Employees vs Contractors

Properly determining whether a worker should be classified as an employee or a contractor involves evaluating the nature of the relationship between the church and the worker. The federal requirements and state requirements may differ – and your church would be required to comply with whichever set of rules is more in the favor of the worker.

Below are some key factors to consider based on federal requirements effective on March 11, 2024:

1. Opportunity for profit or loss depending on managerial skills. Does the employee conduct advertising and marketing to expand their business? Do they have the opportunity to negotiate the charge or pay for the work provided?  Do they purchase materials/equipment or rent space? If the person has no opportunity create a profit, they are likely an employee.
2. Investment by the worker and the employer. Who pays for expenses? Who purchases equipment or materials?
3. Degree of permanent of the work relationship. How long will the engagement last? An indefinite agreement is indicative of an employee status, while project-based or sporadic work is more indicative of an employee status.
4. Degree of control. Who controls the work activities? Who supervises the work? If the church has the right to direct the worker’s activities, then the worker is likely an employee. You may also consider who carries the liability for any issues that arise if something goes wrong.
5. Extent to which work performed is a significant part of the employer’s business. Is the scope of the work being done critical for the organization to operate the way it is designed to? What is the principal business and how does the function fit in? When the function is a critical part of the business, a worker is more likely an employee.
6. Skill and initiative. Do the individuals use specialized skills to perform their work? Are they dependent on training from the church? If someone has the skills and also takes business-like initiative, they are likely an independent contractor.

We’ve found that churches commonly misclassify roles such as childcare workers, musicians and janitors. To ease the administrative burden, churches often pay these individuals by simply writing a check and maybe providing a 1099 at the end of the year. However, in most cases, these workers do not operate for a profit, purchase their own materials (kids snacks, cleaning supplies, etc.), work with a determined end date, lack control over when or how their work is done. Thus, they would be classified as employees.

Why is this important?

The classification laws exist to protect individuals from unfair or oppressive treatment. Classifying a worker as an employee affords the worker the protection of minimum wage laws, overtime laws, and is better financially for the worker because the church contributes half of their FICA (Social Security/Medicare) taxes. Contractors lack these benefits.

Example: A Church Childcare Worker A church hires a childcare worker to care for children during Sunday services and other church events. The church sets the schedule for the worker, provides the toys and equipment needed to care for the children, and directs the worker’s activities. The worker is paid an hourly wage and is eligible for health insurance and other benefits. In this case, the childcare worker is likely an employee, as the church has more control over their work and provides the tools and equipment needed to perform the job.

For more information, please email jake@churchfinancepros.com.