Sisters-in-law: Legal advice on charity staff who pay themselves high salaries through donations


The NSW volunteer started helping the charity with its accounts – and that’s when she saw her boss’ extortionate salary.

Welcome to Sisters In Law, news.com.au’s weekly column solving all your legal problems. This week, our Resident Lawyers and Real Sisters Alison and Jillian Barrett of Maurice Blackburn advise on who should pay when a shared fence needs replacing.

Question:

I have been volunteering for 10 years with a local charity that raises money to send vulnerable children on day trips. I started out helping out on release days and more recently started doing administration and some bookkeeping. This means that I have had access to finances and can see what donations are coming in and how they are being used.

I was shocked to see that the head of the association pays himself such a high salary that he takes over 70% of the association’s revenue. I knew that their work was not voluntary but this figure shocked me.

Is what they are doing illegal? I know so many people who donate to the charity because they want to help vulnerable children, but in reality they are just filling that person’s pockets! – Anon, New South Wales

To respond:

First of all, thank you for giving your time. Many charities can only function with the support of generous volunteers like you.

However, you might be surprised to learn that more than half of all charities have paid staff.

For charities to employ quality staff, they must be able to compensate people fairly for their skills, knowledge and experience.

You did not mention what the charity is and if it is registered with the Australian Charities and Not-for-profits Commission (ACNC).

If the charity is registered with ACNC, it must operate on a not-for-profit basis.

This means that it must not operate for the personal gain, profit or other advantage of persons such as members of the charity, employees, ‘responsible persons’ or their friends or relatives.

“Responsible persons” are those who are responsible for the governance of the charity, usually board or committee members, or trustees.

Their duties are to act honestly and fairly in the best interests of the charity and to ensure that financial affairs are handled responsibly.

As such, the people in charge must ensure that the charity’s manager is paid appropriately, and they will likely have set the salary.

In determining whether the charity manager’s salary is reasonable, there will be a number of things to consider.

It is important to determine whether the charity would be able to continue operating without paying the salary of the head of the charity.

Perhaps the head of the charity is the person who brings in all the donations and without them the charity would not be funded.

You also didn’t mention the total amount of annual donations the charity receives.

If annual giving is small (eg, $50,000) and the charity leader is paid 70% of that amount, it may be considered reasonable if it is a part-time position full for them working 35 hours or more per week.

If you remain concerned about the high salary paid to the head of the charity, you should:

– Talk to responsible people

– Conduct a self-assessment using the ACNC Self-Assessment Tool to assess whether the charity is meeting its obligations or to identify any issues that may prevent it from doing so, or

– Contact ACNC. If it is proven that administration costs or salaries are unreasonably high, it can examine the charity’s operations to determine that it is being managed in accordance with its governance standards.

If there is any suspicion of fraud, either with the head of the charity or the persons responsible, you should contact the police.

This legal information is general in nature and should not be considered or relied upon as specific legal advice. Persons requiring specific legal advice should consult a lawyer.

If you have a legal question you would like Alison and Jillian answered, please email [email protected]

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