As flying clubs grow their membership and fleet, the idea of employing people to help with day-to-day activities and tasks becomes attractive. We’ll assume here that a flying club is organized as a non-profit corporation (the preferred structure) and that they may enjoy tax exemption from the IRS as a 510(c)(7) organization. Note that we are talking about employing people, rather than hiring someone to do a particular job. For example, clubs regularly hire mechanics to work on airplanes, and perhaps you pay a cleaner to keep the clubhouse tidy. The point is that these people are either self-employed or are employed by someone else, but they are not directly employed by the club.
There is nothing that inherently prevents a non-profit corporation, whether tax-exempt or not, from employing people. Country clubs, golf clubs, quilting clubs, charities, membership-based organizations do it all the time. For the case of a flying club, apart from two very specific job functions, there are no rules or regulations that prohibit a club from hiring someone, either as an employee or as a contractor.
The two job functions that are specifically called out in FAA Order 5190.6B, and then expanded upon and clarified in the amendment, are CFI and A&P. We talked about the CFI case in the January 2018 edition of Club Connector (Question of the Month: As a flying club member, can I use club aircraft to receive flight instruction and pay an instructor?), and the situation for employing an A&P is very similar.
The point of FAA Order 5190.6B specifically calling out instructors and A&Ps is to ensure fair play and non-competition with commercial operators on the same airfield. The FAA rightly wants to direct airport managers and airport tenants, including flying clubs, to play well together and not to unfairly compete with each other. For this reason, the amendment clarifies that a flying club (and its members) may compensate a CFI and A&P for services rendered but with certain conditions that are detailed in the above-mentioned Club Connector article.
Now, it is unlikely that an accountant or front desk dispatcher, would be considered as introducing unfair competition to a commercial operator, and anyway, only the two positions mentioned above are explicitly mentioned in the compliance manual. On this basis, it appears that a flying club could indeed employ people to perform a variety of tasks and roles.
Now let’s get a bit more specific. What if you are thinking about employing a club member?
The actual wording in FAA Order 5190.6B section 10.6(B) that relates to this is: “…no part of the net earnings of the club will inure to the benefit of any individual in any form, including salaries, bonuses, etc.” Now, it explicitly says net earnings, which relates to earnings after expenses, tax, etc., and salaries are most definitely expenses applied to gross earnings. So, no one, in any capacity, may receive any sort of “distribution” of net earnings. Fair enough, but salaries are, of course, an expense and so come from gross income.
There is a fair degree of interpretation here and we cannot find any official clarification one way or the other, so we believe that a safe position is to state that a club member should not be employed and paid by their own club, as this would “inure to the benefit” of that member over all the other members.
A bigger issue to consider is that a club engaging any individual would now be an employer and would likely have to provide forms such as W-2, 1099, etc., for their employees, and may also have to withhold taxes, file returns, provide benefits, etc. In other words, be careful what you wish for!
So, in summary: