Two Worker Classifications
Worker classifications are important legal distinctions. There are two types of worker classification to consider: Employee versus Independent Contractor and Exempt versus Nonexempt. When you pay someone to work in your congregation, they are paid either as an employee or an independent contractor. If they are an employee, they are either exempt or nonexempt under the Fair Labor Standards Act (FLSA). Each classification is discussed below.
See the violet box below for exempt salary threshold.
Employee or Independent Contractor?
Nearly All Congregational Workers are Employees
You should assume that those you pay to work in your congregation are employees. Employee wages are reported on a W-2 form. Employees are entitled to employer-provided benefits (as eligible). The congregation, as employer, is responsible for appropriate payroll tax withholding and remittance.
Misclassification Risk
Classifying a worker as an independent contractor who should be an employee denies the worker the protections of the employment relationship and can result in tax violation fines, payment penalties, and even jail time.
Who Might Be an Independent Contractor?
Independent contractors receive a 1099 form (if paid more than $600 in the calendar year), pay self-employment taxes, and are not entitled to employee benefits. Independent contractors are typically not covered under the church’s insurance policies and should carry their own liability insurance. Note: Some states have put more restrictive laws in place, making it more difficult to classify a worker as an independent contractor.
Independent contractor status may be appropriate for workers who:
- Provide a service through a business (e.g., lawn care, piano tuning)
- Professionals who support worship or consult on a one-time or occasional basis with no other leadership role in the congregation (e.g., itinerant musician, supply preacher, workshop presenter)
See our Independent Contractor Knowledge Base article for more information about Department of Labor and Internal Revenue Service independent contractor standards.
Exempt or Nonexempt?
The Fair Labor Standards Act
The Fair Labor Standards Act (FLSA) is a federal law that protects employees by establishing standards for a minimum wage, overtime, recordkeeping, and youth and employment. For nearly a century, the FLSA has been in place to prevent worker exploitation.
Some employees can be considered exempt from the FLSA – in other words, the employer does not need to follow FLSA rules for those employees. If you aren’t sure, the safe choice is nonexempt, which means that the employee is covered under the FLSA. Nonexempt staff can be either hourly or salaried. Employers must keep records of daily and weekly hours worked for all nonexempt employees, whether they are hourly or salaried. Click on our Exempt-Nonexempt Flow Chart to the right and be sure to check out our additional resources below!
Misclassification Risk
Misclassification may be discovered through a Department of Labor audit or employee complaint, resulting in administrative and legal headaches, as well as back pay to employees.
Who Might Be Exempt?
To be considered exempt under the FLSA, an employee must meet a salary threshold as well as certain duties tests. This salary threshold is increasing from $684/week to $844/week on July 1, 2024, with an increase to $1,128/week scheduled for January 1, 2025.
There is also a ministerial exception for employees deemed to have essential religious duties; the ministerial exception has no salary threshold.
See the resources below for details. Note: Some states have laws which are stricter than the federal FLSA, such as a higher exempt salary threshold.
UUA Resources
- START HERE! Classifying Your Workers: Exempt or Nonexempt (PDF): This slide set teaches you the basics about the Fair Labor Standards Act and how to determine which employees may be exempt.
- FLSA FAQ (PDF): Details of the law, including exemption criteria and recordkeeping requirements.
- Exempt-Nonexempt Flow Chart (PDF): A quick decision-making tool.
- FLSA Compliance Guide (PDF): Moves you through a process of assessing compliance and making necessary adjustments