NGOs and salaries - how does it work?

Updated: Mar 7, 2020

This is a tricky thing! Because there are donor funds involved, additional care and transparency is needed. Unfortunately there have been cases where donor funds go into the pockets of the person running the NGO, rather than its beneficiaries. But these cases are the exception, not the norm.

A helpful place to start is what each piece of legislation (law or set of rules) applicable to the various types of NGO says about payment.

Voluntary Association


A voluntary association is the most informal form of NGO. Unlike a trust or a non-profit company, there is no legislation, or external set of rules governing this type of NGO. If a voluntary association is registered as a Non Profit Organisation with the Department of Social Development then it will come under the general rules for Non Profit Organisations, called the Nonprofit Organisations Act, 1997.


Ideally a voluntary association would have an internal set of rules, called a constitution. The constitution of a voluntary association may contain a clause stating that its income may not be paid directly or indirectly to any person, member of the voluntary association or its office bearers except as reasonable compensation for services actually rendered to the voluntary association.


Trust


The external rules of how a charitable trust should be run are set out in the Trust Property Control Act, 1988 (I will call it TPCA for short). The TPCA says that a trustee is entitled to payment for doing his duties in relation to the trust, and the terms of payment may be set out in the trust deed. The trust deed is a document that contains the internal rules of a trust (like a constitution, or a memorandum of incorporation, in the case of a non-profit company).


However, in practice, if you are asked to be a trustee for a charitable trust, and you are expecting payment for this, rather discuss the matter in advance. It is not a rule that trustees must be paid - and many trustees of charitable trusts do it for passion, not money. The TPCA helps us understand that trustees may be paid for doing their duties if that is what the founder of the trust intended, but it does not necessarily force payment where this intention does not exist.


Non-profit Company (NPC)


The most formal NGO structure is a Non-Profit Company, which is set up under the rules of the Companies Act, 2008.


The Companies Act states that a non-profit company's income or assets may not be paid or transferred, directly or indirectly, to: (1) any person who incorporated (started) the company; or (2) any person who is a director of the company; except as reasonable remuneration for goods/services provided to the company.


Meaning of "reasonable remuneration/ compensation"


Remuneration and compensation basically mean "money that is paid for work or a service". From this, it can be concluded that work must be done by trustees/ directors/ member of an NGO if they are receiving payment. It is against the law to be a trustee/director/member of an NGO and to be payed if you are not working for that NGO.


Then on what is "reasonable". If a trustee/ director/ member of an NGO is doing work for that NGO, then the compensation paid must also be "reasonable". This means "fair, sensible and of sound judgment". Basically, the money paid must be in line with the market value of the services performed, and must also bear the context of the NGO in mind. You cannot pay huge salaries when the work being done is not worth that.

Legislation (external rules) mentioned above
  • Nonprofit Organisations Act, 1997 - click here and look in the category "Pensions and Social Welfare"

  • Trust Property Control Act, 1988 - click here and look in the category "Estates and Trusts"

  • Companies Act, 2008 - click here and look in the category "Companies and Close Corporations"

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