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Employee Or Independent Contractor?

Sidebars to the article Managing The Church’s Financial Resources: Ten Important Financial Controls For Every Church Recommended Resources Sample Bookkeeper Job Description Employee Or Independent Contractor? Church Budgeting Chart of Accounts Why Documentation In A Church Is Important

The IRS requires a church to withhold income taxes and withhold and pay Social Security and Medicare taxes for nonministerial employees. The church does not generally need to withhold or pay any taxes on payments to independent contractors. To determine whether an individual is an employee or an independent contractor, the relationship of the worker and the church must be examined.

A key element is the degree of control and the degree of independence. According to the IRS, facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties.

Behavioral Control

1. Instructions the church gives the workers: These facts show whether the church has a right to direct and control how the worker does the task for which the worker was hired. The degree of…

   a. When and where to do the work.

   b. What tools or equipment to use.

   c. What workers to hire or assist with the work.

   d. Where to purchase supplies and services.

   e. What work must a specific individual perform.

   f. What order or sequence to follow.

2. Training the church gives the worker:The employee may be trained to perform services at the church in a particular manner. Independent contractors ordinarily use their own methods.

Financial Control

Here the IRS is searching for facts that show whether the church has the right to control the business aspects of the worker’s job, including the following:

1. The extent to which the worker has unreimbursed business expenses:Independent contractors are more likely to have unreimbursed expenses than are employees.
2. The extent of the worker’s investment:An independent contractor often has a significant investment in the tools he or she uses in performing services for the church.
3. The extent to which the worker makes services available to the relevant market:Independent contractors are free to seek other business opportunities and advertise.
4. How the business pays the worker:An employee is generally paid hourly or weekly. An independent contractor is usually paid a flat fee for the job.
5. The extent to which the worker can realize a profit or loss: An independent contractor can make a profit or loss.

Type of Relationship

Here the IRS looks at facts that show the type of relationship, including the following:

1. Written contracts describing the relationship the parties intended to create.
2. Whether the church provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay.
3. The permanency of the relationship.
4. The extent to which services performed by the worker is a key aspect of the ministries of the church.

It is important to properly categorize all workers for the church. Evaluate your paid workers in the church by IRS criteria.

—John P. Joseph, St. Petersburg, Florida