1. School Board Member Compensation Issues Fees, wages, taxes, and other benefits... presented to NCSBA’s President’s Invitational Conference May 9, 2008 Robert M. Kennedy Jr. Tharrington Smith, LLP © 2008 Tharrington Smith, LLP

2. Common Questions 1. Who decides how much school board members are paid? 2. How are school board members taxed on their compensation? 3. What other benefits are school board members entitled to?

3.  Instead, N.C. Gen. Stat. § 115C-38 provides: “The tax-levying authority for a local school administrative unit may, under the procedures of G.S. 153A-92, fix the compensation and expense allowances paid members of the board of education of that local school administrative unit...” Who decides how much school board members are paid?  There is no authority for school board members to set their own compensation tax-levying authority = county commissioners

4. Who decides how much school board members are paid?  County Commissioners’ power to set pay: N.C. Gen. Stat. § 153A-92(a) “Subject to the limitations set forth in subsection (b) of this section, the board of commissioners shall fix or approve the schedule of pay, expense allowances, and other compensation of all county officers and employees, whether elected or appointed...” -most county commissioners don’t know they have this responsibility/power -reality: commissioners simply approve/disapprove budget requests Example: 1998 Eastern NC county

5. Who decides how much school board members are paid?  County commissioners should approve any increase And be careful! -headline: “SCHOOL BOARD'S RAISE GOES MUCH TOO FAR; COMPENSATION OF $500 A MONTH MAY BE LOW, BUT MEMBERS KNEW THAT WHEN THEY RAN. MORE THAN DOUBLING PAY IS UNREASONABLE AND WON'T HELP STUDENTS.” -proposed increase: $500/600 to $1225/1525 per month “practically microscopic” “absurdly low” “board members [still] actually lose money” 2005 large NC school district

6. Who decides how much school board members are paid?  Limitations on commissioners’ power to set board member compensation? N.C. Gen. Stat. § 153A-92(b)(1) The board of commissioners may not reduce the salary, allowances, or other compensation paid to an officer elected by the people for the duties of his elective office if the reduction is to take effect during the term of office for which the incumbent officer has been elected, unless the officer agrees to the reduction or unless the Local Government Commission... orders a reduction.

7. Who decides how much school board members are paid?  Further limits on county commissioners’ power? N.C. Gen. Stat. § 153A-92(b)(2) During the year of a general election, the board of commissioners may reduce the salary, allowances, or other compensation of an officer to be elected at the general election only in accordance with this subdivision. The board of commissioners shall by resolution give notice of intention to make the reduction no later than 14 days before the last day for filing notice of candidacy for the office. The resolution shall set forth the reduced salary, allowances, and other compensation and shall provide that the reduction is to take effect at the time the person elected to the office in the general election takes office. Once adopted, the resolution may not be altered until the person elected to the office in the general election has taken office. The filing fee for the office shall be determined by reference to the reduced salary.

8. How are school board members taxed on their compensation?  Federal income taxes IRC § 3402(a)(1) “[E]very employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary” IRC § 3401(a): “ ‘Wages’ means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer...” IRC § 3401(c) “ ‘Employee’ includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing.” must be withheld

9. How are school board members taxed on their compensation?  Answer: Federal income taxes must be withheld even if compensation are called “fees” -IRS recently clarified that you must receive money directly from public, not a public employer, to receive the “fee” exemption (e.g. notary public)  Question: but what if board member compensation are called “fees”? -there is an exception to withholding requirements for “fees paid to a public official”

10. How are school board members taxed on their compensation?  State income taxes N.C. Gen. Stat. § 105-163.2: “An employer shall deduct and withhold from the wages of each employee the State income taxes payable by the employee on the wages.” -definitions of employer, employee, and wages nearly mirror federal definitions N.C. Gen. § 105-163.1(13): “The term [‘wages’] has the same meaning as in section 3401 of the Code” must be withheld

11. How are school board members taxed on their compensation?  Federal FICA taxes IRC § 3102(a): “The tax imposed by section 3101 shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid” IRS FAQ for government entities regarding Schools and Teachers: “[school board members’] compensation is wages subject to FICA tax,” regardless of whether the compensation is called “fees” must be withheld FICA = Medicare, social security

12. What other benefits are school board members entitled to?  Health Insurance?  State Retirement Benefits?  Other Fringe Benefits?

13. What other benefits are school board members entitled to?  Health Insurance? -school board members are NOT eligible for benefits under the State Health Plan -board members could be provided independent coverage, so long as approved by county commissioners per N.C. Gen. Stat. § 153A-92.

14. What other benefits are school board members entitled to?  Retirement Benefits? -school board members are NOT eligible for benefits under the Teachers’ and State Employees’ Retirement System (TSERS) -board members could be provided independent coverage, so long as approved by county commissioners per N.C. Gen. Stat. § 153A-92.

15. What other benefits are school board members entitled to?  Other Fringe Benefits? -yes, so long as approved by county commissioners per N.C. Gen. Stat. § 153A- 92. N.C. Gen. Stat. § 153A-92 (d) “A county may purchase life insurance or health insurance or both for the benefit of all or any class of county officers and employees as a part of their compensation. A county may provide other fringe benefits for county officers and employees.”

16. What other benefits are school board members entitled to?  Other Fringe Benefits? N.C. Gen. Stat. § 115C-38 “Funds for the per diem, subsistence, and mileage for all meetings of county and city boards of education shall be provided from the current expense fund budget of the particular county or city...”

17. Summary 1. County commissioners have statutory authority to set school board compensation. 2. Federal and state taxes must be withheld from school board compensation. 3. School board members are not eligible for State Health Plan or TSERS benefits.

18. .  bkennedy@tharringtonsmith.com bkennedy@tharringtonsmith.com  919.821.4711