Schools are generally either incorporated associations via legislation within their own state or territory, indigenous corporations or they are companies limited by guarantee under the Corporations Act (2001) (Cth).
Regardless of how they have been structured, three common factors that all schools generally share are that they:
- are not for profit (if they want to receive Commonwealth funding as per section 75 of the Australian Education Act 2013);
- are registered as charities through The Australian Charities and Not-for-profit Commission (ACNC); and
- have a volunteer Board of Directors (however named), that is tasked with the duty of governance of the school.
Most school boards are composed of volunteers. Indeed, the Independent Schools Council of Australia (ISCA) stated that “School governors represent one of the largest volunteer bodies in Australia. More than 10,000 people who come from every walk of life are members of Independent school governing boards.” Consequently, schools can sometimes find it difficult to fill vacant board positions with suitably qualified and willing people. The Australian Institute of Company Directors (AICD) note in an article that “as with most NFP organisations, school board members donate their services.”
This being said, some well-established schools with extensive histories or highly regarded cultures or reputations do not have any issues in attracting and retaining good quality board members. There is a perceived level of ‘kudos’ associated with being a board member of certain schools. However, for many other schools it can be difficult to encourage people to join their boards for various reasons including geographical location, or religious or philosophical missions which restrict who can be a board member.
In addition, school boards are structured in accordance with the requirements of the school’s constitution and the rules of association or incorporation. The constitution usually sets out the required numbers, roles, and responsibilities of the school board. Some constitutions provide direction on the inclusion of certain board members such as alumni ex-students and parents or direction on who cannot be a board member, for example in some schools, someone who is not a parent of a child at the school cannot be on the board.
However, in a recent article in Pro Bono Australia, “Should NFP Directors Be Paid?”, Ellie Cooper discusses whether remunerating not for profit (read this as school) board members is necessary to attract the best people. This situation is not uncommon in countries such as the USA but it is relatively rare in Australia. Cooper noted that in the latest Board Remuneration Report (Dec 2016) almost 14 per cent of not-for-profit board members in Australia were currently receiving payment for their services – a drop from a 17 per cent high in 2012/13.
Allan Myers QC, who founded the Grattan Institute and chairs the National Gallery of Australia Council, was quoted within the article as saying: “I’m on the other side of the debate, let me say that right at the beginning… Do you think you’re going to get better people by paying them, that’s the first question,” Myers said, “At least you’re sure if someone comes onto a board, if he or she is not being paid, that they’re doing it for something other than the money.” Gideon Haigh, prolific sports journalist and contributor to the debate on governance in sport, on the other hand argued that remuneration facilitated diversity on boards, which, he said, “people seem to regard… as a commendable outcome”.
Nonetheless, there are some other compelling arguments that schools need to contemplate if they are in discussions regarding board member remuneration. For example, according to the ACNC:
- Generally, people on the board of a charity can be paid if the payment advances the charity’s charitable purpose and the payments are clearly authorised (such as by a meeting of the charity’s members). Check if there are any rules about paying (or not paying) your board members;
- If your charity is a trust, your trustees (directors) cannot be paid unless the trust deed specifically sets out that they are to be paid;
- Charities that are companies registered with ASIC that omit the word ‘limited’ from their company name must not pay their board members fees;
- Payment of reasonable expenses is different to payment for services. Board members can be reimbursed (paid back) for reasonable expenses they paid while carrying out their duties; and
- Check the fundraising regulation in your state or territory of operation as there may be rules about the payment of board members if you are fundraising.
Colette Pretorius Associate Director – Audit and Assurance, Moore Stephens in a School Governance article noted that the NSW Government strengthened the not-for-profit school requirements under section 21A of the Education Act 1990 (NSW) by introducing the NSW Education Amendment (Not-for-Profit Non-Government Funding) Bill 2014 (NSW). The NSW Department of Education has summarised the definition of not-for-profit within the update Act by specifying that:
- All income and assets must be used for the operation of the school;
- Members of school governing bodies cannot be paid sitting fees;
- All payments, including payments to related parties, must be at market value; and
- Schools must meet the new requirements by 29 January 2015.
The Not-for-profit Guidelines for Non-Government Schools in NSW emphasise the above points.
In Western Australia, under the recently updated Associations Incorporation Act 2015 (WA), the Guide for Incorporated Associations in WA states:
Under the Act it is now acceptable for an association to trade with the public so long as the profits from those transactions are used to promote the objects and purposes of the association and individual members do not profit from the activities in any way. An association that operates outside of these conditions is no longer eligible to remain incorporated under the Act, and may be cancelled or required to change its incorporation to a different type such as a co-operative or company.
It is apparent there may be similar clauses in Acts and Regulations in other states and territories as well.
Additionally, under most Australian child protection laws, school board directors are considered to be volunteers whilst they are not receiving remuneration for their services to the school. If they get paid, the legislation may apply differently – they may be classified as employed by the school. Consequently, their legal obligations may also change.
So, in summary, if you or your school board is contemplating remuneration for board members to either attract or retain quality people, perhaps the following questions need to be asked and answered before any decision to pay is made:
- Will remuneration of board members breach the rules of the school’s constitution?
- Will remuneration of board members breach incorporation legislation in your state or territory if your school is incorporated?
- Will remuneration of board members breach any other state or territory legislation, such as an education Act or Regulations, that could then cause the school to lose it’s not for profit status?
- Would payment to board members change their status from volunteer to paid employee and therefore breach governance/management boundaries or change their status under your state or territory child protection laws?
Schools who are contemplating the possibility of payments to board members need to be assured that by doing so, they do not jeopardise their not-for-profit status and their eligibility for government funding. It is a risk that may be just too great to take on.