FORTUNE Small Business:

Proceed with caution when hiring relatives

Check the rules before hiring relatives - and be sure your board follows procedures in approving the deal.

Subscribe to Top Stories
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

check_sign.03.jpg
Ask FSB
Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.
Your name:
* Your e-mail address:
* Your city:
* Your state:
* Your daytime phone #:
* Your questions:

(FORTUNE Small Business) -- Dear FSB: Can a church member who is related to several members of the board work for the church and be paid for their services?

- James Munoz, El Mirage, Ariz.

Dear James: The short answer is yes. But according to attorney Harvey Mechanic, who specializes in nonprofit law and works with nonprofits across the country, there are some limitations.

Usually, the board members who are related to the potential hire must recuse themselves from voting during the church board's consideration of the decision, according to Mechanic. The goal is to avoid a conflict of interest.

Mechanic said that under the general provisions of Arizona's Nonprofit Corporation Act, the board must disclose to the directors voting on the transaction the existence and nature of the conflict. According to Arizona code, the deal then requires the affirmative vote of a majority of the "qualified" directors (those who have not recused themselves), comprising at least two directors.

Mechanic says the question of compensation brings up other issues.

"The IRS would require that the employee be given compensation that is not more than what is reasonable," he said.

In other words, the church board is required by law to act for the benefit of the church - not for the benefit of the employee. To establish what qualifies as "reasonable" pay, research what the postion would typically pay at comparable organizations in your area.  To top of page

Photo Galleries
Awesome car options for first-time buyers There are lots of good options for millennials shopping for their first car. These models might not be the most popular, but they're worth considering. More
6 surprising things for sale on Taobao Consumers can buy just about anything and get it shipped to their door from Alibaba's Taobao, China's most popular online shopping platform. More
Most notorious recalls ever It's not just automakers that issue massive recalls. From lawn darts to Pokemon balls, plenty of other consumer products have been deemed dangerous, or worse, deadly. More
Sponsors