Should You Refer to a Church Worker as a Contractor or an Employee?
Sep 28, 2025Why It's Necessary for Churches to Put Their People in the Right Categories
There are a lot of different kinds of people who work for churches, such as pastors, office staff, musicians, volunteers, and contractors. The church's mission depends on these folks a lot. It's crucial to figure out if these workers are employees or independent contractors, but this is something that people often forget about.
If you don't categorize someone appropriately, you might get in a lot of trouble with the law and your money. You could get fines from the IRS and the Department of Labor, have to pay back taxes, have to deal with wage disputes, and hurt your reputation. All churches, from Tier 1 startups to big ministries with Tier 4 complexity, need to know how to classify workers so that they may stay in compliance and keep their operations operating efficiently.
This full book talks about the legal tests, practical problems, risks, and best ways for churches to classify their staff.
Why Churches Need to Classify Their Workers
- Legal Compliance: Proper classification makes sure that the requirements for taxes, unemployment insurance, and workers' rights are followed.
- Financial Consequences: If you misclassify someone, you could have to pay back taxes, fines, and costly audits.
- Risk Management: Correctly classifying people minimizes the chances of pay claims, discrimination lawsuits, and benefits disputes.
- Operational Clarity: How you classify things affects payroll, benefits, and how you handle contracts.
Legal Tests That Are Important for Figuring Out How to Classify Workers
- The IRS's Common Law Test
The IRS looks at three main groups:
- Behavioral Control: Can the church tell the worker how and when to accomplish their job?
- Financial Control: Can the church control things like tools, spending, and businesses getting paid back?
- What kind of link do you have? Is there a written agreement? Are there any benefits?
- The Economic Realities Test from the Department of Labor
It checks to discover if the worker is financially dependent on the church or runs their own business.
The type and amount of control, the possibility to make or lose money, the cost of equipment, and the length of the connection are all important.
- Tests That Are Only for One State
California's ABC test is an example of a state that has extra laws or stricter rules.
Churches have to observe the laws of both the federal government and the state.
Common Problems and Jobs When Classifying Workers in Churches
- Pastors and Ministers:
For tax purposes, they are typically thought of as employees, although they may also have to deal with concerns like housing allowances and ordination. They have to obey IRS rules for how ministers pay taxes.
- Music and Worship Leaders:
They can be employees or contractors, depending on how much control they have over schedules, rehearsal demands, and payment mechanisms.
- People Who Work in the Office and Run Things:
People usually work for a church because they have a lot of power and are involved in religious activities.
- People That Lend a Hand:
Churches don't normally think of volunteers as workers or contractors, but they need to make sure they aren't mistakenly classified to avoid legal issues.
- Cleaning, IT, and Speakers:
These are examples of services that are hired out. They are usually contractors, but they need clear contracts and the freedom to accomplish their work.
What Happens If You Put Someone in the Wrong Category?
- Back Taxes and Penalties: The IRS will audit you and fine you if you don't pay payroll taxes.
- Unemployment and Workers' Compensation Claims: If you misclassify workers, they might be able to launch claims against you.
- Wage and Hour Violations: Workers have the right to at least the minimum wage and extra pay for overtime.
- Eligibility for Benefits: If you misclassify someone, they can have trouble with their health benefits, retirement plans, or time off.
- Lawsuits for Misclassification: These can undermine the ministry's reputation and confidence.
The Best Things Churches Can Do to Make Sure They Are in the Right Group
- Do Audits on a Regular Basis: Check in on your employees from time to time, especially when their jobs or relationships change.
- Make Sure Your Agreements Are Clear and in Writing: In contracts or offer letters, make sure you clearly spell out the scope, payment terms, and status.
- Teach HR and Managers: Teach persons who hire and contract about the rules for classifying.
- Get in Touch with a Lawyer Who Understands a Lot About Churches: Make sure your classification rules meet the needs of your ministry and stay up to date with changes in the law.
- Write Out the Reasoning for Your Selections: Keep records that support your classification choices in case of audits or objections.
How Our Ministry Classification Consulting Service Can Help You
Our Church Worker Classification Consulting helps churches in several ways:
- Checking to determine if current worker classifications are legal.
- Making rules and training that work for everyone.
- Making contracts and agreements that are clear and easy to read.
- Representing churches in audits and court cases.
Conclusion: The Church's Health and Compliance Depend on Proper Classification
Classifying church staff correctly protects your ministry from legal and financial concerns, makes sure you obey complicated tax and labor laws, and makes the workplace a healthy place to be. Your church will be better able to deal with these issues and keep focused on its purpose if it works with expert legal and classification services.
Inside Links
- Following the Law for Church Workers
- How to Tell the Difference Between Contractors and Employees
- Church HR Policies and Procedures
Links to Other Websites
- IRS Independent Contractor (Self-Employed) or Employee?
- U.S. Department of Labor Worker Classification
- National Labor Relations Board Guidelines
Caution
This blog post is not legal advice; it is just meant to give you information. Get guidance from qualified experts who work in your field.
