Before You Write a Paycheck; Do This

By Raul Rivera

Not too long ago, I was in Charlotte, NC speaking at a conference.  During our morning break a pastor told me about the growth their church was experiencing.  He stated that they were going to officially hire their first staff in January, but confessed that they had no idea how to do it. They were going to put him (the pastor) on salary, hire a secretary, and hire a worship leader.  I was not able to answer his question that day about how to properly hire, because the answer would have taken too long.  Therefore, to the awesome pastor in Charlotte: here is your answer.

Before you hire

Before you hire someone at your church/ministry, you need to verify certain things concerning that person's eligibility to work in the U.S.  Though an individual's work status in this country may seem obvious to you, federal regulations require that certain due diligence steps be taken prior to an individual's first day of work.  Below is a quick list of requirements.

1.     Define who is an employee and who is a contractor:  The definition of an employee is not up to our own interpretation.  I often have conversations with church administrators who tell me, "We pay our pastor as a contractor."  I also hear, "We pay all of our staff as contractors."  Just because you pay them as contractors, does not make them contractors.  There are three minimum factors you must consider when hiring someone at your church/ ministry.  If any of the below apply, then the person is an employee.

a.     Behavior:  Does the church have the ability to control what the person does or how he/she does it?  If the church can dictate how or when and with what frequency the worker performs his/her duties, then the person is an employee.

b.     Financial:  Are the business aspects of the worker's job controlled by the church? How is the worker paid?  Is the worker free to seek out other jobs or is this his/her only one?  If not, he/she is an employee.  An independent contractor is generally free to seek out business opportunities in the same field.  If not, then he/she is an employee. 

c.      Relationship:  Does the person perform work that is considered a key component of the business?  For example, a pastor's job is a key component of the church's existence.  Therefore, a pastor is always an employee.  Many churches incorrectly try to hire him/her as a contractor.

2.     Each employee must fill out form I-9:  Federal law requires the church to verify a person's eligibility to work in the U.S.  In order to do that, the prospective employee, including the pastor, must fill out form I-9.  This is a required form of the Department of Homeland Security, U.S. Citizens, and Immigration Services.   The form is divided into three sections: one for the prospective employee, and the other two for the employer.  Of particular importance is section two.  It requires the employer to verify certain documents in order to properly establish "evidence of identity."  These documents include a passport, a driver's license, a social security card, and many others.  An authorized person of the church is required, under penalty of perjury, to examine the said documents presented and certify that they appear to be genuine.  Once the prospective employee and proper person at the church has signed the form, the document is required to be kept at the church.

3.     Use E-Verify:  Some states require all employers to use E-Verify, while other states require its use under certain circumstances.  E-Verify is a federal database that helps employers determine the eligibility of employees and the validity of social security numbers.  It is important to know if your state requires the use of E-Verify. 

4.     Use of state registry Federal Parent Locator Service:  A little known federal law exists in Title 42 Subsection 663 that requires all employers to report all new hires to a state agency, the Federal Parent Locator Service.  This law was passed to make easier the tracking down of parents who owe child support by knowing when they were hired. 

5.    W-4 Form:  Every employer is required to collect from every employee form W-4 for purposes of determining the correct amount of federal income tax to withhold.  If the employee is the minister, keep in mind that though he/she is required to fill out the form, he/she is exempt from withholdings and therefore, should only fill out lines 1, 2, 3, 4, and 7, and sign it.  Other non-ministerial employees must fill out the form in its entirety and turn it in to the church.  The church is required to use the form to determine how much federal income tax to withhold and save the form in its internal records.  This form is not sent to the IRS. 

What happens after you hire

After you hire an employee, you will be required to make monthly deposits as well as file quarterly reports and then annual W-2 forms.  Each state has its own requirements.  Next week in part two of this topic, I will cover with more detail what happens after you hire. 

How to plan for taxes

StartCHURCH also goes into greater detail on the subject of hiring when we teach about housing allowances, social security taxes, and tax saving strategies at our conferences.  If you plan on going on salary at your church or will hire new staff, please attend one of our conferences before the year comes to an end.  I will show you how a pastor making over $55,000.00 per year pays zero taxes and also gets a refund of over $8,000.00.