Board members often spend a lot of time and effort on behalf of their association, so it's natural to assume that they should receive something in exchange. Offering pay or a discount on assessments may also seem like a good way to encourage owners to serve on the Board. However, compensating Board members could in fact be prohibited by your Declaration and By-Laws and opens up a host of other factors to consider.
Owners should first consult their governing documents to determine if they allow for the compensation of Board members. Most Declarations specifically state that Board members are to serve without compensation so it's more likely than not that your Board members are required to serve on a volunteer basis.
If your governing documents allow for the compensation of Board members, your association may be required to obtain Workers Compensation insurance in addition to other required insurance policies. If a compensated Board member is injured while carrying out their Board functions, the claim may not be covered by the association's general liability policy. This leaves the association open to liability in the case of an injury.
Further, any compensation paid to a Board member in excess of $599 annually must be reported to the IRS as taxable income. A 1099 should be provided to the Board member and filed with the IRS. For smaller buildings, this means additional accounting expenses to properly report the compensation.
It's important to note that offering compensation for Board members could prompt owners to serve for the wrong reasons or to regularly grant themselves "raises" that are not in the best interests of the association. Overall, maintaining a volunteer basis for your Board members is the safest way to go.