Church accounting basics: EMPLOYEE — to be or not to bebudgeting, Business Activity, Employment Law, FEATURE STORIES, FINANCE, Financial Services, Human Resources, Latest News, LEADERSHIP, LEGAL, Millennials Wednesday, September 16th, 2015
Why does it have to be so complicated?
By Tammy Bunting
If your church is anything like mine, you are constantly trying to navigate the requirements of our nation’s employment laws. When researching the topic of “employee versus independent contractor,” what I find is consistently inconsistent. It’s easy to get lost in the lack of interpretation.
As church leaders, we run into several areas where the lines are blurred. We have clergy, employees, contractors and interns, not to mention volunteers. In all cases, for federal employment tax purposes — oh and by the way, we are not exempt from the labor laws just because we’re churches — there are rules that apply, and we must adhere to them.
Independent contractors or employees?
By law, workers are either independent contractors or employees, with no in-between. In determining the difference between the employee and the independent contractor, you must examine the relationship between the worker and the organization. A worker is an employee if: (1) you have the right to direct and control what work is accomplished and how the work is done, and / or (2) you control the financial and business aspects of the worker’s job.
Are interns independent contractors?
There remains a bit of confusion about how interns are classified, when they can and should be compensated for any of their involvement, and what the tax implications are.
Leadership development remains an important issue. The involvement of young people in the church, and the church’s involvement in the professional and spiritual growth of the next generation, is key. Therefore, we need to be sure we are following the IRS guidelines for independent contractors.
The IRS defines independent contractors as individuals who have their own legal entities, do not require supervision or direction in completing a project, and who provide their own tools to do their work. In most churches, internships do not meet these requirements.
So, let’s get down to it: If an intern receives anything of value from the church (or expects to receive anything of value), then he or she is an employee. This includes housing, food allowances and so on. Cash compensation is not required for the intern to have employee status in the eyes of the IRS.
If the intern is serving for a course credit at his or her educational institution and has received nothing of value, then he or she is not considered an employee.
Here are some tips for organizations interested in establishing internships:
- The work should be an integral part of the student’s course of study.
- The student may receive credit for the work or the work is required for graduation. (This is optional and determined between the business, student and institution.)
- The student might be required to prepare a report of his or her experience and submit it to a faculty supervisor.
- The employer should receive a letter or some other form of written documentation from the school stating that it sponsors or endorses the internship, and that the internship is educationally relevant.
- Learning objectives should be clearly identified.
- The student should not perform work that other employees perform, unless applicable to the internship.
- The student should be in shadowing / learning mode.
- The employer should provide an opportunity for the student to learn a skill, process or business function, or learn to how to operate equipment.
- There should be an educational value to the work performed; it should relate to the courses the student is taking in school.
- A staff member should supervise the student.
- The student should not provide benefit to the employer more than 50 percent of the time worked.
- The employer should not promise a job to the student upon completion of the training or upon completion of schooling.
The bottom line: do not let the rules and regulations around Interns deter you from investing in the future leaders of our church.
Just remember that when establishing a working relationship with anyone at the church, keep it simple and don’t get buried in the legislation. Look at the behavior and the control in the relationship. If you manage where and how the work is done, with what tools, and set the compensation for the job, you have an employee.
Tammy Bunting is the Director of Not-for-Profit Services at AcctTwo, which provides cloud-based financial management software and outsourced accounting for churches. AcctTwo’s solutions help churches automate processes, increase accuracy, and provide a complete financial picture.