David Middlebrook, partner with the Church Law Group, recently spoke at our monthly church breakfast on the topic of intellectual property. He made some very interesting comments regarding employment agreements. Here are a few things that I learned.
Employment agreements within churches are frequently overlooked, but are one of the least expensive measures a church can adopt to help protect itself. Although churches are subject to the higher calling and authority of the Scriptures, churches must still comply with and are subject to the worldly laws that preside over them. Employment agreements allow churches to hire with confidence, and terminate with less fear of legal repercussions. As part of the human resources process, all church employees should be under an employment agreement. In addition to matters included in a standard employment agreement, such as those common in for-profit entities, a church’s employment agreement should include:
- A statement expressing that the church is a religious employer.
- Guidelines for the required Christian code of conduct for employment (for example, specific behaviors that the church considers acceptable and unacceptable). The church may reference the Bible as a general guide for defining acceptable behavior.
- A statement outlining the conditions of employment:
- Statement covering intellectual properties – absent a written agreement to the contrary, all works made for hire belong to the church.
- Statement mentioning that in the event of any dispute over employment, the church has the right to take the employee to Christian arbitration/mediation/dispute resolution. Additionally, the statement may mention that the employer will pay its portion of the fees and the employee will be responsible for his or her portion of the fees.
- A confidentiality statement that outlines the expectations the church has for its employees.
PSK frequently consults with the Church Law Group in this area. The Church Law Group specializes in legal matters for churches and nonprofit organizations, and can provide additional information regarding employment agreements.
The Tax Relief, Unemployement Insurance Reauthorization & Job Creation Act that was signed into Law in December 2010 has made changes to the way you calculate your social security deductions on your employee paychecks for 2011.
Social Security tax rates will be reduced by two percentage points. The employee-portion of Social Security taxes will be reduced from the current 6.2% to a temporary rate of 4.2% for 2011 only. The employer-portion remains the same at 6.2%; and the Social Security wage base remains the same at $106,800 for 2011. Medicare tax rates are not changed: remaining at 1.45% each for employees and employers. Freelancers, farmers and other self-employed persons will see a corresponding reduction in their self-employment tax. The total 15.3% self-employment tax rate is temporarily reduced for 2011 to 13.3%. Self-employed persons will still be able to deduct the full amount of the employer's portion as an adjustment to income.
You have until January 31, 2011 to make sure you are calculating your employee deductions correctly and until March 31, 2011 to correct any payroll in January that might have been calculated using the old 6.2% deduction rate.
Please give us a call if you have any questions.
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The IRS has issued the 2009 version of IRS Publication 919, How Do I Adjust My Tax Withholding? as a result of the "Making Work Pay" credit in the American Recovery and Reinvestment Act of 2009 (ARRA).
Employees can use this publication to help them determine if their federal income tax withholding is sufficient, and, if necessary, prepare a new Form W-4 to adjust their withholding. The publication includes worksheets for projecting 2009 tax, withholding, and deductions. For 2009, a new worksheet (Worksheet 12) has been added on the "Making Work Pay" credit.The amount of the "Making Work Pay" credit is $400 (unless the person makes under $6,450; then it’s 6,2% of compensation). Because the credit is refundable (people can get it even if they owe no tax), most low-income workers will also qualify for the full credit. The credit is phased out for a married couple filing a joint return whose modified adjusted gross income (AGI) is between $150,000 and $190,000, and for other taxpayers whose modified AGI is between $75,000 and $95,000.
It is a good idea to look at Publication 15T and print out the employee notice (on page 73 of the publication) that you should provide to your employees explaining the changes. Some employees are beginning to discover after filing their 2008 personal income tax returns that they didn't have enough money withheld from their paychecks. Employees may really feel the shortfall in 2009 with the changes in the withholding rates.
Churches and schools often have annual meetings or retreats that employees must attend. A source of irritation for employees can be the issue of pay — or no pay — for time spent attending meetings and training sessions.
Tell employees they have to attend a meeting or training program, and the employees may raise questions like these:
- Is attendance mandatory, or can we skip it?
- If we show up, do we get paid?
- If we don’t get paid for the time at the meeting or training, why do we have to attend?
Church leadership can lessen, and even end, the irritation employees experience, and avoid having to deal with questions like those above by adopting a clear policy on the topic.
Address the following in this policy:
- How often do you have employee meetings? For example: once a year…once a month…every other month.
- Is employee attendance requested or mandatory? This is especially important if meetings are held when all employees aren’t on-duty but are required to come into work to attend the meeting.
Warning: Keep in mind that if you require off-duty employees to attend meetings… you must pay them for that time, if they are non-exempt employees. Under the Fair Labor Standards Act, employers must pay employees for attending meetings: (1) if their attendance is mandatory and (2) the meeting serves to benefit the employer. If meetings are strictly voluntary and outside of working hours, you may not be required to pay employees. Get information on the Fair Labor Standards Act from the U.S. Department of Labor’s “ELAWS” website –
http://www.dol.gov/elaws/flsa.htm
- Be sure and mention where the meetings are usually held, what time they are held and what type of topics will be discussed.
Here’s some wording to consider in a meetings policy: “The Company holds monthly employee meetings. These meetings are usually held at 4 p.m. in the staff lounge. All employees are required to attend. Off-duty personnel are required to punch-in at the start of the meeting and punch-out at the end of the meeting. You will be paid your regular rate of pay for your attendance at these meetings.”
NOTE: We’re not lawyers or spokespersons for the government! We do try to provide accurate and helpful information. But this is not intended to provide a legal service for your individual needs. For legal guidance in your specific situations, always consult with an attorney who is familiar with employment law and labor issues. Our friends at the Church Law Group would be happy to assist with legal guidance – www.churchlawgroup.com. That having been said, we can offer you a sample policy on the meetings and training topic – www.pskcpa.com.
Unfortunately, there are lots of good reasons for terminating an employee. But be aware! What may appear to be an ironclad reason for dismissal still needs to be approached and executed with good planning. And the keys to your plan are documentation and communication.
When an incident occurs, make your written record of the incident as soon as possible. Keep your documentation to an accurate accounting of the job-related facts. Be specific and clear about the reason for dismissal.
This documentation will serve two important purposes: It is a record for the employee’s file. And it will be a key source of any written communication to the employee about the reason for the termination.
Communicating the specific reasons for dismissal to the employee makes it more difficult for the employee to later allege other discriminatory causes for the termination. (Example: If the discharged employee is a member of a legally protected group, you will need to be concerned that the employee may later claim discrimination as your real reason for discharge. Leaving the grounds for discharge vague and general runs the risk that a court will fail to see evidence that your decisions and actions were fair.)
Human resource professionals generally agree that proper documentation is essential and will work for you in defense of an unjust claim.
Now, to get even more specific. An employer’s specific documentation needs to begin long before the moment of termination, in most instances of a firing. The employer who wants the strongest possible defense against a potential charge of illegal discrimination or wrongful discharge will have written documentation of each significant incident and action leading up to a termination.
Especially helpful to an employer’s defense are written documents–such as warnings to the employee and performance reviews–that show the employer informed the employee of specific unacceptable behavior or performance… informed the employee of the required behavior or performance… and informed the employee of the consequences if the employee’s behavior does not change or performance does not improve.
Remember – these blog thoughts are meant to be accurate and helpful. BUT, I am not an attorney! For legal guidance regarding your specific situation, always consult with an attorney who is familiar with employment law and labor issues. Don't know one? Give us a call at PSK!
As part of your year-end payroll processing tasks, you might have a question or two about reporting minister's earnings and allowances on Form W-2. Maybe, you just need a refresher. Here are the general topics that we receive questions about.
Salary – Salary paid to minister is reported in Box 1.
Federal Withholding – May or may not be zero. Ministers are exempt from withholding requirements but may elect to have withholding. Enter the amount withheld.
Social Security, Social Security Withheld, Medicare, and Medicare Withheld – Ministers are considered self-employed for purposes of Social Security and Medicare taxes so these boxes are blank.
Housing & Utility Allowances – Should be reported in Box 14. Remember that housing and utility allowances should be officially designated by the church in advance.
All other boxes on the W-2 are generally the same for ministers and non-minister employees.
The IRS has an example of a Minister's Form W-2 in its Publication for Clergy and Religious Workers. See it at …
http://www.irs.gov/pub/irs-pdf/p517.pdf
Also, there is a good IRS Publication for Churches and Religious Organizations that cover a variety of tax issues. Check it out at …
http://www.irs.gov/pub/irs-pdf/p1828.pdf
Typically an employee of the church would not perform contract services. Therefore all income should be reported on the employee's W2 as opposed to a 1099. However, there is an exception if the employee is in a "transition" year. This occurs when an employee retires from the church and subsequently performs contract services in the same calendar year.
For example, an executive pastor retires from the church in June of 2008. During July through December of 2008 the retired pastor performs several speaking engagements for the church for a fee. In this situation the retired pastor would receive a W2 for their compensation from January to June and also a 1099-misc for the fees received for their speaking engagements performed from July to December. Box 7 of the 1099-misc would be checked for speaking engagements.
In this situation it is still imperative that the church apply the employee vs. contractor tests in order to make sure that the retired pastor is in fact acting as a contractor and not an employee.
It is getting to be that time of year to prepare for your year-end payroll processing. Have you ever been a lucky recipient of a letter from the Social Security Administration stating that you have reported incorrect names or social security numbers on your W-2's? Do you have a process in place to ensure you don't receive this letter?
Here is a link to a list of good business practices to ensuring your are issuing correct W-2's. http://www.ssa.gov/employer/critical.htm.
Stay tuned… my next blog post is on reporting minister wages.
