My question concerns a church's categorizing of church employees as independent contractors to avoid paying taxes and workers compensation insurance. Can you shed some light on this?
The IRS makes available Form SS-8 to aid in the determination of employee versus independent contractor status. I've provided a link here: IRS Form SS-8
Further, the IRS provides the following guidance:
"In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
"Facts that provide evidence of the degree of control and independence fall into three categories:
"Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
"Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
"Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
"Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
"The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination."
I provide one more bit of advice. When it is appropriate to classify an individual providing services to the church as an independent contractor, the church should require proof of business insurance (a "binder") from the contractor. Churches should consult their business insurance agent when contractors do not have insurance in order to determine whether the church's workers' compensation insurance extends to them.