A 501(c)(3) organization recently accepted the services of a married couple. This married couple does not receive compensation from the organization, but does receive donations from individuals who designate their donations to the organization on behalf of the couple. The organization controls the hours and projects of the couple. Should this couple be considered as employees or as independent contractors?
There is strong motivation for nonprofit and for-profit organizations to treat their employees as non-employees. Typically non-employees are excluded from benefits available to employees (therefore, reducing organizations' costs). An April 21, 2009, blog post explained the IRS position on the classification of church workers. These same principles apply to all 501(c)(3) organizations:
"In most cases, non-ministerial church workers (individuals who are not performing the functions of a minister) should be classified as employees and subject to FICA withholding (and matching by the church) and income tax withholding. A common situation when independent contractor status is appropriate relates to a church employing a janitorial or other service firm to render services. On the other hand, the typical church janitor, office employee, etc. should not be treated as an independent contractor." (This quote is from one of many blog posts that readers will find by typing "Independent Contractor" in the above Search Window.)
* 501(c)(3) organizations are tax-exempt not-for-profits described in the Internal Revenue Code Section 501, subparagraph c, subsection 3, hence the name "501(c)(3) organization."