Determining an employee’s proper classification requires a fact-driven assessment that looks beyond a job description and examines exactly what the employee does on a daily basis and performed during the last two years.

It is not uncommon for an employer to state, “we pay all of our employees as salaried or a set rate for the year, it’s just easier that way”. If this sounds like your church and you don’t have a system for certain employees to record and report their hours to the leadership individual responsible for paying those who work for the church, we strongly encourage you to put a system in place.

Why should you be concerned about this? Over the last several years the US Department of Labor has increased its efforts to audit employers, including churches, for compliance with the Fair Labor Standards Act (FLSA). If your church was audited and found to be out of compliance, you could be subject to significant penalties and fines.

The terminology of exempt or non-exempt may be a new concept for you. Some employers think or speak using the terms SALARIED or HOURLY instead of exempt or non-exempt. These terms are not necessarily interchangeable, but are often mistakenly viewed that way

The Fair Labor Standards Act (FLSA) requires that employers classify jobs as either exempt or nonexempt. Nonexempt employees are covered by FLSA rules and regulations, and exempt employees are not.

What is an exempt employee?

Exempt positions are excluded from minimum wage, overtime regulations, and other rights and protections afforded nonexempt workers. Employers must pay a salary rather than an hourly wage for a position for it to be exempt. Typically, only executive, supervisory, professional or outside sales positions are exempt positions.

Ministers may often qualify for the white-collar exemptions to the FLSA (administrative, executive, and professional) if they meet the regular requirements. However, courts have also recognized a ministerial exception to the FLSA, such as the Fourth Circuit Court of Appeals, which first identified this exception in a 1990 case entitled Dole v. Shenandoah Baptist Church. The court found that it could exclude a member of the clergy who worked for a religious entity from the definition of “employee” under the FLSA, which precluded his FLSA overtime claims.

Key leaders may be exempt if their ministry descriptions comply with “exempt executives” or “exempt administrative” job duties . In your church, Directors and Managers might be exempt, based on wages and/or managerial duties. Executive Assistants might be exempt, based on the role of “managing the lives of their executives.” Interns might be exempt as “trainees” if their ministry descriptions comply with some tightly defined rules.

What is nonexempt employee?

Nonexempt employees, as the term implies, are not exempt from FLSA requirements. Employees who fall within this category must be paid at least the federal minimum wage for each hour worked and given overtime pay of not less than one-and-a-half times their hourly rate for any hours worked beyond 40 each week.

If you work over 40 hours in a workweek, you will be compensated at time and a half after 40 hours. Or, if you live in California, you must abide by the FLSA and some state additions to the rules. For example, most workers in California must be paid time and a half if they work more than 8 hours in a day.

You cannot “time shift” between two workweeks. This means that if you work 50 hours in one week, you can’t put 40 in one week and roll 10 hours into another week. This is often called “comp time.” This is illegal for nonexempt employees.

Your church can insist that you take off time before the end of the workweek so that you won’t exceed 40 hours. You can send home any worker who reaches their daily maximum number of regularly paid hours.

In your church, most Administrative Assistants, Food Service Workers, Nursery Caregivers and Facility Workers are nonexempt. These are just a few of the common categories of workers in a church.  You must examine the job description of every worker and make a fair and reasonable determination if they are exempt.

Final note: Don’t forget that new white-collar overtime rules are coming soon. The Department of Labor is expected to publish final regulations sometime this year. Those rules, while setting a higher salary requirement, may eliminate much of the hassle of classifying employees. The likely result: More workers currently classified as exempt will be reclassified as nonexempt.

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.

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