Holiday time brings out issues within homeowners associations about the giving of HOA year end bonuses to association employees and service providers. When it comes to making decisions about giving a bonus, association directors need to understand the scope of their authority relative to authorizing the expenditure of associations funds for providing bonuses.
State statutes and/or the bylaws for homeowners associations typically vest association boards with the authority to hire employees and to contract with third-party vendors who provide services to the association. Implicit in such authority is the ability to make decisions concerning the compensation that is to be paid to the employees and service providers and such compensation can include discretionary year end bonuses as additional compensation or as a reward for exemplary services. Accordingly, absent specific laws or provisions in an associations governing documents that mandate obtaining approval from members, it is not necessary for association boards to seek membership approval of desired bonuses that the directors resolve to pay to employees and/or service providers.
Court case decisions have also confirmed the authority of an associations board of directors to expend funds for purposes beyond maintaining, repairing and replacing common area components and the power to expend the associations funds for such things as gifts, donations, and political contributions. Aside from the basic authority to hire and contract as set forth above, an associations directors are empowered to take actions that they believe are in the best interests of the association. Such action would include action that authorizes the payment of HOA year end bonuses. Furthermore, so long as the decisions made by the board were made by the directors in good faith and in the best interests of the association, the directors are shielded from liability if their decisions turn out to be incorrect under the business judgment rule.
The payment of year-end bonuses to valued employees and service providers tends to promote good will, loyalty and stability and thus, works to the benefit of a homeowners association. In making a decision to pay bonuses, the associations directors must comply with applicable state and federal tax laws regarding the payment of compensation which require appropriate withholding and the payment of taxes on the year-end bonuses that are paid.