David Walters, the incredible lead pastor at The Vine Church in Hoschton, GA says, “If you want to see anything wreck a movement of God, mismanage your money.”
Payroll is a HUGE deal for churches and where a tremendous amount of neglect and mismanagement can take place. This mismanagement can erode trust and often cost Godly people their jobs. This is why I want to take a post and address the issue. I want to protect pastors and church leaders in this area.
The most questions from church leaders the team at MAG Bookkeeping, a virtual church bookkeeping and accounting organization, receive are about this very topic. Therefore, they recently provided some great insights on church payroll I want to pass long to you. Here are their thoughts:
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Confusion often revolves around how to officially designate various team members as employees and how to pay them. The short answer is that there are basically three options: independant contractor, ministers and employees.
Before we get into the nitty gritty details about each, it’s important to note that these are complex issues that can have serious tax consequences for churches and pastors if not handled correctly. If you ever have any questions, please contact us to make sure you’re on the right track.
We’ll start with independent contractors, a role that has many important ins and outs to consider.
Independent Contractor
Typically, pastors are not classified as independent contractors, although this does happen quite often in certain situations. If you want to classify your pastor as an independent contractor, the big thing to consider is how much control the pastor has over his or her role. This has to do with methods used to perform work and how the employment relationship is structured.
If the pastor works in multiple settings and comes to your church to perform a ceremony or speak occasionally, that’s an independent contractor role. If the pastor has a job description and is serving as a pastor to your congregation (even part-time), that pastor is an employee – not an independent contractor. If the pastor is doing the majority of his or her work in your facilities, that’s also an employee, not a contractor.
One more important thing to consider is whether or not you have the right to discharge the pastor from his or her role. If you as a church can fire the pastor, that individual is normally an employee, not a contractor. Also, if there is an expectation of permanency and a long-term relationship, you probably have an employee. Independent contractors are typically engaged for a shorter term.
Ministers
Every church should have policies and processes for ordaining, licensing or commissioning a minister in order to follow this payroll path. The “minister” payroll classification is handled very specifically in the tax code and can be hard to understand fully. Some of the characteristics that make up the ministerial classification include: they receive a W-2 (not a 1099); they have no FICA or income tax withheld from their wages; they are able to shelter a housing allowance from federal tax (within very strict guidelines); and they file quarterly estimated tax payments (as an independent contractor would).
Employees
The third path for payroll is the full-time or part-time employee. There’s not a lot to say about his one since these employees are treated like any others who work at most every other business or organization. This classification probably includes your church’s support staff and other non-ordained staff members.
As you can see, there are many considerations, and the answers aren’t always black and white. This is why having an experienced church finance partner to walk alongside you is so important. We would be honored and grateful to take that walk with you through our payroll solutions!
Pastors and church leaders, this is back to Brian. If you have any questions, contact MAG Bookkeeping for an initial consultation. What God has called you to do and the message He has called you to steward is far too important to be derailed by finical mismanagement. I know the people at MAG and they will treat you right.
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