What Church Bookkeepers Miss #3: Important Payroll Issues

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.


contact Finch today for a free consultation.


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