Things to Consider Regarding the Use of HOA Funds for the Payment of Holiday Bonuses

In December of each year homeowners associations typically address the issue of giving holiday bonuses to employees and vendors. Discussion amongst board members and homeowners over the issue of bonuses involves many considerations such as: (i) is it proper to utilize HOA funds for the payment bonuses; (ii) who should receive a bonus; (iii) how much is it appropriate to give; and (iv) does the association have to report the bonus to taxing authorities?

The authority for HOA directors to give holiday bonuses is typically found in state statutes and/or the association’s bylaws. Most states have statutes that grant association boards those powers that are granted to nonprofit corporations, which include the power to hire employees and enter into contracts with vendors, unless the association’s governing documents provide otherwise. A standard provision that is found in most bylaws for homeowners associations is the authority to hire employees and to contract with vendors who provide services needed by the association. Having the authority to hire employees and to contract with vendors includes the authority to make decisions regarding payment or compensation to be paid to the employees and vendors. Such compensation can include decisions concerning holiday or year-end bonuses. Because directors have the authority to make such decisions concerning compensation, absent specific provisions that mandate homeowner approval, HOA boards do not need to seek approval from the members for the giving of bonuses to employees and/or vendors.

The decisions concerning bonuses should be made by HOA directors the same way all other business decisions are made. Thus, the topic of year-end or holiday bonuses for employees and vendors should be included as an agenda item for a regular or special meeting of the association’s directors. The subject can also be addressed in a meeting that is not open to all association members in states where directors meet in executive session meetings to discuss personnel and contract issues. In order to provide a source for the funds that are to be used for bonuses, the association’s annual budget should include an appropriate line item amount for bonuses or a specific amount that is allocated for bonuses in the amount that is budgeted for compensation and/or payments to service providers.