Corey Pfaffe, CPA, has a good overview of the employee versus independent contractor issue for local churches. See his post: Church Employee or Independent Contractor.
Professor Pfaffe’s approach at his blog uses a Q&A format.
Notice the question he provides:
My question concerns a church’s categorizing of church employees as independent contractors to avoid paying taxes and workers compensation insurance. Can you shed some light on this?
See something wrong with this picture? Even though he framed up the question as he wished, look again.
The motivation behind this question is to avoid paying the 7.65% employer’s share of FICA taxes and perhaps 1% or 2% workers comp insurance.
When a question on employee versus independent contractor classification is based on cost savings, the question has pretty much answered itself. Probably not even necessary to discuss the responsibilities of the person involved.
Saving money, basically cheating the government and the employee, is not a legitimate factor in determining whether someone is an independent contractor.
I know Prof. Pfaffe’s question is biased and my response is rather strong. However, the attitude hidden in the question is still popular today. Unfortunately that mindset is not strictly limited to the business community. It is present in the nonprofit world as well.
Look to the answer provided by the professor for the correct analysis.