Author: McMahon, Jon
Date published: January 1, 2012
In the first part of this article, I listed some of the twenty factors that the IRS uses to determine whether a person is an employee instead of an independent contractor. One of those factors examines whether an employee's services are integrated into the business operations because the services are important to the success or continuation of the business (see Pastoral Music 36:1 [November 2011], 61).
On the question whether an organist is integrated into the business, we can affirm: Very much so. In fact, most organists are officially called music "ministers" because they share in the ministry and the mission of the church or synagogue. Employers should most frequently use the term "minister" in all written documents. While this aptly describes the relationship between employer and organist, being labeled a minister also means that you can be terminated without much hope of your winning a wrongful dismissal lawsuit. (This "ministerial exception" to certain federal and state civil rights laws usually prevents churches from being sued for employment decisions involving "ministers.")
Recently many institutions have become rightfully and painfully aware of the well-publicized lawsuits being awarded because of the abusive misconduct of an employee. Employers may feel that calling their organist an "independent contractor" would free them of any co-responsibility in a criminal case. Yet, honestly, if the newspapers write that someone was "this church's regular Sunday organist for the past five years," who would believe that a classification of "independent contractor" would spare the religious institution from being sued or from being embroiled in the ensuing scandal?
Problems with Improper Classification
Still, many religious institutions may default to the "independent contractor" classification, some, perhaps, to avoid the paperwork and expense of a new employee. To name a few of the extra duties involved in hiring an employee: The church must complete an 1-9 form for immigration purposes; begin social security and income tax withholding; report the hiring of the employee on state or federal informational forms; issue a W-2; possibly enroll the person in state unemployment compensation programs (many states exempt churches); enroll the employee in worker's compensation; possibly enroll the person in insurance, medical, or pension plans; and create an employee personnel folder. If a church considers a person a self-employed independent contractor, however, generally none of these steps need be taken. However, if the church is held to have improperly classified that person as an independent contractor, then the church will be responsible for back taxes, withholding, interest, possibly tax penalties, back insurance premiums, etc. That is why it is so crucial that a church make the right decision when deciding how to classify a new person.
A written contract does not in and of itself convince the IRS of independent contractor status, however it can help clarify what work is being done, and aid with other issues. Usually the details of a written contract, after being reviewed by legal counsel, will support an argument in favor of the organist's role as an "employee" and not an independent contractor.
In a well-publicized case, Microsoft was sued by "permanent temporary" workers whom Microsoft treated as independent contractors. Some of these individuals worked at Microsoft for more than a year. The court found in that case the differences between employees and these "independent contractors" were not clear and that the temporary workers were entitled to benefits ( Vizcaíno v. Microsoft, 7 F. 3d 1187, 1996).
The Internal Revenue Service issues private letter rulings related to questions presented to the IRS by taxpayers. These private letter rulings do not have the force of law but do indicate the position the IRS takes on the question it is asked.
One such ruling issued in 1985 related to whether a church choir director was an employee of the church or an independent contractor. If the person were an employee of the church, the church must issue IRS Form W-2 to the employee, reflecting the appropriate amount of Medicare and Social Security taxes. However, if the choir director were deemed to be an independent contractor, the employee would receive a Form 1099-MISC; and the employee would be required to report such income as self -employment income on his or her personal income tax return and pay all Social Security and Medicare taxes related to such income.
In March 2010, the IRS issued another such ruling relative to a church organist with the same question, namely: Is a church organist an employee or a selfemployed independent contractor? (see Private Letter Ruling 8514077,section 3401.)
In both of these documents, the IRS strongly suggests that church organists and church choir directors are employees of the church and that any compensation paid to such persons by the church for their services should be reported on Form W-2. Even though the church issued to the choir director and/or organist a 1099-MISC, and the choir director/organist reported such income on his/her tax return as self-employment income, the IRS can, nonetheless, issue penalties to the church for its failure to report such income as the income of an employee of the church.
Mr. Jon McMahon is the organist at St. Luke Catholic Church in San Antonio, Texas, and the Sunday music director for the Oblate School of Theology in San Antonio. He is also the editor of The Alamo Tracker, the newsletter of the Alamo AGO Chapter. A slightly different form of this article appeared in the March 2011 issue of The Tracker. The first part of this article appeared in the November 2011 issue of Pastoral Music.