Enhanced Statutory Payments in the Third Sector

A question many of our charity sector clients face is the challenge of enhanced legal or statutory payments made with charitable or restricted funds. 

Obviously, the temptation to offer enhanced voluntary redundancy or sickness payments for senior, or long-standing, members of staff is immense. But is it appropriate when you are funded by a local authority, government, or by public donations? Particularly, if you’re not contractually obligated for these payments.

What does law say?

Operational guidance from the Charity Commission exists for payments to Trustees. (charities funds can be used to buy small leaving or retiring gift for Trustees if (a) the value is minimum and (b) the Trustees agree it’s in the charity’s best interests).  But, there is only limited guidance for dealing with charity employees. Should payments to employees have the same stringency? Must these also be in the organisation’s best interest? Does it make sense that Board permission is sought for the purchase of a Trustee carriage clock but a CEO can offer “without prejudice” offers of double or triple the legal duty to a cost of tens of thousands?

By and large, the Commission’s approach is to leave day to day decisions to Trustees and their interpretation of ‘Charitable Objectives’.  But in this case, how can a termination payment—which by its very nature is someone leaving the Charity—be in the best interest of the charity or reasonable to be ‘overpaid’?

How much is too much?

Does value, reason for termination or success of the employment make a difference to “charitable objectives”?

Consider

1. A 15-year employee who worked diligently and effectively for the organisation is being made redundant due to organisational restructuring.
2. A 2-year employee on a fixed term contract who was placed on suspension as no disciplinary allegations could be proven so becomes a problem for the organisation.

Is an enhanced payment to either appropriate?

Third sector CEOs frequently use phrases such as ‘in line with charitable objectives’ or ‘fair treatment and reward for good service’ to justify enhanced payments to valued employees but this doesn’t necessary make them right.

Guidance from the Charity Commission on CEO’s being able to do whatever they want is justified by aligning charitable objectives of any employee leaving by an employee furthered the charities aims during their employment, therefore their termination, by definition, supports the ‘charitable objectives’.

So, according to law there is no legal issue with any overpayments aren’t allowed and according to the Charity Commission, there is no problem either.  Morally though we are still left with our dilemma – how can charitable or public funds be given away to those who have caused problems for the organisation.  Just because money can be given away doesn’t mean it should.

So, where do we go from here?

Tighter funding, smaller budgets, increased need for services, and competitive salaries all mean that charitable organisations don’t have any choice in this day and age than to rethink their spending policies. Private sector behaviour can no longer be a yardstick by which these payments are measured.

Commercially-aware CEOs at well-functioning charitable organisations keep a tight rein on their definition of “Charitable Objectives” and have implemented successful payment policies in line with that thinking. Such policies deal with money and payments along with other tools such as garden leave or payment in lieu and how to achieve smoother handovers.

This thinking behind these commercial ideas is more necessary than ever for every third sector CEO.  Not necessarily because of the law, not even (necessarily) to protect its Trustees.  It’s this sort of business thinking which is now entirely necessary for all third sector organisations to survive.

How can charities compete with the private sector?

Competing with the private sector to attract and retain top talent remains as thorny an issue as ever. Particularly considering younger workers who feel less attached to an organisation and believe that leap-frogging from one job to the next will enhance their careers.

DLP have developed payment policies for third sector charities.  Such policies save organisations financially but also attract and retain high-performing talent whilst enabling those who aren’t ‘on the bus’ to be removed.

Should you have any questions feel free to reach out to our help line. DLP advisors are available to answer any questions you may have at 0330 400 4495.