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
5 ways retailers are tracking you If you think pesky salespeople are invading your personal space, check out these 5 technologies that are tracking your movements throughout a store. More
Moto X vs. Droid Turbo: Which Droid should you buy? Motorola has made the two best Android smartphones this year. Here's how they stack up. More
My part-time job is a dead end, but it's all I can find CNNMoney profiles 4 of America's 7 million part-time workers unable to find full-time jobs. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.