September 09, 2020
Commonly Misclassified Employees
We’ve found the three most commonly misclassified workers for churches and nonprofits; and the reasoning behind the correct status.
Misclassifying Reasonings
Here are a few sentiments that we have encountered over our 30+ year history of steering churches in the right direction in the area of Employee or Contractor tax law:
- “Most people prefer to be paid as a 1099 contractor anyway.”
- “Let the person being paid take care of the taxes and such.”
- “Don’t we save money, time, and hassle by paying everyone as a 1099?”
Recent IRS communications indicate an increasing focus on this area of tax law and worker misclassification can be a costly error. One of the penalties includes payment of up to three years of back taxes.
Essential Factors to Avoid Misclassification
As we mentioned in our Contractor vs. Employee post, there are three essential factors to determining if someone should be on your payroll (and receive a W-2) or if they should be considered a contractor (and receive a 1099.)
It simply comes down to:
- Behavior Control
- Financial Control
- Type of Relationship
Learn more about Contractor requirements on our whitepaper.
Top Three Jobs
While working with churches and nonprofits, we’ve found that the three most commonly misclassified people are usually musicians, childcare workers, and custodians. Today, we will share some of our insights on those three categories.
Musicians
For most musicians, the ministry controls when and where the performances take place. The musician typically owns their instrument, but the ministry has significant investment in the venue and sound equipment. A musician plays an integral role in the music ministry. Most likely there is a flat fee paid for each performance, so the musician would never lose money working. Being part-time workers, musician generally do not receive benefits.
All of these factors together indicate that a musicians status should be considered an employee, not a contractor.
Nursery / Childcare Workers
People working in the children’s ministry are provided the place, hours, and activities used to teach children. The ministry is also in charge of the ratio of adult to children. The ministry owns the building and equipment used by all. Generally, childcare workers are paid by the hour and they wouldn’t lose money working for the church. They are an integral part of the children ministry operation effectively. The ministry retails the right to hire and discharge individuals and performs screening before placement. Individuals cannot delegate their work to another person.
Given all of the above criteria, a childcare worker should be classified as an employee, not a contract worker.
Custodian
Once again, the ministry is in control of the hours or days the custodian clean the building. The ministry owns the equipment and supplies used by the custodian. They are generally paid by the hour, so they would not lose money working for the church. The ministry retains the right to hire or discharge individuals; and they cannot delegate their work to another person. Full-time custodian should receive benefits such as paid time off and insurance.
With these considerations, the custodian should be an employee and not a contract worker.
You may also like: our other Payroll articles.
Correcting the Misclassified
If you’ve discovered you have some contract workers who are misclassified, contact your MM representative. They will walk you through the process of correcting and guide you through your next steps.
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