What Church Bookkeepers Miss #3: Important Payroll Issues
Church bookkeepers play a crucial role in properly stewarding their church’s resources. One of their more complex financial responsibilities is managing payroll-related tasks. Unfortunately, amidst the crucial mission of serving their congregations, they can sometimes overlook key payroll issues, which can have significant consequences.
Let’s jump into some of these overlooked issues and understand why they are important, how they can be missed, and the risks associated with each.
Five Crucial Payroll Issues for Church Bookkeepers
1. Ministerial Taxation
Ministers and clergy members have distinct tax considerations such as housing allowances and self-employment tax obligations. Mishandling ministerial taxation can lead to financial strain on the minister, legal liabilities for the church, and damage to relationships within the congregation.
For example, if a bookkeeper treats a minister’s housing allowance as regular income, this will result in underpayment of taxes. This simple oversight can trigger IRS audits and penalties for both the minister and the church.
Properly addressing ministerial taxation is vital to prevent legal liabilities and maintain financial stability.
2. Volunteer vs. Employee Classification
It’s important to accurately classify workers, ensure compliance with regulations, and protect your church from financial and reputational harm.
Imagine that your church hires a music director and classifies them as a volunteer to avoid payroll taxes and benefits costs. However, the music director works regular hours, receives compensation, and is integral to your church’s operations, meeting the criteria for employee status.
This type of worker misclassification can lead to violations of labor laws, tax obligations, and eligibility for benefits. All of these violations can place your church at risk.
3. Timekeeping and Overtime Compliance
Proper timekeeping procedures are essential to accurately calculate wages and ensure compliance with overtime laws. Bookkeepers should establish and enforce policies for recording hours worked and properly calculate overtime pay when applicable.
Failure to establish proper timekeeping procedures and ensure compliance with overtime laws can result in various risks including potential lawsuits for wage violations, penalties for non-compliance with labor regulations, and damage to the church’s reputation.
By prioritizing timekeeping and overtime compliance, church bookkeepers can help safeguard your ministry against these risks and ensure fair treatment of employees.
4. Benefit Administration
Many churches have found that offering employee benefits is essential for attracting and retaining staff. Proper administration of these benefits ensures compliance with legal requirements and employee satisfaction.
Failure to offer employee benefits such as a retirement plan can deprive your team of valuable resources, leading to high employee turnover, legal disputes, and reputational damage.
5. Tax Exemptions and Reporting Requirements
Churches and nonprofits enjoy tax-exempt status, but this doesn’t mean they are exempt from all tax-related obligations. Understanding tax exemptions and reporting requirements ensures compliance with the law.
For instance, a church-related ministry might fail to file Form 990, an annual information return required for tax-exempt organizations, assuming their tax-exempt status exempts them from filing. This oversight can lead to penalties and jeopardize their tax-exempt status.
Ensuring compliance with these requirements is essential to avoid financial repercussions and maintain the organization’s reputation.
Avoid Church Accounting Risks
The best way to simplify complexities of church finances, including payroll-related issues, is by partnering with the church financial professionals at Finch.
Their team of experts will protect your church by ensuring compliance with tax laws, proper handling of ministerial taxation, and advising of proper payroll issues. With their expertise and dedication, Finch provides peace of mind to churches around the country, allowing them to focus on their mission and ministry without worrying about financial pitfalls.
Corey has 10 years of professional experience in financial planning and analysis. His previous areas of focus involved helping launch the Financial Services department of a large government contractor, where he developed the various reporting and budgeting systems.
Corey also actively manages Shorebird, a Registered Investment Advising firm that focuses on Financial Advising, Planning, and Investment Management for clients. He is also an adjunct finance professor at the University of California, Riverside for their graduate-level programs.
Corey received a B.A. in Business Administration at the California State University, San Bernardino; a Masters in Business Administration and a Masters in Finance from Indiana University’s Kelley School of Business.
Jonathan has more than 7 years of professional experience in corporate taxation and strategy with both public and private companies. His industry experience includes entertainment, church finances, medical device, and technology. Jonathan is also an adjunct professor at the University of California, Riverside (named a Best Business School by Princeton Review and named a Best Undergraduate Business School by Businessweek) and speaks at conferences on topics such as leadership and management.
Jonathan is a graduate of the University of California, Riverside and an MBA candidate at UCLA Anderson School of Management. He is a licensed Certified Public Accountant (CPA) in California.
Jonathan previously worked at PricewaterhouseCoopers, LLP where he specialized in corporate taxation.
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