In the first post of this series, I explored what an intern is as part of my research on paying church interns by stipend. That lead me to having to dig into what a contractor is and rules about paying church interns as contractors.

Remember, there are 4 types of workers that can do any work at your church:

1. Employees
2. Interns
3. Contractors (more below)
4. Volunteers

There is no other, so if you’re paying a stipend to anyone, you’ll need to know first which of the 4 categories they fall into.

Are They a Contractor?

Well, maybe they’re not an ‘intern’ according to the legal definition. Can’t I just 1099 my interns and call them contractors?

Again, there’s a test by the Feds to help you determine whether they’re a contractor or employee. This one’s a little fuzzier; failing only 1 of the following may not necessarily kibosh the whole thing. There are as many as 20 points to this test, but here are the ones I think would most commonly apply to churches. You only have a contractor if:

1. You don’t direct when, where, and how their work is done
2. They serve for a fixed duration (no ongoing relationship)
3. They work less than full time
4. They don’t have to provide oral or written reports on the status of their work
5. They pay for their own expenses (no reimbursements)
6. They provide their own tools & equipment
7. They do the same kind of work for other churches or business, too

If they fail more than one of the 20 tests, then probably you have an employee that is subject to minimum wage & overtime requirements (and not a contractor).

Examples of church contractors:

• A church health consultant that works with your congregation for 9 months to assess & advise you
• A professional leadership coach that works with you or a staff member for a season
• A capital campaign consultant that helps your congregation raise money for a specific campaign
• A professional musician that plays in your band twice a month, but plays for different churches on the off weeks and also plays clubs, events, etc. regularly

So Now What?

You can’t just call someone that you’re paying for work a contractor to avoid the hassle of going through a hiring process and setting up payroll. If they really are a contractor, pay them that way, but I think in most cases, church interns aren’t contractors.

There have been too many employers that have taken advantage of employees by taking this shortcut. The IRS and pro-labor states are tolerating it less, and if you’ve been careless, there will be fines & penalties. Do the right thing and don’t stick your employees with the tax bill and burden of figuring out self employment tax filings.

Your last chance for paying church interns by stipend is classifying them as volunteers.