When Love Offerings and Transition Collide

Written by Raul Rivera on Nov 05, 2015 in Church Management

Grace Everlasting, a church 20 minutes outside of Minneapolis, and its leadership team recently received word from their senior pastor of 25 years that he would be retiring at year’s end. Although he would remain on staff through the end of the year, the pastor felt it best for the church to go ahead and begin the transition process.

Together, he and the leadership team decided that the best way for the church to handle the transitional period would be to utilize an interim pastor, while the selection and hiring committee worked on finding a permanent replacement. Although the leadership team knew who they wanted to ask to serve as interim pastor, they were faced with a decision that they were not quite sure how to properly address: “Should the interim pastor be treated as an employee of the church or as a contract worker?”

A common reality for churches

Even though the above story is fictional, it is not uncommon for a church to find itself in a similar situation at some point in its existence. There are times when pastors are called to serve at another ministry or to plant a new ministry. At other times, a church may find itself in the unfortunate position of having to dismiss its current pastor. Whatever the scenario may be, churches can find themselves in seasons of pastoral transition.

A season of pastoral transition is crucial in the life of a church and its congregation. For some churches it may only take a few weeks or months to find a permanent replacement. And for other churches, it may take a year or more. No matter how long the pastoral transition period lasts, many churches are utilizing the services of interim pastors.

A church may choose to utilize the service of only one interim pastor while searching for a permanent replacement, or use more than one individual to fill the pastoral role during its search for a new senior pastor.

It is important that the individual, or individuals, you choose to have serve as interim pastor be one who can provide leadership and spiritual guidance to the congregation. Of equal importance is knowing how to properly classify the interim pastor for payroll purposes, since you will most likely choose to compensate the interim pastor through “love offerings” or honorariums.

In order for you to understand how to classify the interim pastor, it is necessary for you to understand the difference between an employee and a contract worker.

Employee vs. contract worker

Oftentimes, when a church hires a worker, one of the most important, initial decisions the church must make is whether to treat the worker as an employee or a contract worker. Many churches mistakenly believe that this decision is up to their discretion, when in reality the federal government uses common-law rules to determine whether a worker is one or the other.

IRS Publication 15-A states,

“Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”

Common-law rules are composed of three factors: behavioral control, financial control, and the relationship of the parties. Following is a brief look at each.

  • Behavioral control: Does the church have the ability to dictate how and when the person performs his duties? If so, the individual is an employee.
  • Financial control: Does the church control the business aspects of the person’s job? Is the individual able to seek other job opportunities? If the worker is not permitted to seek other job opportunities then he is an employee of the church.
  • Relationship of the parties: Does the individual provide duties/services that are vital to the church’s existence? If so, he is an employee.

Next, we will take a look at two common scenarios in which churches use interim pastors. In both of these scenarios, we will use the three factors of common-law rules to help determine how the interim pastors should be classified for payroll purposes.

Two common scenarios for churches

In general, there are two common scenarios in which churches utilize interim pastors. The first scenario is when a church is able to use one interim pastor for the entire duration of the pastoral transition process.

The second scenario is when a church uses more than one individual to fill the role of an interim pastor during the pastoral transition process. In this scenario, it is not uncommon to use the services of individuals from both inside and outside the church. We will begin by taking a look at the first scenario.

Scenario 1:

In this scenario, the interim pastor usually has a close relationship with the church. This person might have served as a spiritual advisor or mentor to the church and its leadership team, and this individual deeply cares about the future of the church. This person would most likely be a perfect candidate for senior pastor, but that is not his calling.

Rather, this individual is willing to serve as the sole interim pastor for as long as it takes the church to find a permanent senior pastor. This individual is even serving on the committee that is responsible for finding a permanent senior pastor.

Although this individual may not ask to be compensated, out of gratitude and appreciation, the church decides to compensate this individual for the services that he gives to the church during this time. The question that must answered is, “Should this individual be paid as an employee or as a contract worker?”

To help us answer this question, we must look to the three factors of common-law rules.

  1. Behavioral control: In this scenario, it is safe to say that the church holds behavioral control over the interim pastor. In essence, the interim pastor has taken on the spiritual responsibilities of the senior pastor and he even serves on the pastoral search committee. Therefore, there are specific times in which the interim pastor must be available in order to perform the duties as the interim pastor. That said, the church holds behavioral control over the interim pastor.
  2. Financial control: This factor might be a little tougher to determine than the other two factors. If the interim pastor is not able to seek employment elsewhere due to his responsibilities as interim pastor, then it will be safe to say that the church holds financial control. However, if the individual is able to act as interim pastor while maintaining employment elsewhere, then it will be safe to say that the church does not hold financial control.
  3. Relationship of the parties: Seeing how the interim pastor in this scenario is handling the spiritual responsibilities of the senior pastor, it would be difficult to say in this scenario that the interim pastor did not provide services that were vital to the church’s existence. Therefore, we can determine that there exists a significant relationship between the church and interim pastor.

Determination: There are other various facts and circumstances that can affect the outcome of this scenario. However, based upon the specific set of circumstances given, we can conclude that it would be necessary for the church to treat the interim pastor as an employee. Therefore, the interim pastor should receive Form W-2 indicating the wages the church paid to him.

Next, let us take a look at the second scenario.

Scenario 2:

In this scenario, the church is looking to more than one individual, both inside and outside of the church, to fill-in as the church searches for a new senior pastor. These individuals often fill-in as guest speakers. Although it would be safe to assume that these individuals would be treated as contract workers, let us examine this scenario through the three factors of common-law rules.

  • Behavioral control: Although the church has the ability to dictate when the person performs the duties asked of him (speaking), it is most likely that this individual will only be asked to perform/provide this service a handful of times, at the most. Furthermore, it is also likely that if the individual is asked to speak more than once, it would not be for consecutive weeks in a row since churches in this scenario generally have more than one person lined up to help.
  • Financial control: In this scenario, the individuals who are asked to help the church during the process of finding a new senior pastor are generally pastors on staff at other churches or respected members of the congregation who have jobs outside of the church. Although the church chooses to compensate these individuals with “love offerings” or honorariums, there is little to no financial control in this scenario.
  • Relationship of the parties: Again, the key factor is that, although the service being provided by the individuals is important to the church during this time, the service is not being performed on a consecutive basis. As previously stated, individuals in this scenario will usually only be asked to perform/provide their service a couple of times at most.

Determination: As we can see, the individuals in this scenario who assist churches during times of pastoral transition, as guest speakers, should be treated as contract workers. Now with that being said, it is imperative that the church receive a W-9 from each individual that it decides to bless with an honorarium. Furthermore, if the individual receives more than $600 in honorariums from the church, then the church will be responsible to issue him a 1099-MISC by January 31st the following tax year. (For more information on paying contract workers and 1099s, please click here.)

Conclusion

During times of pastoral transition, worrying about how your church should properly classify interim pastors may hardly seem important in the overall picture. However, IRS penalties for misclassifying an employee/contract worker can be burdensome and crushing. This is especially so since the classification of employees also directly affects payroll taxes.

Perhaps you are thinking that church compliance is burdensome. I am convinced that if you take time to work ON your ministry and not just IN the ministry, you can create a solid infrastructure that continues to operate smoothly, even during times of transition.

I want to encourage you to consider utilizing our resources and services. If you are wanting more information pertaining to payroll, consider enrolling in our online church compliance course, StartCHURCH University. We have a whole unit consisting of four chapters dedicated to this very topic. Or perhaps you want to learn how to correctly file W-2s and 1099s for your church. In that case, the W-2 and 1099 applet in our Management Suite will give you step-by-step instructions on how to e-file the informational returns for your church. Lastly, as always, I would love to have you join us for a day at one of our Ultimate Church Structure Conferences. You and your ministry will reap tremendous benefits from the knowledge that is imparted, and I believe that your decision to attend could be one of the most ministry-changing choices you make all year.

Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


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