Are the Board of Directors Considered Employees?

Many people assume that board members are paid employees of a nonprofit organization or for-profit corporation, but this is not true. Decades ago, it was considered commonplace for board members to receive a pension and other benefits typically associated with employees, but times have changed. Treating board members as employees is now seen as a conflict of interest.

Although the board of directors, employees and owners are the nonprofit or for-profit organization's life force, the board of directors holds a different governing role. They supervise and oversee how the organization walks out its mission and vision, so they are considered a governing body rather than employees.

The board of directors meets regularly to review the finances of the organization, oversee the performance of the chief officer, determine budgeting needs and organize programming. Specialized committees hold additional meetings outside of the general board meetings in order to address needs like budgeting, taxes, fundraising, investing and so forth. The board has policies and procedures in place for regularly rotating members in and out of board seats, as well as hiring a new chief officer, when needed.

The board of directors structure is composed of the president, vice president, secretary, treasurer and specialized seats filled by experts in things like law, marketing or client services. Typically, job descriptions are provided for applicants and current board members that detail their role on the board, how many hours per month will be required of them and which meetings they must attend. In nonprofit organizations, it is common to have a requirement that board members give or fundraise a certain amount of money per year to hold their seats.

Board members are not considered employees of the organization, even though they may be compensated for participation on retainer or with per-meeting fees. Board members are typically outside experts and leaders who hold full-time positions of leadership outside in their chosen profession. Some board members even serve on more than one board at a time. Retirement and health insurance for board of directors are a personal responsibility and not provided by the organization.

When a nonprofit or for-profit organization pays a board member more than $600 in fees during any given year, they do need to file form 1099 with the Internal Revenue Service because the board members are functioning as independent contractors.

Just as board members are not considered employees, you typically do not find voting members of the board who are paid employees of the organization. This would be a conflict of interest. The chief officer of the organization is often present during board and committee meetings, but has a voice with no vote.

Different types of boards of directors view compensation differently. For instance, most nonprofit organizations do not compensate their board members at all because they want to show donors that their money is going to make a difference rather than paying fees. On nonprofit boards, members are often required to pay to be on the board by giving their own donations. When a nonprofit has 100 percent board giving, donors feel better about giving, as well.

Conversely, on for-profit boards, it is commonplace for compensation to be a lure that attracts the most desirable candidates to apply for a seat on the board. These board members often receive an annual retainer for participation, as well as a fee for each board meeting they participate in. These fees vary by industry, budget allowance and by the mission of the organization.