Worker Classification: Employee or Independent Contractor
This is one of the most argued subjects that I get with church personnel. Yet the IRS is VERY clear on this subject. Let's take a look at what they have to say.
The IRS looks at 3 areas to determine how to properly classify your workers. We will look at each area briefly in this post.
The IRS states that if a business/organization gives extensive instructions on how the work is to be done, this suggests that you are an employee.
The biggest topic for the church is does the organization tell you how, when or where to do your work? or do they provide you training to do the job hired to do?
For MOST church personnel, that answer is a yes. The church tells it's staff members (incl. ministers):
when to show up for work
what can and cannot be taught to the members
when to show up for meetings/rehearsals
appropriate work attire and conduct
Does the church reimburse you for expenses? Is there an opportunity for you to make a profit or a loss?
Employees are reimbursed for expenses and do not have a significant financial investment in the position they are in. They show up, do the work, and get paid.
Independent contractors pay their own business expenses. they definitely have an opportunity for profit or loss, and they generally set their own pricing for the project.
Relationship of the Parties
If you receive employee benefits such as insurance, retirement contributions, expense reimbursements, then you are and employee.
Do you have a written contract with the organization? And yes, you should have an employee contract or an Engagement Letter if you are an Independent contractor, but the wording in the contract will help clarify the type of working relationship.
If you would like a printed copy of the above information in more detail IRS Publication 1779 is what you want to research.
You cannot take just one of the above and use it for your determination. No single factor from these three groups is conclusive, BUT of the three areas of consideration evaluated by the IRS, behavioral control is given the greatest weight, followed by financial control. I will tell you, according to the IRS, very few ministers qualify as Independent contractors.
In conclusion, I want you to remember these points:
U.S. Tax Code determines who is an Employee or Independent Contractor NOT the individual or organization.
There are rules to qualify as a minister for dual-status treatment from the IRC (Internal Revenue Code).
This dual-status treatment enables the following:
1. The minister is treated as a common-law employee for income reporting, fringe benefits and deducting expenses
2. The minister is treated as self-employed for Social Security and Medicare reporting
To be a truly self-employed clergy member, the minister needs to be in complete control of his performance of services and not meet the 20-factor common law employee test, as set forth in Rev. Rul. 87-41, or the IRS three-factor test created from these 20 factors.
“Generally, you're an employee if the church or organization you perform services for has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action." For more information about the common-law rules, see Publication 15-A. Employer's Supplemental Tax Guide
I hope this information has been helpful to you. Until next time.... Look your best, do your best, be your best!