“For the kingdom of heaven is like a landowner who went out early in the morning to hire laborers for his vineyard.”
Matthew 20:1 (NRSV)
Knowing whether someone who works for the local church is an employee of the church or an independent contractor is very important. In fact, substantial tax consequences may occur if a church worker is not classified correctly. To determine if a worker is an employee or an independent contractor, local churches and their staff-parish relations committees should consider the relationship between the worker and the church as measured by control and independence.
In Employer’s Supplemental Tax Guide (Publication 15-A), the Internal Revenue Service (IRS) lists three categories that provide evidence of control and independence: behavioral control, financial control, and the type of relationship. The greater the control exercised by the local church, the more likely it is that an employer-employee relationship exists. All information that provides clarity about control and independence must be considered.
Behavioral control is based on the degree of the church’s right to determine how a worker does the job they have been hired to do. Factors to consider include:
Financial control focuses on whether the church has the right to control certain business implications of the worker’s job.
Indicators that facilitate determining the business relationship between the worker and the local church include:
Generally, most workers hired to do regular and routine tasks at the local church are employees. In addition, appointed pastors are considered employees of the local church for Federal income tax purposes and self-employed for purposes of Social Security and Medicare. However, local churches may have situations that are unclear. In general, local churches must decide, based on all of the facts known, if there is compelling evidence that a worker is not an employee.
Local churches are required to withhold income taxes and pay Social Security and Medicare taxes on lay employees, and should never assume an independent contractor status exists in order to avoid tax compliance. Improperly accounting for a worker as an independent contractor may result in payment of back taxes, interest, and penalties. Local churches may request the IRS to determine if a worker is an employee by filing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.