitment process and in the decision to create or retain the post, authority may not be needed for the appointment (see B3.3).    

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F7 How do the trustees apply for authority to employ a trustee or connected person?

In all but exceptional circumstances we would expect an application for authority to be made using the online application form. Even where the request for authority forms part of an ongoing case we will ask the applicant to submit a form when seeking authority. Completing the form will ensure that we are given all of the information we need to consider the case and will also ensure that the applicant is aware of the implications of employing a trustee or connected person.     

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F8 What if there is a conditional power to employ a trustee in the charity's governing document?

If there is a power to employ trustees in the charity's governing document, subject to the consent of the Commission (a 'conditional power'), we can authorise the employment in accordance with this clause. We will do this where we are satisfied with the case made and where the trustees can comply with the other requirements of the clause. If the conditional power refers only to the employment of a trustee by the charity, but not to the employment of a connected person or employment by a connected organisation, we may need to authorise the employment by s105 Order (see B3.1).

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F9 What if there is an express prohibition on trustee benefit in the charity's governing document?

In this case the GD will need to be amended. If we agree to authorise the employment, we will make this amendment by Scheme, for an unincorporated charity or, if the charity is a company or CIO, we will give s198 or s226 consent to allow the trustees to make the amendment (see B7.3).

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F10 How do we grant authority to the proposed employment?

How we grant authority depends on the individual circumstances of the case. Where there is no conditional power to employ a trustee in the charity's GD, and no express prohibition, we would usually authorise the employment by Order. Model wording for an Order is available in the Order manual and the Operations training pods in CeRIS. If there is an express prohibition against trustee benefit in the charity's governing document this will need to be amended (see B7).

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