As a director of a Community Interest Company (CIC), you might have questions about compensating yourself while staying within regulatory guidelines. CICs are unique because, unlike traditional companies, they are built to serve the community rather than generate profit for shareholders. But that doesn’t mean you can’t pay yourself for the hard work you put in—there are options to ensure fair and reasonable compensation while aligning with your company’s mission. Here’s everything you need to know about paying yourself as a CIC director.
What is a Community Interest Company (CIC) and Why It’s Different
Community Interest Companies, or CICs, are businesses created to benefit the community, not just the directors or shareholders. They operate similarly to other companies but are regulated to ensure their activities serve a social purpose. CICs are often chosen by social enterprises, local charities, and organizations with a community mission, as they balance profit-making with a strong commitment to social impact.
Because CICs focus on the community, regulations around director compensation are tighter than those in profit-driven companies. Any pay given to directors must reflect the CIC’s purpose and be justified as reasonable, transparent, and in the best interests of the community. This might seem complicated, but with the right knowledge, you can ensure that your pay aligns with your CIC’s goals.
Are CIC Directors Allowed to Pay Themselves?
Yes, CIC directors are allowed to pay themselves, but it must be done responsibly. Since CICs are designed to provide community benefits, director pay must be reasonable and proportional to the work performed. Paying yourself is acceptable as long as it doesn’t compromise the social mission of the CIC or seem excessive to stakeholders.
What the Regulator Says About CIC Director Pay
The CIC Regulator expects directors to set salaries that reflect the company’s financial health and purpose. Director pay should be carefully documented and justifiable. For example, the pay should be based on the director’s role and responsibilities, not just an arbitrary figure. Keeping clear records and justifying decisions are essential to demonstrate that pay decisions are made in the best interest of the CIC.
Methods of Payment for CIC Directors
Now that we know CIC directors can be paid, let’s look at the various ways to receive compensation. Each method comes with unique considerations and should be chosen based on the CIC’s financial structure and goals.
Salaries
Salaries are the most straightforward way to compensate CIC directors. With a salary, you’ll have a regular income that reflects your role and the time you dedicate to the company. This method is commonly used in CICs as it is transparent and can be justified based on the director’s responsibilities.
Considerations for Setting a Salary
When determining a fair salary, consider the CIC’s budget, your role’s demands, and benchmarks for similar positions in social enterprises. By ensuring your salary aligns with industry standards, you’ll avoid raising concerns among stakeholders or the regulator.
Dividends
Dividends are generally not an option for CICs. Unlike regular companies, where shareholders receive dividends, CICs have restrictions on distributing profits to individuals. Instead, profits are reinvested to further the CIC’s social mission. However, there are still ways to benefit from your CIC’s success through salary increases or bonuses (within reason and compliance).
Expenses and Reimbursements
Directors can also receive reimbursements for out-of-pocket expenses related to the CIC’s operations. This might include travel, accommodation, office supplies, or other costs necessary for your role. Reimbursing expenses is standard practice and does not count as personal profit, so it’s a useful option if your CIC is tight on funds but still needs director involvement.
Documenting Expenses
When claiming expenses, keep detailed records and receipts. This helps demonstrate transparency and ensures that all reimbursements are tied directly to the CIC’s activities. Avoid claiming unnecessary or unrelated expenses, as this can lead to regulatory scrutiny.
Setting Fair and Reasonable Pay: Guidelines for CICs
Compensating yourself fairly is crucial, but what qualifies as “fair and reasonable”? Here are some tips on how to determine a justifiable salary.
Benchmarking Pay Against Similar Roles
A helpful approach is to look at pay benchmarks in similar roles across the nonprofit and social enterprise sectors. Roles in charities, nonprofits, and other CICs can serve as a guide to set a reasonable pay level. If you set pay that’s much higher than similar positions, you risk attracting attention from both the CIC Regulator and the community, potentially harming your CIC’s reputation.
Documenting Pay Decisions
To avoid issues down the road, it’s best to document every decision regarding director pay. Record how you determined the amount, why it’s necessary, and any benchmarks or references used to justify the figure. This documentation not only helps with compliance but also provides transparency for stakeholders who may inquire about director pay.
Frequently Asked Questions About CIC Director Pay
Let’s address some common questions CIC directors often have when it comes to their compensation:
- Can CIC directors receive bonuses?
Bonuses can be given but must be carefully justified and kept within reason. Since CICs focus on community benefit, any bonuses should reflect exceptional contributions that directly advance the company’s mission. - What is a “reasonable” amount to pay myself?
Reasonableness depends on the CIC’s financial state, the director’s workload, and pay levels in similar organizations. Always document how you arrived at the figure to maintain transparency. - Can I get a pay raise if the CIC does well financially?
Yes, but only if the CIC’s financial growth does not compromise its mission. Any increase should be reasonable and documented to show it aligns with the CIC’s goals. - What if I work part-time?
Part-time directors should typically receive pay proportional to their time commitment. If you work fewer hours, consider adjusting your compensation accordingly to keep it fair and justifiable.
Considerations for Tax and National Insurance as a CIC Director
As a CIC director, you are responsible for paying tax and National Insurance contributions on any salary you receive. Directors are treated as employees for tax purposes, so PAYE (Pay As You Earn) and National Insurance will be deducted from your salary, similar to other UK employees. Be sure to maintain clear payroll records, and consult an accountant if you have any questions regarding your tax obligations.
The Importance of Transparency in CIC Director Compensation
Transparency is key to maintaining trust between your CIC and its stakeholders. As a director, your compensation should be openly communicated to avoid misunderstandings and demonstrate accountability to the community.
Communicating Director Pay to Stakeholders
Being transparent with stakeholders doesn’t mean sharing every detail of your salary, but it does mean clearly explaining the reasons behind pay decisions. Consider publishing an annual report with a section on governance and pay policies to maintain an open line of communication. This builds trust and reassures the public that funds are being managed responsibly.
How We Can Help
Navigating director compensation as a CIC requires a balance between fair pay and regulatory compliance. At KG Accountants, we specialize in helping CIC directors establish pay structures that are transparent, compliant, and aligned with their organization’s mission. We offer expert guidance on setting salaries, documenting pay decisions, and ensuring you’re fully compliant with CIC regulations.
Call us today on 0207 078 7477 or complete our enquiry form to book a FREE initial consultation.
Categories: CIC Directors, Community Interest Companies, Director, Director Pay, Director Wage, Employment and related matters, Payroll
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