Each individual you compensate is either an employee or an independent contractor. This is a critical legal distinction, with implications for benefits, taxes, and more. Nearly all workers in our congregations are employees. An employee is entitled to employer-provided benefits (as eligible) and their wages are reported on a W-2 form. The congregation, as employer, is responsible for appropriate payroll tax withholding and remittance.
In general, independent contractor status is appropriate for those who provide services through a business (e.g., custodial services, lawn care, piano tuning) and 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). Independent contractors are not entitled to benefits, receive a 1099 form (if the congregation pays them more than $600 in the calendar year), and pay self-employment taxes.
Note: Some states have put more restrictive laws in place, making it more difficult to classify a worker as an independent contractor.
The resources below will help you make the appropriate determination for those you compensate. Unless you can make a clear case for independent contractor status, based on IRS common law rules, you should consider each of your workers an employee.
- This slide set, Classifying Your Workers, Part I: Employee or Independent Contractor (PDF), will help you understand who needs to be treated as an employee.
- See our Employee or Independent Contractor FAQ sheet (Word) for special guidance on clergy, with some information applicable to other staff, as well.
- For congregations in California, please read our California AB5 Memo (PDF), written in January 2020.
- This Independent Contractor or Employee? page from the IRS describes the behavioral, financial, and relationship factors to help you make the proper determination.
- This Get the Facts on Misclassification page from the U.S. Department of Labor addresses misunderstandings that frequently result in the misclassification of employees as independent contractors.