{"id":181723,"date":"2025-04-12T01:11:29","date_gmt":"2025-04-12T01:11:29","guid":{"rendered":"https:\/\/peraltafinancing.com\/accounting\/misclassification-of-workers-in-a-church-or-nonprofit\/"},"modified":"2025-04-12T01:11:29","modified_gmt":"2025-04-12T01:11:29","slug":"misclassification-of-workers-in-a-church-or-nonprofit","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=181723","title":{"rendered":"Misclassification of Workers in a Church or Nonprofit"},"content":{"rendered":"


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Misclassification of workers is a big concern for many small
\nchurches and nonprofits. If your organization is ever found in violation, the
\npayroll tax liabilities including penalties and interest can be financially devastating.\u00a0NOTE:\u00a0<\/b>please read the “factors” below to be aware of new DOL regulations in determining who is an employee vs contractor, and how this could impact your organization!<\/span><\/p>\n

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\"Sale<\/div>\n

Coupon!<\/span><\/p>\n

Here is a 10% discount code for all the ebooks, spreadsheets, and packages on this site:\u00a0<\/span><\/p>\n

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How Misclassification of Workers Happen
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\"Employee<\/div>\n

Many small nonprofits and churches have the misconception that they
\nare not under the same labor and employment laws the for-profit
\norganizations are under. This can be a very costly mistake.<\/span><\/p>\n

For churches, <\/span>ministers <\/span><\/a>are
\nalmost always considered employees of their churches and should be
\nissued a W-2. However they are handled differently than “regular”
\nemployees. See this page for more instruction on handling a minister’s
\npayroll: <\/span>Clergy Tax<\/span><\/a><\/p>\n

The “classification” most churches and nonprofit organizations struggle with is usually with their musicians,
\nnursery workers, secretaries, custodians, etc. Let me make it simple for you. If in doubt, classify them as employees. No one gets in trouble for classifying an individual as an employee when they could have been <\/span>paid as an independent contractor (IC) with a 1099.<\/span><\/a> BUT you can get in very BIG trouble for misclassification of workers as independent contractors when the IRS classify them as an employee.<\/span><\/p>\n

I know that classifying them as employees is definitely costlier and more time consuming (more on that below<\/em>)…BUT you will save a lot of heartache and money down the road when you classify them properly the first time.\u00a0<\/span><\/p>\n

To
\ndetermine how to properly classify your worker, look at the degree of
\ncontrol and independence that exist between your organization and the individual
\nperforming the service using the 6 factors listed below.<\/span><\/p>\n

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\"NEW<\/div>\n

NOTE:<\/b> The DOL (Department of Labor issued a final rule on employee versus independent contractors The regulations under the new rule went into\u00a0effect on<\/span> Mar. 11, 2024.<\/b><\/p>\n

The 6 factors (listed in this article) that determine employee v. IC status remain the same. What has changed is that now the\u00a0worker classification depends on the totality of the
factors\u2014i.e., not on any one factor.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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\"How<\/a><\/div>\n<\/div>\n
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The Church Accounting: How To Guide<\/a><\/b> devotes a whole section of the book to payroll for churches. It covers payroll terminology and forms and then takes you through the steps necessary to set up a payroll, calculate and file the necessary taxes and forms, and even details how to handle the minister’s payroll. It also includes sections on filling out IRS forms: 1099-Misc, 1099-NEC, and 1096.<\/p>\n

If you have QuickBooks or are considering using it in the future, go ahead and purchase the QuickBooks for Churches<\/b> and the How To Guide<\/b> combo for a complete package on setting up and administering a payroll using QuickBooks.<\/p>\n

QuickBooks for Churches & Church Accounting Combo Bundle<\/a> <\/b><\/p>\n<\/div>\n<\/div>\n

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Contractor versus Employee<\/h2>\n
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\"contractor<\/div>\n

1. Opportunity for profit and loss depending on managerial skill.<\/b> <\/p>\n

The absence of ability to make a profit or suffer a loss is a good indicator that the individual should be classified as an employee.<\/p>\n

Questions to ask yourself to determine if a worker is a\u00a0employee or contractor:<\/p>\n