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Clergy Tax Facts |
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Church Employment Law
As employment law issues grow increasingly complex each year, churches are struggling to comply with state and federal laws. Everyone’s goals are to reduce claims and liabilities, if not prevent them outright. But oftentimes it’s the most fundamental of issues that get churches in trouble with the law.
When looking at the basic employment law issues, the number one goal for every church should be to eliminate repetitive practices that could be found unlawful. Make sure every policy is followed through consistently and that everything is properly documented. Churches and ministry leaders must look reasonable and fair.
Churches should consider the following tips to help them stay out of the courtroom and create fair work environments:
Employee handbooks—There are several misinterpretations about the purpose of employee handbooks. Some items absolutely have to be included to ensure employees are aware of the rules and expectations. Without a handbook, it’s difficult to prove a policy was in place and understood by your professionals and staff members.
Compensation plans—Every employee who begins work for a church has an implied contract for compensation, and the church must share what their rate is before they start working. Such written policies are usually put in employee compensation plans, which detail specific information that must be in writing for them to be binding. It’s actually just as important as the job application, but is often overlooked. Churches also must ensure modifications to compensation plans are in writing, and that employees understand that oral agreements are not valid.
Job applications—Applications are often outdated, asking questions that could trigger liability for churches. For example, if a college degree is an essential qualification for a certain position, in order to avoid a possible age discrimination claim, churches should ask candidates whether or not they graduated instead of asking when they graduated. Perhaps more importantly, many churches don’t require applications and instead opt for resume submissions—which are advocacy pieces in comparison to applications. With a well-drafted application, churches elicit "just the facts." In addition, applications allow churches to obtain approval to conduct various background checks. It’s also important that churches obtain a signature and affirmation from the applicant confirming that the information is accurate and complete. Doing so may provide grounds for termination if applicants misrepresent themselves. Churches should ensure the information submitted by the applicant is verified, consistently conducting background checks for every applicant to ensure discrimination claims are avoided. Finally, employment applications and a well-executed pre-hire due diligence program will help prevent and defend against claims for negligent hiring and negligent retention.
Arbitration agreements—It’s recommended that churches utilize a binding arbitration agreement as part of their employee handbook and personnel policies—and note that arbitration agreements are necessary for all prospective employees, not just those applicants that are actually hired at the church. For example, some applicants may claim that they were not hired due to alleged discrimination. Including an arbitration provision in all job applications ensures that those who are not hired by the church will have to arbitrate claims for "failure to hire."
Performance evaluations—It’s no secret that today’s reduced workforce has created packed daily schedules for both the church and employees. With that in mind, many performance evaluations don’t take place at their scheduled date. But if churches don’t conduct performance reviews when they’re supposed to be done—or they’re skipped altogether—it will be difficult to terminate problem employees when there’s a lack of notice regarding issues that need to be improved, or if there are inconsistent patterns of providing performance evaluations (which could be perceived as a bias). In addition, performance evaluations, including self-evaluations for exempt employees, can prove helpful in preventing misclassification claims.
Exit interviews—If the church decides to conduct exit interviews, they need to ensure that they are done every time a professional or staff member leaves the church. Aside from providing information about the church, exit interviews can help churches defend a lawsuit if a disgruntled employee decides to sue. Specifically, if a departing employee signs an exit interview document saying everything was fine, it will be difficult for him to claim otherwise in support of a later lawsuit. However, exit interviews also pose their own risks sometimes the questions incentivize employees to make claims where there weren’t any. Thus, exit interviews have pros and cons, and churches need to make an informed business decision about whether they are appropriate for them.
Misclassification issues — Churches who misclassify their work force as self-employed could suffer significant exposure for unpaid tax and other penalties.
Timekeeping—It’s the churches obligation to track hours worked for nonexempt salaried or hourly employees, and these records are imperative to a church’s compliance with wage and hour laws. Know your state’s requirements, as they differ state to state. "Stolen" hours from manipulated time cards is outright theft, and dishonest employees will take advantage if churches are not watchful. Create documents that are irrefutable in court, and be fair and respectful to your staff—they should return the sentiment. If supervisors and their staff trust each other, a level of integrity is much easier to maintain.
State and federal wage/hour laws—Although both state and federal wage/hour laws are operating simultaneously, the most favorable one to the employee always applies. Churches must understand the interaction between state and federal laws, and know when to refer to the appropriate rules. For example, there are exemptions from overtime under federal laws that don’t apply to certain states, which may have stricter exemption requirements. Both federal and state law may apply depending on the situation and locality. Churches can be sued for federal law in one state, and sued for the same thing elsewhere under a state law. Churches can also be sued in one court (state or federal court) for violations of both state and federal law.
Termination—Many churches, in an attempt to save money, don’t seek the proper legal advice when terminating employees. One of the biggest mistakes churches make is to involve legal counsel after an employee has already been terminated. Sometimes it may just be a five-minute phone call to the qualified legal expert that saves the church from a lawsuit. Even at-will employment has its risks with termination. A poorly administered termination containing little or no documentation can present a very serious problem for churches who later seek to show that a termination was for legitimate non-discriminatory reasons. Specifically, a church should document the reasons for the employee’s termination. For example, if the church simply states "at will employment," the employee can allege whatever unlawful reason he chooses, and the church may have a heavy burden to establish after the fact that the reason for the termination was not an unlawful one.
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Get a better understanding of U.S. tax laws as they relate to pastors and churches with the Church & Clergy Tax Guide |
Every church and its employees want to feel confident that their compensation plan is reasonable and fair. |
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Clergy should not view this information as a substitute for professional advice. This information is subject to change, due to administrative rulings or interpretations and or technical corrections by the IRS. If legal advice or other expert assistance is required, the services of a competent clergy tax professional person should be sought.
