Getting off on the right foot – hiring right
One way to avoid unhappy situations is to begin on the right foot. And in personnel matters, that means hiring right. Churches should follow prudent steps in hiring their employees. For starters, a church must know what it is looking for in a new employee. That means that job descriptions should be prepared prior to the interviewing process.
Once that is done, a church can then begin recruiting and evaluating potential employees. Here are a few tips to guide churches in the recruiting process:
- Maintain a record, in writing, of all job openings.
- Keep a file of the various advertisements it has placed to recruit applicants.
- Utilize a standardized applicant screening and interviewing process, making sure that managers are properly trained in the conducting of effective and legal interviews.
- Utilize a standard application form which informs applicants of the terms and conditions of employment. (Particularly the right to consider their religious affiliation.)
- The application should avoid unlawful pre-employment inquiries. (Age, race, sex,. etc)
KEY: The application should be reviewed by the church’s legal counsel prior to being used in the hiring process.
The second trap, or thing to avoid, deals with payroll. Churches face risk in a variety of areas. Facilities, congregational unity, financial, security, and our next topic, personnel are just a few areas of danger.
In business terms, churches are in the “service industry” and as a result, typically, 50% of church budgets are dedicated to salaries and benefits. Personnel risk is significant. Operating in the personnel arena without a formal plan makes it even riskier.
Unfortunately, some churches do exactly that. Here is what has happened to some of those who chose not to manage personnel risk:
- Churches have been sued (and lost) after automobile accidents in which it was discovered the church assigned driver had a prior DWI.
- Churches have been sued after discovery of prior child abuse convictions of some of their employees.
- Churches have been victimized by embezzlers with prior convictions.
- Churches have been sued for unlawful terminations.
- Churches have been sued for sexual harassment.
In the next few posts, we will discuss things that should be done in order to avoid situations like these unfortunate churches. It’s important to point out that they were unfortunate primarily because they were careless.
That’s right! Even though churches normally do not have to file a tax return (most nonprofits have to file an informational return annually – IRS form 990), there is certain information that you must collect and provide to the IRS. And I’m not talking about payroll tax information – 941 and W-2 forms.
If you pay at least $600 in a calendar year for the services of non-employees (and they are not corporations), you must get them to complete form W-9 (provides tax reporting information to you) and you must issue them an IRS form 1099-MISC.
And if the church operates a preschool or private school that is not separately incorporated, you must file IRS form 5578. This is a statement about racial non-discrimination.
And if your church has “unrelated business income” of over $1,000 before deducting related expenses, you must file and IRS form 990-T. Again, I’m not talking about net income of over $1,000; I’m talking about gross receipts of that amount. And you could possibly have to pay income tax! But that’s the subject of a whole new blog entry!
For more information, go to the IRS website – www.irs.gov. Or even better, contact us at www.pskcpa.com.
–Dan Williams, CPA, Church and Ministry partner at PSK LLP.
I have a friend who has reminded me to be thankful for annoying things such as the red light I am stopped at, because I am privileged enough to live in a country that has roads, and orderly ones at that. This same attitude can be applied to taxes—thankfulness for them and for the ability to pay them.
I wanted to start with this thought, because none of us like taxes. But we can be thankful for them, and also take care to report them properly. As additional incentive for excellence in this area, did you know that if payroll taxes are not withheld and paid to the IRS, the Church’s Board of Directors and employees may be personally liable? Some thoughts on ensuring your Church is addressing taxes appropriately:
Who performs the Church’s payroll? Even If the Church is fortunate enough to use an outside payroll service provider, it is still important that the Business Administrator ensure that the following are occurring:
- For all non-minister employees, the Church correctly withheld and paid the employees’ share of FICA taxes.
- IRS form 941 was filed for each quarter of the calendar year.
- The totals from the four quarterly 941 forms agreed with the totals on IRS form W-3, which is prepared at year end and filed with the IRS along with employee W-2s by February 28 each year.
- Timely deposits of payroll taxes are made to the IRS. Required deposits vary. Generally, deposits may be made quarterly if total quarterly payroll taxes are $2,500 or less. Otherwise, deposits must be made monthly, or even more frequently for very large organizations.
- W-2 forms are provided to all employees (including ministers) by January 31.
How about your Church? Do you know for certain that payroll taxes are calculated, withheld, and remitted to the IRS correctly and in a timely manner?
–Justin Baldwin, CPA is a Senior Auditor specializing in church accounting with PSK LLP.
Does your church have 25 or fewer full time employees? If so, the government wants to give you some money. The recently passed health care bill included a tax credit for small businesses that provide health insurance for their employees. Although churches do not typically file income tax returns, they are still eligible for the tax credit.
You are correct, there is a catch! There are three primary factors that would qualify your church:
- The church must pay for a portion of its employees’ health insurance
- The church must have less than 25 full-time employees
- The average wage of a full-time church employee must be below $50,000
If your church meets the criteria above, the church could be reimbursed up to 25% of the health insurance costs that were paid by the church.
As of now, the credit is good for 2010 to 2013 and then the maximum rate increases to 35% (good news). This could be money in your church's pocket! Let PSK assist you in determining if your church qualifies for the health care tax credit.
