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Subject: IL rules regarding self-managed board members receiving compensation
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NatalieF2
(Illinois)

Posts:5


11/04/2017 4:14 PM  
I'm running for president of our board (12 unit condo community in Chicago) and have some questions regarding board member compensation. I've found conflicting information online. The current president tells me that the board's treasurer receives a discount on dues, and the maintenance tech (who is not a board member at all according to the CC&Rs, not even mentioned) also receives a discount, but the secretary and president do not.

I have only lived here a few months, and this is my first property, but since I have extensive experience managing rental properties, I'm very eager to manage our community. My question is what specifically does the law state regarding board members of self-managed HOAs being paid or compensated for their time? I don't want to make waves too soon, but I think it's more important that we're not breaking the law.
TimB4
(Virginia)

Posts:14860


11/04/2017 4:31 PM  
Natalie,

Welcome to the forum.

One needs to remember that Directors and Officers are two different positions, even if the positions are filled by the same individual. It's like having two jobs.

Typically, Directors may not be compensated for their work.

However, Officers may be compensated (but I don't recommend it for the perception reasons you are experiencing).

If an Association is paying Officers, they need to be doing it properly.
1) Assessments should be paid in full. No discounts.
2) Checks should be issued for any compensation.
3) IRS rules need to be complied with (are they an employee or independent contractor).
4) W2s or 1099s need to be issued.
5) Officers who receive compensation should be informed that they lose some protections that apply to unpaid volunteers (because payment means that they are professionals).

Therefore, paying the Treasurer is likely not breaking any laws.
However, the way the Association is paying the treasurer likely is.

If the person is deemed to be an employee, then the Association must pay their share of employee taxes and withhold the employees share.

If the person is deemed to be an independent contractor, then all supplies should be providied by the individual and not the Association.

See:

Independent Contractor (Self-Employed) or Employee? from the IRS website

Why Paying Your HOA Board Members is a BIG Mistake from an HOA management blog

No One Has Time to Volunteer for HOA Board -- Can We Pay Them? from nolo

To pay or not to pay? A closer look at board compensation 2014 article in the Chicago Tribune


Should Board Members Receive Compensation? an article by a legal firm
KerryL1
(California)

Posts:4381


11/04/2017 5:20 PM  
Welcome to the forum, Natalie. The first place to look is to your own bylaws and CC&Rs. In each of ours, directors may receive no renumeration.

Next, unless your bylaws are unusual, you are running to be a director. Then, generally, the new Board chooses its officers, e.g., president, secretary, treasurer.

GenoS
(Florida)

Posts:1631


11/04/2017 7:26 PM  
Posted By TimB4 on 11/04/2017 4:31 PM

1) Assessments should be paid in full. No discounts.


This is very important. If compensation is allowed, by the governing documents and state statutes, that needs to be paid separately and not applied as a credit against assessment obligations.
JanetB2
(Colorado)

Posts:3642


11/04/2017 8:57 PM  
Posted By GenoS on 11/04/2017 7:26 PM
Posted By TimB4 on 11/04/2017 4:31 PM

1) Assessments should be paid in full. No discounts.


This is very important. If compensation is allowed, by the governing documents and state statutes, that needs to be paid separately and not applied as a credit against assessment obligations.


Agree with Tim and Geno ... Most CCR's and State Laws note that all "assessments" are to be divided equally between owners as designated by the governing documents. To allow anyone to "not pay" potentially violates. If compensation is allowed via governing documents or State Law it needs to be paid as a separate check and the individuals need to claim as proper income.
TimB4
(Virginia)

Posts:14860


11/05/2017 1:12 AM  
Lets put this another way.

Unless the governing documents authorizes a Board to waive assessments (which is essentially what your Board is doing) they may not waive assessments.

Charges (fines, late fees, etc.) can typically be waived because the wording that authorizes them makes them optional.

Even if your Board chooses to waive assessments, then they must also file and issue a form 1099-C, cancellation of debt. This requires the receiver of the form to include that amount as income.
MelissaP1
(Alabama)

Posts:6788


11/05/2017 5:41 AM  
Also need to factor this in when reducing or not paying dues as compensation of being a board member or doing work for the HOA. What happens when this person becomes disgruntle? They decide to "Protest" and not pay their dues? Where do you start your point of not paying?

A HOA is ONLY funded by it's members for it's members. The reduction of dues effects how much everyone else is paying for their dues. Have to compensate for those not paying dues. Plus it's less money the HOA has to spend.

It's best if the HOA wants to do this. They cut a check out for that amount but the owner/member still pays their dues.

Former HOA President
NatalieF2
(Illinois)

Posts:5


11/05/2017 7:46 AM  
Thanks, everyone. That was mostly what I'd found, too. I found some other information that says board members aren't supposed to receive any compensation, and a coworker who has been president of his board told me this.

Our bylaws say "Each member of the Board shall hold office until a successor shall have been duly elected and qualified; provided that board members may succeed themselves. Members of the Board shall receive no compensation for their services, unless expressly allowed by the Board and approved by the Owners having two-thirds (2/3) or more of the total votes."

There is no addendum in the CC&Rs that I received at closing to imply that there was a ruling that stated the treasurer and maintenance guy (who is not even a board member) are to be paid. However, in living here these two months, I have learned that everyone's very casual about every issue that crops up, so it's possible there's a written addendum that was just never given to me because someone along the way wasn't organized. Frankly, I don't think anyone should be getting compensated, but I don't want to stir the pot too much if I am elected, so confirming that we can 1099 board members for whatever amount their dues are being discounted will certainly help.

Does anyone know if it's possible to receive CAM license study materials for free or a low cost? If elected, I'll want to study up on laws, but I don't know if I can take the time or the expense to actually take the test. I'm very experienced in property management, but it looks like the only skills and knowledge that might transfer from that career are resident relations and vendor management. I don't have any idea about filing taxes or budgeting what percentage of dues should be used for reserves vs. utilities vs. upkeep like landscaping and common area cleaning.
TimB4
(Virginia)

Posts:14860


11/05/2017 8:24 AM  
Keep in mind that members of the Board (referenced in your citation) are the Directors.

Officers attend board meetings to provide reports.
They are not a member of the Board.


Again, it gets confusing when the same individual is both a Director and an Officer.

Instead of looking at the individuals serving, look at the positions only and it may be less confusing.

NatalieF2
(Illinois)

Posts:5


11/05/2017 8:44 AM  
The current president, who nominated me, called the position president of the board. However, there are only 12 units and three owners who actually hold titles (president, treasurer, secretary). All owners vote on who will hold the positions, and all owners currently attend board meetings. Is this association maybe omitting the board altogether and calling officers the wrong thing? Or are they all maybe directors and officers?
KerryL1
(California)

Posts:4381


11/05/2017 12:39 PM  
As suggested above, Natalie, you need to read your bylaws to see if your HOA is required to have a board of directors. Most HOAs are non-profit corporations and they must have boards.

Owner elect the Board of directors.

Most of the time, the officers are selected by the Board from among board members. But some (many?) bylaws permit officers who are not board members except, perhaps, the president. If the Board selects an officer who is NOT a director, that individual does not have a vote as a member of the Board.

Again, read your bylaws.
NatalieF2
(Illinois)

Posts:5


11/05/2017 3:17 PM  
Got it. Thanks for clarifying that! It looks like this particular community uses the word "board" and "officer" interchangeably. Did I mention the CC&Rs weren't rewritten since the founding of the HOA in 1993? It appears that there was a board before there were enough owners here to elect the amount of officers the CC&Rs wanted. It sounds like they let every owner vote for officers as well as any other incidental that arises.

With that confirmed, can officers be compensated for their role in managing an HOA?
KerryL1
(California)

Posts:4381


11/05/2017 5:35 PM  
I can't help but wonder why you don't read your HOA's bylaws, Natalie. That's usually where info is about directors and the difference between them & officers. It's also often where info is about paying officers. You really should abide by your HOA's governing documents no matter how "it's been done" previously or how old they are.

Soem posters here are in HOAs of 100 or so homes that are self managed and they don't receive remuneration. For only 12, some sort of pay seems not quite right to me.

That's different, of course, than reimbursement for items needed to conduct the business of the HOA.
TimB4
(Virginia)

Posts:14860


11/05/2017 5:41 PM  
Posted By NatalieF2 on 11/05/2017 3:17 PM

With that confirmed, can officers be compensated for their role in managing an HOA?




As I said earlier, Officers may be compensated providing the governing documents do not prohibit it.

HOWEVER due to tax liabilities, loss of some legal protections that unpaid volunteers receive and potential perception issues (I pay your salary, do as I say) it is strongly discouraged.

IF one is going to pay officers, do it properly and file all necessary tax forms and pay all necessary taxes. The Association doesn't want to be on the receiving end of the IRS when a disgruntled member contacts them and says the Association is paying employees under the table.
NatalieF2
(Illinois)

Posts:5


11/05/2017 6:50 PM  
I'm curious if anyone in Illinois can chime in. I'd really like to know if the laws differ here. The bylaws state that the owners elect the board, and the board chooses from among the three elected who will be which officer, which means every board member is an officer. It states that they may be compensated if the owners allow it, but I have no documentation showing the owners have allowed it. I also don't know why the maintenance technician, who is not an officer/board member (since they are all the same people in this HOA) is receiving a stipend and if this is legal since he was not elected.
JanetB2
(Colorado)

Posts:3642


11/06/2017 9:00 AM  
Here is a link for your State Condo Statutes:

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2200

When I mentioned the assessments and common expenses and why should not have BOD members not pay is because many state statutes will state something similar to yours such as:

Sec. 9. Sharing of expenses - Lien for nonpayment.
(a) All common expenses incurred or accrued prior to the first conveyance of a unit shall be paid by the developer, and during this period no common expense assessment shall be payable to the association. It shall be the duty of each unit owner including the developer to pay his proportionate share of the common expenses commencing with the first conveyance. The proportionate share shall be in the same ratio as his percentage of ownership in the common elements set forth in the declaration.

When the state statutes use the word "shall" is to be considered similar to "must" or "will". It does not note that they "may" pay at the discretion of 2/3 of owners agreement.

JanetB2
(Colorado)

Posts:3642


11/06/2017 9:17 AM  
Then your state statutes further state::

Sec. 18. Contents of bylaws. The bylaws shall provide for at least the following:
(a)(1) The election from among the unit owners of a board of managers, the number of persons constituting such board, and that the terms of at least one-third of the members of the board shall expire annually and that all members of the board shall be elected at large; if there are multiple owners of a single unit, only one of the multiple owners shall be eligible to serve as a member of the board at any one time;
(2) the powers and duties of the board;
(3) the compensation, if any, of the members of the board;
(4) the method of removal from office of members of the board;
(5) that the board may engage the services of a manager or managing agent;

Essentially your Bylaws SHALL state how the Board is to be compensated. Apparently yours at this time only state the BOD can be compensated by 2/3 vote of the members. However, until you receive 2/3 vote to potentially "Amend" you bylaws to state something like X dollars will be paid to each month to each board member or something similar ... they technically at this time do not legally note any compensation to be paid ... only reference the possibility. It also because of the prior section posted above should be paid separate from "common expenses". This is an issue you may want your HOA attorney to review and get a professional opinion.

We can only offer our personal opinions based on the statutes which are public information which we can look up and read or based on our past personal experiences in our own HOA's.



KerryL1
(California)

Posts:4381


11/06/2017 10:11 AM  
The Board can hire employees unless your CC&Rs say otherwise, and it sounds like the maintenance tech is an employee. The Board probably voted on a wage for him. The Board must, of course, comply with any laws about taxes, Workers Comp, etc.

How many hour a week does this tech work for your HOA?

We don't currently have any posters from IL, but Janet's citations see on target.

TimB4
(Virginia)

Posts:14860


11/06/2017 1:16 PM  
Per Volunteer Protection Act Of 1997, from invetopedia:

The [Volunteer Protection] act prevents individuals, nonprofit organizations and government entities engaged in volunteer service from being held liable for harm caused by acts or omissions if the volunteer acted within his or her scope of responsibilities, was properly qualified and did not intend to cause harm.



Here is a link to Volunteer Protection Act of 1997

Here are other articles:

Volunteer Protection Acts and Good Samaritan Laws


We Don’t Need Insurance—Volunteer Protection Act of 1997
2007 article from a consulting company



Note there is a bill in the house to amend the act: H.R.2432
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