Introduction
Running a social enterprise is about finding a balance between driving a mission and ensuring the organization stays financially sustainable. One question that often comes up from founders and directors is: Can I invoice the company instead of setting up payroll?
The answer is partly “yes”, but not instead! Read on to find out what I mean. As a director of a Community Interest Company (CIC), it’s crucial to understand the legal and ethical ways to get paid while staying compliant and maintaining transparency.
Can Social Enterprise Directors Get Paid?
Absolutely. Directors in social enterprises can get paid in two main ways:
- Director’s Fees (or Salary): These are payments for your directorial duties, such as attending board meetings, making strategic decisions, and ensuring good governance. In the UK, under the Companies Act 2006, payments for these duties must go through the PAYE (Pay As You Earn) system, meaning taxes and National Insurance contributions are deducted like any employee salary. These fees may be one-off or periodic but are still taxed as income.
- Invoicing for Additional Services: If you offer additional services, like consultancy (e.g. providing IT or Marketing services) or project management outside of your directorial role, you can invoice the company for these services. However, this must be separate from your director duties, and the invoicing must follow specific rules.
Salary vs. Invoicing: What’s the Difference?
Director’s Fees: These are payments for your role as a director. They are processed through PAYE and taxed as income.
Salary: If you have another operational role within the organization (e.g., CEO), you may receive a salary alongside director’s fees, also processed through PAYE.
Invoicing for Additional Services: How to Do It Right
If you’re providing services outside your director role, such as consultancy or IT support, you can invoice your CIC. But, to stay compliant, follow these steps:
- Separate Your Roles: Make sure the services you’re providing are distinct from your directorial duties.
- Get Board Approval: Your invoice needs to be approved by the rest of the board, and you cannot be part of that decision to avoid conflicts of interest.
- Charge Fairly: Charge the organization at fair market value for your services, just as you would any external client.
Avoiding Conflicts of Interest
To manage conflicts of interest:
- Step back from decisions related to your invoicing.
- Disclose all services and payments in your company’s annual financial statements.
- Keep clear records of services provided and approvals from the board.
Conclusion
Paying directors in a social enterprise is legal! So is invoicing your social enterprise, but only if it is for additional services provided. Directors’ fees and compensation for performing directorial payments must be paid through payroll.
By following the legal guidelines, seeking board approvals, and being fully transparent about your payments, you can ensure that your organization stays compliant and that you’re fairly compensated for your hard work.
For more on this topic, listen to episode 34 of The Nonprofit Bookkeeper!
Contact us for all nonprofit financial management matters.
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