Should Churches Pay Overtime?

Should Churches Pay Overtime?
William Cooley

If your church is timely in remitting payroll taxes you are withholding or matching, the probability of your church being audited by the IRS doesn’t even register on the risk scale. You have specific protection under the l984- Church Audit Procedures Act for non-payroll issues.

But if your church operates a school – even just a day care during: the week or a preschool – you run a much higher risk of being investigated by a federal agency. No, not the IRS – the Department of Labor (DOL). And just one call to the DOL from a disgruntled individual that works or used to work for your church-school may trigger the visit.

Overtime and below minimum wage payments unexpectedly levied – often going back three years – by the state or federal labor department on your church-school employees may wreak financial havoc. Could this happen to your church-school? It could if nonexempt church-school employees:

* Are being improperly classified as independent contractors instead of employees and the overtime or minimum wage rules are ignored.

* Are being paid at less than the current minimum hourly rate of $4-.25 per hour. (A sub-minimum of $3.70 is allowed for teenagers.)

* Are allowed to work over 40 hours per week and do not receive any pay or receive only straight time for the hours over 40.

* Work over 40 hours per week but receive compensatory time off in a later week either at a rate of one hour off for each hour of overtime worked or at a rate of 1-1/2 hours off per hour of overtime worked.

* Are in reality covered under the FLSA instead of exempt. Recent court cases have taken the stance that an individual is covered under the FLSA if the individual is treated as an hourly employee; subject to deductions from wages in hourly increments for absences of less than a full day; or charged sick or vacation time on an hourly basis.

The DOL administers the Fair Labor Standards Act (FLSA). Enacted in 1938, the FLSA requires that most organizations engaged in interstate commerce pay the minimum wage for all hours worked, men and women equally, and overtime wages (at the rate of 1-1/2 times the employee’s regular rate) for any hours worked in excess of 40 in a work week. Bona fide executive, administrative or professional employees are exempted form these requirements.

The Labor Department takes the position that churches operating day cares, preschools, elementary or secondary schools are subject to the FLSA. The minimum wage and overtime rules are part of the FLSA provisions. The federal minimum wage is $4.35 an hour. Several states have higher minimum rates. Some Congressional leaders are hoping to raise the rate by as much as 50%, to above $6.00 per hour.

The law provides that overtime, when earned, must be paid in cash; the use of compensatory time of is not permitted, unless the time off is taken in the same work week. A common misconception is that only church-school employees paid on an hourly basis must receive overtime pay. This is not true. All eligible employees, unless they are exempt under one of three so-called “white collar” tests, must receive overtime pay, regardless of whether they are paid by the hour or bimonthly or annual salary.

Church employers who do not relate to school operations are generally exempt from the FLSA. Volunteers who may work in a church nursery on Sundays and during other week-day services are not covered by the FLSA if there is no promise or expectation of compensation. But what about paid nursery attendants who work during church services? The law and court cases do not provide guidance. lt is possible that these workers could he termed employees and subjected to the minimum wage, overtime and equal pay provisions of the FLSA.

The primary exemptions available to church-schools are:

* Professional employees, though this is limited to those whose jobs require them to have knowledge of advance type of science. Many church-school teachers are exempt under the professional category.

* Executive employees. To meet this test, an employee’s primary duty must be the management of a department or division and the employee must regularly supervise the work of two or more full-time employees.

* Administrative employees. This is the exemption most readily available to church schools. To be exempt, an employee’s primary duty must be the performance of non-manual (e.g., office) work directly related to management policies. An employee must regularly exercise discretion and judgment. There is no exemption for “administrative assistants” who are in reality secretaries.

Here’s what to do:

* Exercise care in determining which church-school workers may be exempt. Employees most often subject to the FLSA are secretaries, bookkeepers, janitors, day care workers.

* Don’t misclassify workers as independent contractors when they are really employees.

* Provide equal pay for the same work for men and women.

* Properly calculate and pay overtime in cash when a covered employee works over 40 hours per week.

* Pay all covered workers at least the minimum wage.


(The above material was published by PASTORS TAX & MONEY)

Christian Information Network