Employee vs. Independent Contractor

Employees typically:

Receive salaries or hourly wages (whether part-time or fulltime).
Can be fired.
Can quit without penalty.
Must submit reports.
Must obey instructions.
Must do the work themselves.
Are hired to provide services for an indefinite period of time, rather than to accomplish a particular task.
Are eligible for fringe benefits (health, disability, pension, sick pay, etc.).
Are provided what is needed to do their job.
Are reimbursed for expenses.

Independent contractors are considered self-employed. They typically:

Set their own hours.
Decide how to get the work done (rather than follow someone else’s instructions).
Offer their services to the public.
Provide their own equipment.
May work on someone else’s property, and for several persons at the same time.
May employ assistants.
Are hired to do a particular task, and are paid by the job.
Have a substantial financial investment in the work.

If a worker is a non-clergy employee, the church must:

Withhold federal income tax.
Withhold state income tax, if applicable.
Withhold FICA taxes.
Match the employee’s share of FICA taxes.
Pay unemployment taxes on the person’s wages (if applicable; churches are exempt in most states).

If a worker is a clergy employee, the church:

Must not withhold Social Security (SECA) tax.
May withhold income tax under a voluntary withholding agreement.

If a worker is an independent contractor:

The worker is considered self-employed in the IRS’s eyes.
The worker must file quarterly estimated-income taxes and Social Security taxes, according to SECA requirements.
The person must pay all of his own Social Security (rather than half being paid by the employer, as is done for employees).
Unemployment taxes and withholding taxes don’t apply.

Examples of Independent Contractors

Guest evangelist.
Carpenter.
Plumber.
Accountant.
Paid organist.

Methodist ministers have historically reported salary and professional expenses on Schedule C. In a landmark court case, Weber v. Commissioner, a court determined that a Methodist minister was a W2 employee rather than an independent contractor. The court stated the following as criteria in determining that status:

The minister was subject to significant control.
The minister was required to work at the church to which he was assigned.
The minister didn’t have the right to unilaterally discontinue regular services of the local church.
The position was intended to be permanent, as opposed to transitory.
The benefits, such as health insurance and pension, indicated an employment relationship.

An IRS Publication on Form I-9 States: "Hiring employees without complying with the employment eligibility verification requirements is a violation of the employer sanction laws. This laws requires employees hired after November 6, 1986, to present documentation that establishes identity and employment eligibility, and employers to record this information on Forms I-9."