Church Staff – Employee or Contractor?
I am frequently asked to help ministries determine whether some of their church staff are considered employees or self-employed contractors for tax reporting purposes. Some ministries try to improperly classify staff positions such as musicians as self-employed contractors for tax savings reasons since there are no matching FICA withholdings with self-employed contractors as there are with employees. The determination of a self-employed contractor or employee is vital to a ministry as improperly classifying staff can led to significant tax and legal implications if improperly reported.
The Internal Revenue Service provides three characteristics as to the relationship between the organization and staff worker:
- Behavioral Control
- Financial Control
- Type of Relationship
In order to test these controls characteristics; you must determine if the staff person such as a musician; has the right to control or direct his/her work and how that work is done, in addition to controlling the result of the work – means and methods of accomplishing the work. Someone who meets these conditions might be considered an employee rather than self-employed contractor.
Some other considerations necessary in determining the status of ministry staff such as musicians are;
- Does the musician supply his/her own instruments, supplies or equipment and/or tools to perform the job?
- Can the musician be fired at any time and he/she is able to choose when to come to work without fear of losing his/her job?
- Does the musician control the hours that he/she works?
- Is the employment position temporary or permanent?
Depending on how these questions are answered would determine if a musician is actually an employee rather than a self-employed contractor. For instance; if a ministry provides the musical instruments, requires that the musician be at church on Sunday for a specified timeframe (8 AM – 12 AM) and there is an expectation that the musician is on the worship team and will be present each Sunday until asked to no longer serve – then this musician is most likely an employee. As you can see by the scenario listed above that musicians do not always fit the classification of a self-employed contractor and should be classified as an employee. It is essential that your ministry contact a tax professional in order to determine the correct employment classification of your ministry staff.
Dept. of the Treasury – Internal Revenue Service (Rev Sept 4, 2103). Employee vs. Independent Contractor – Seven Tips for Business Owners. Retrieved from http://www.irs.gov/uac/Employee-vs.-Independent-Contractor-%E2%80%93-Seven-Tips-for-Business-Owners
Dept. of the Treasury – Internal Revenue Service (Rev Jan 8, 2014). Topic 762 – Independent Contractor vs. Employee. Retrieved from http://www.irs.gov/taxtopics/tc762.html
Dept. of the Treasury – Internal Revenue Service (Rev March 2012). Publication 1779 – Independent Contractor or Employee. Retrieved from http://www.irs.gov/pub/irs-pdf/p1779.pdf
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