Now that you have formed a church, what happens when you need to hire your first employee? This can be a difficult decision. First, you have to decide if your church has the funds to hire another person. Hopefully, your church is growing and you need administrative help, or perhaps another pastor. When your church finds itself in this position, there are a few things to consider. First, decide what position you need to fill and what the requirements are for that position.
Most people think that the only hard decision is who to hire and if they are going to be full or part time. In reality, there are several other considerations when you are ready to hire your first staff member.
There are two types of employment you hire people under:
Independent Contractors (sometimes referred to as 1099 employees)
Employees, full or part time (sometimes referred to as W-2 employees)
Lets start with independent contractors. Independent contractors are not all part time employees; they are employees that operate independently of the church. Now, jumping ahead, all pastors can be deemed independent contractors even when they are full time employees, but this is a special exception just for pastors. Right now, I want to concentrate on what we do when we are hiring someone other than a pastor. The determining factor is control over the person. If you are telling someone when to report for work and what to do while they are there, he or she is not an independent contractor, but an employee. However, if you are hiring a person to accomplish a specific goal, they are doing the work when they have time, and you are just paying them for the results, this is a true independent contractor situation. An example of this might be someone who would clean the church facilities. You pay them to clean, but whether they clean during the week or on Saturday, the goal is to clean the church before Sunday services. This differs from the janitor who works at the church for 20 hours a week and only part of their duties are to clean the church for Sunday services; this person is an employee. While the goal and the job are the same, the difference is control over the person. If they have autonomy in deciding when and how they do their work, they are an independent contractor.
Now lets look at employees – employees are either full or part time and you have direct control over when they report to work and what they do. Most of the time, the default status of a worker is that he or she is an employee. Examples of employees are the church secretary or administrative assistant to the pastor. They are told to report for work at 8:00 am and can leave at 5:00 pm – these are employees.
There are three requirements you must take into account when you have employees.
Documentation. For each employee, you need to have the proper documentation that you keep in employee files. There are two documents. The first is an I-9 form and it is available from the IRS [link]. You also need a W-4 form, which lets the employees select their withholding amount you will use when withholding taxes from their check. These documents need to be retained, and a new W-4 needs to be filled out any time the employee wants to change their withholding.
Payroll. You must derive a plan to have consistent paydays. There are typically four schedules to choose from:
Monthly – one payday per month, generally on the first of the month, which results in 12 paydays per year.
Bi-monthly – this is twice a month, generally on the first and 15th of each month, which results in 24 paydays per year.
Bi-weekly – this is every other week, generally on a Friday, and this results in 26 paydays per year.
Weekly, this is paying once per week, generally on Fridays, and this results in 52 paydays per year.
Tax Withholding. The biggest thing that changes when you hire your first employee is that you must start withholding taxes from their paychecks. This is the single biggest challenge for small churches. This is challenging because you have to figure out what the payroll amount is, but you must also do the reporting and tax payments as well. There are potentially four things you are withholding from their check (before any deductions for benefits). These are federal taxes (income taxes, social security, and Medicare), state income taxes (if your state has an income tax), federal unemployment, and state unemployment. You must realize that the amount of money you are paying an employee is costing you more than the hourly wage or their salary. The employer pays for one-half of the federal social security and Medicare tax, which amounts to approximately 7.65% for 2015 (click here for more information).
These are some of the basic considerations you need to take into account when hiring your first staff member. For help with these decisions and putting these into place, please contact me and we can help you navigate through the confusing waters of hiring your first staff member.