The following is another installment from my friends at MAG Bookkeeping. I just love everything about this wonderful organization. If your church needs bookkeeping or virtual admin assistance, there is no one I recommend more. You can contact MAG’s leaders Bryan and Shannon Miles or Randy Ongie by clicking HERE.
In this post they address one of the most important issues church leaders deal with – Frightening Church Realities: Many Do Not Pay Staff Properly. Now let’s read their thoughts:
We work with lots of churches – primarily younger churches that are just starting out, but not exclusively – who tend to pay people from their general checking account, just like they’re a general expense. But they’re not. Those are payroll expenses. Anytime you write (or issue electronically) a check for services someone has rendered for your church, the government sees it as pay – not just another expense.
If someone mows your grass and you compensate them – even if it’s a youth group volunteer – you’re either paying him or her as an independent contractor or as an employee. If they’re an independent contractor, and you’ve paid that individual more than $600 in a given year, you need to file a Form 1099 at tax time. If that individual is an employee, he or she needs to be set up on your payroll system with withholding or potential employee benefits.
We’ve even seen churches who pay their senior pastor out of the general checkbook like the pastor is an expense – not a staff member. Your pastor is a staff member, not the electric bill, and needs to be paid accordingly. If you have ordained staff who is going to be paid like a clergy member, and they receive a salary and a housing allowance, those payments need to follow some pretty stringent rules and guidelines. It’s a really good thing to pay your pastors like this, as it helps maximize their income as a church leader, but if it’s done incorrectly it can come back to haunt both the church and the pastor. Fines and penalties can accumulate for both entities, and those fines and penalties can go back for years.
Even trying to do a good turn for people can have payroll consequences. Often churches will encounter non-members who come in off the street looking for financial assistance. It may seem like a good idea (and we certainly see and hear of churches doing this all the time) to have that person vacuum the carpets or empty the trash cans in exchange for any financial gift. But that money, if the person has rendered any services at all in exchange for that money, is no longer a gift. It’s pay, with all the regulations associated with it.
If you’re wondering how your current payment practices might be getting you into trouble, we can help – contact MAG Bookkeeping today, and stop being frightened by your finances!
Your thoughts?
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