Paying trustees: Understanding the rules, risks and good governance

Questions around paying trustees, or people connected to them, are some of the most common and sensitive issues charities face. Trusteeship is founded on principles of independence, public trust and acting solely in the charity’s best interests, and any form of payment has the potential to challenge those principles if it is not handled carefully. For that reason, the law tightly regulates when and how trustees or connected persons may be paid.

The Charity Commission has refreshed its guidance on trustee payments (CC11). While the Commission has indicated that this was not intended to change the law, in practice we have found that the guidance provides clearer direction in several areas

The guidance provides a comprehensive framework for trustee payments, but in practice it can raise questions, particularly where charities are dealing with less common or more sensitive arrangements. Payments can take many forms, from paying a trustee to supply goods or services, compensating them for loss of earnings, employing a trustee in a separate role, or paying a trustee for carrying out additional work during a defined period. Each situation brings different legal considerations, governance requirements and risks, especially around conflicts of interest and public perception.

This is intended as a high level guide for trustees and charity staff. It covers the main types of trustee payments, the rules that apply and the governance issues trustees should consider to ensure decisions are lawful, transparent and clearly in the charity’s best interests.

Paying a trustee for carrying out trustee duties

Paying a trustee specifically for their trustee duties is one of the most restricted forms of trustee payment, so should only be considered in exceptional circumstances and would normally be expected to be time limited. Trustees must be able to demonstrate that such an arrangement delivers a clear and significant advantage to the charity compared with all other reasonable options.

Before reaching a decision, trustees should consider whether the work could be shared among the board, whether additional trustees could be recruited, or whether it would be more appropriate to engage staff or external advisers. Any decision must be driven solely by the needs of the charity and not by the personal circumstances of the trustee concerned.

If trustees determine that payment is justified, they must have proper legal authority. This usually means relying on an express power in the governing document or obtaining approval from the Charity Commission. Any payment must be reasonable, proportionate and limited in duration, supported by a written agreement that clearly sets out expectations, responsibilities, payment terms and review arrangements. Conflicts of interest must be carefully identified and managed, with the affected trustee excluded from all related discussions and decisions, and full records retained.

This type of payment brings heightened legal, governance and reputational risks, including the risk of undue influence on board decision‑making and potential public criticism. If the rules are not followed, the Charity Commission may require the trustee, and potentially the wider board, to repay the charity. It's important to distinguish this from reimbursing reasonable trustee expenses, which remains entirely permissible.

Paying trustees for supplying goods or services

The law allows charities to pay a trustee or a connected person for supplying goods or services in certain circumstances, recognising that this can sometimes provide value for money or specialist expertise. However, strict safeguards apply.

The arrangement must clearly be in the charity’s best interests, the governing document must not prohibit such payments, and the amount paid must be reasonable and in line with market rates. A written agreement must be in place before any goods or services are supplied, and no more than a minority of trustees may be paid at any one time. Trustees with a conflict of interest must take no part in the decision‑making process.

Where these conditions cannot be met, or where governing documents are silent or restrictive, authority from the Charity Commission will be required before proceeding. Transparency is key, and such payments will generally need to be disclosed in the charity’s public accounts.

Employing a trustee or connected person

Charities may sometimes consider employing a trustee, or a person connected to them, in a role that is separate from governance responsibilities. While this can be lawful, it is an arrangement that attracts particular scrutiny and must be approached with caution.

Trustees must be satisfied that the role is genuinely required, that recruitment has been fair and appropriately evidenced, and that pay is reasonable and affordable. Conflicts of interest must be rigorously managed, and the charity must have a clear legal power or Charity Commission authority, whether the trustee remains on the board, resigns to take up the role, or the role is within a subsidiary company.

The risks increase where the role is senior, long‑term or involves founders, chairs or long‑serving trustees, as this can undermine effective challenge and public confidence. Decisions must be fully documented and payments clearly disclosed in the charity’s accounts. Failure to comply with the rules can result in regulatory intervention and repayment of sums received.

Compensating trustees for loss of earnings

In limited circumstances, charities may consider compensating trustees where fulfilling their role results in a genuine loss of earnings, for example for self‑employed trustees or those required to take unpaid leave. This is distinct from reimbursing reasonable expenses, which remains outside the trustee payment rules.

Any compensation must be clearly justified as being in the charity’s best interests and should not become routine. Trustees must ensure the charity has explicit legal authority to make such payments, as many governing documents prohibit them entirely. Amounts paid must be reasonable and limited to the actual loss suffered (or a lower reasonable amount), supported by appropriate records and, ideally, a written agreement. Conflicts of interest must be carefully managed and payments disclosed in the charity’s accounts.

Other trustee payments and benefits

Trustee payments can arise in a range of other situations, including land or property transactions, small honorariums or, in rare cases, applications for retrospective approval where authority was not obtained in advance. Payments include both cash and non‑cash benefits, and the rules apply whether payment is made directly by the charity or through a charity‑owned company.

In all cases, trustees must be able to demonstrate that arrangements are clearly in the charity’s best interests, that conflicts of interest are properly managed and that the necessary legal authority is in place. Independent professional advice is particularly important where land or property is involved, and all decisions and payments must be transparently documented and disclosed.

Final thoughts

Paying trustees or connected persons requires careful judgement, clear legal authority and strong governance. While certain payments are permitted, trustees must always be able to explain why an arrangement is necessary, how risks have been managed and how transparency has been ensured.

Need help?

As Not for Profit specialists, we regularly support charities in reviewing governing documents, assessing trustee payment arrangements and ensuring compliance with Charity Commission and disclosure requirements. Early, informed advice can help protect both the charity and its trustees and support decision‑making.

Get in touch with your usual Larking Gowen contact, or send get in contact via enquiry@larking-gowen.co.uk.

Emma Hayward