Worker’s Compensation Insurance and Unemployment Benefits

During this season when we pause to celebrate Labor Day, two important labor issues for churches to consider are worker’s compensation insurance coverage and unemployment taxes and benefits. Both of these issues can be confusing for churches.

Worker’s Compensation Insurance: Worker’s Compensation insurance provides benefits for employees who are injured while performing their work duties. Although church positions may not seem on the surface to be inherently dangerous jobs, injuries still occur while performing job duties. These injuries may result in missed work and medical expenses, placing a burden on both the employee and the employer. Whether or not a church must carry worker’s compensation insurance is a matter of state law which can vary based on jurisdiction. Churches should not assume that they are not required to carry worker’s compensation insurance. Some states require all employers to carry such coverage. Others have exemptions for certain kinds of employers. For states that require coverage, there may be significant financial penalties for employers that fail to comply. The financial impact of such penalties may far outweigh the expense of having coverage. Your church’s insurance carrier is a good source for additional information about the details regarding worker’s compensation coverage in your state. You may also want to consult with a legal professional to ensure a proper understanding of your state’s laws.

Additionally, it is worth remembering that worker’s compensation coverage applies to injuries that arise while performing job duties. Employers and employees may also want to consider carrying disability insurance to cover issues that may occur outside of the performance of work duties that may lead to an employee being unable to perform work duties.

Unemployment Benefits: Unemployment benefits are paid through government agencies for employees who lose their jobs under certain circumstances. These benefits are funded through unemployment taxes. There are two kinds of unemployment taxes to consider. First, there is a federal unemployment tax. These taxes are often paid through payroll withholdings. In most cases, church employees are exempt from these taxes and the corresponding benefits.  Second, there are state unemployment taxes, the exact requirements of which vary from state to state. Often church employees are exempt from state unemployment taxes and benefits as well. However, it may be necessary to take action to obtain a formal exemption from the state in order to avoid participating in its program. In other words, the exemption may not be automatically recognized. Some states add nuances to this general rule which may make distinctions between ministry and non-ministry employees.

Churches have encountered situations in which they were required to pay unemployment benefits actually claimed by a church’s former employee even though the church was not required to pay into the unemployment tax system. Based on the nuances in some states, it is best to contact a tax or legal professional in your church’s jurisdiction to understand the exact requirements in your state, or at least contact the appropriate state agency to obtain details.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com