We previously asked church leaders about the following situation:
Your churchs Youth Pastor has asked you about hiring a summer intern to help with your churchs summer programming and with an upcoming out-of-state trip to a week-long Christian youth camp.
Pastors may remember working as an intern fondly (or not) as a rite of passage to becoming a minister. Experience under the guidance of an established pastor can help determine the path a young minister will set out on as he or she begins their new career. However, how a church goes about utilizing and compensating an intern can lead to problems with governmental authorities that can cost the church far more than they expect.
There seem to be as many ways of compensating interns as there are churches. Okay, that may be a bit of an exaggeration, but its surprisingly not too far off. Some churches expect interns to provide their own support and as a result, treat them as volunteers. Others do the same, but promise them scholarship money or a bonus at the end of their service. Some churches even treat interns as independent contractors. Lastly, other churches actually consider interns as employees and treat them like they would any other employee.
The two governmental agencies that concern themselves with who is considered an intern, how they are paid and whether any compensation they receive is taxable, are the Department of Labor and the Internal Revenue Service. They each bring their own perspectives to the table, so lets first take a moment and see what they have to say.
The IRS considers that if an intern receives (or expects to receive) anything of value from the church for their service, they say that he or she is an employee and what they receive is taxable income. They consider
anything to include not only a paycheck, but housing and mealsjust like what the word meansanything. But if the internship is part of a schools educational program and the intern receives nothing of value from the church, the IRS doesnt consider the intern an employee.
The Department of Labor, in making sure that labor laws are adhered to, pays special attention to minimum wage and overtime requirements. As part of its quest to protect workers, the DOL established a six point test for interns. In January, 2018, the department published its new seven point test. They state that,
this test allows courts to examine the
economic reality of the internemployer relationship to determine which party is the
primary beneficiary of the relationship. Courts have identified the following seven factors as part of the test:
In addition, the Labor Department has also said that as long as an interns service is for 3 months or less and any compensation they receive is less than twenty percent of the fair value of the services they provide, its valid to consider the intern as an unpaid volunteer. We plan to look at this a bit closer later, but for now lets just leave it standing on its face value.
In case you dont want to read everything were going to say about hiring an intern, lets diverge for a moment. There is one
out that a church can use to avoid oversight by the DOL. Choose an intern who has some type of ministerial certification that is recognized by your church AND who performs ministerial duties at least 51 percent of their time while working at your church.
So, if your new intern is ordained, leads worship, performs sacraments such as weddings and also performs sacerdotal functions (duties your church or denomination reserves only for ordained staff), that intern is exempt from employment rules such as minimum wage and overtime rules found in the Fair Labor Standards Act. In case any questions arise later regarding whether these standards are fully met, we recommend that you require your minister-intern to turn in a signed timesheet each week. And yes, you may want to read on anyway
You probably noticed earlier that the DOLs emphasis seems to be on the idea that an intern should be receiving some kind of training. If you did, youre right. In fact some DOL agents go so far as to say that an internship needs to be tied to their school. So if you can get something in writing from a prospective interns school that their internship is sponsored and approved by the school, thats something wed recommend as a good idea.
You probably also noticed that the DOL believes that an internship should not give the intern or the church any advantage for the future. So if your intent is to use an internship as a probationary period prior to hiring a new Youth or Childrens Minister, you probably would be better off if you just went ahead and treated them like an employee.
Likewise if youre thinking of having an intern so that they can cover for paid staff when staff members go on vacation, you can do thatyou just shouldnt plan on considering them as an intern.
So what can a church do if they want to bring an intern on board?
First, remember the IRS main interest is in collecting taxes. And they consider compensation received in any form as taxable unless a specific section in the Internal Revenue Code or IRC excludes the item from taxation. So even if you dont give your intern a penny until right before they return to school and then you surprise them with a $2,000 scholarship as a way of saying
thank youthats taxable. Sorry, but sending the check directly to the interns school isnt a work-around, the scholarship is still taxable.
Same goes for that generous room and board that they received over the summer from one of your kind church families. This means that you need to determine what it would have cost the church to provide similar lodging and meals and report that as taxable income to the intern. Be sure to keep on file whatever documentation that you use to arrive at that cost in case anyone questions your calculations.
We hope that youve also been requiring that they sign and turn in a written timesheet showing all the hours that theyve worked each week.
Remember earlier we mentioned that if the IRC excludes an item from taxation then its not taxable (and by extension, not reportable)? Well, heres an exclusion that we can share with you from Section 119 of the IRC. If an employees job duties require them to live on the business premises of the employer and they must accept meals there as a condition of employment and the meals are for the convenience of the employer, then the value of the lodging and meals is excluded from being taxed. An example of this that is easy to understand is a summer camp counselor who is an employee of the camp.
Likewise, if in accepting an internship the intern had to leave another job elsewhere and they work for a year or less in the internship, they may be able to exclude meals and lodging from taxable income. The key to complying under such temporary workplace rules is that they have what the IRS considers a tax home elsewhere. If prior to showing up as your new intern they were a full-time student, the internship at your church probably wouldnt qualify as a temporary workplace for them for tax purposes.
Lastly, if an interns meals and lodging costs are reimbursed under a qualifying accountable expense reimbursement plan, they may be excluded from taxable income.
Up to this point youve probably been doing a great job keeping track of all of the non-monetary compensation that your intern has received. We hope that youve also been requiring that they sign and turn in a written timesheet showing all the hours that theyve worked each week. If you dont, whatever they make up later will be believed by the DOL and you will have to pay not only back wages, but a big bill from the DOL for any fines they assess against you and probably some attorney fees as well.
If the only hours your intern will work will be during a normal work week, keeping a handle on their hours shouldnt be too difficult. But what about the week that they will spend with your teens at a church camp in another state?
First you need to understand what is considered
on duty time and what is not. If he or she travels during your churchs normal office hours yet has no other duties, they are still considered on duty. For example if your normal office hours are 9:00 AM to 5:00 PM Monday through Friday and their travel time is from 2:00 PM to 9:00 PM on a Friday, they are considered on duty for three hours from 2:00 PM until 5:00 PM. The rest of the travel time that day, the church is not obligated to pay. Likewise travel on weekends outside of your churchs normal office hours are considered off duty and dont have to be paid.
However, if your intern travels with the teens and is responsible for providing some supervision, they are considered on duty and are due compensation regardless of the time frame involved.
Once everyone arrives at the camp your intern is eligible for compensation on a 24 hour a day, seven days a week basis if they are required to share sleeping quarters with the campers. If they have separate sleeping quarters away from the campers and get at least five hours of uninterrupted sleep, up to maximum of eight hours, they are not eligible for compensation during those sleep periods.
Interns are eligible for pay for attendance at required meetings including church services and any time where they are not free to leave the camp or retreat center facilities and have personal time away from any assigned responsibilities. In fact, the extent to which an intern can engage in personal activities and isnt expected to immediately respond to a situation enters into whether or not they are considered on duty or not.
If an intern is an employee of a church-owned camp or conference center that is open no more than seven months during the year and which receives at least two-thirds of their total income during the time they operate the camp, they are exempt from federal law that requires that they receive overtime pay. But, they must still be paid minimum wage.
States, however, have different rules for camps than the federal government. Some states require overtime be paid when employees work more than 54 hours a week. If your church owns a camp or conference center, please be sure to check your states rules for compensating camp employees.
Okay, now you have a better understanding of the landscape, both for what duties you expect an intern to perform and when they are considered
on duty. Youre confident that you meet all of the conditions of the DOLs six-point test that we listed earlier and theyre only going to serve for three months. But you wonder if the room and board and the stipend youve got in mind will cause you to have to consider them as an employee.
Determine what it would cost you to hire someone to perform the same duties that youve outlined for an intern. Take into consideration the skill level and the level of difficulty needed to do the job. Check compensation surveys. Remember that the final number can be higher than minimum wage. In fact, given the skill level that you expect an intern to bring with them, it probably should be somewhat above minimum wage. Calculate the taxable income youre going to provide an intern. If its no more than 20 percent what it would cost your church to hire a regular employee to do the same job, you can consider your intern a volunteer. This means that the Fair Standards Labor Act doesnt apply to your intern. You dont have to be concerned about paying minimum wage or for overtime. Just be sure to keep how you documented your decision on file in case you need to defend it.
In the end if you want to keep your pay plan for interns as simple as possible, the easiest option for you is to forego all the various exclusions and reimbursements and pay them like you would any other non-exempt employee.
But remember, regardless of whether youve met the DOLs requirements for volunteer interns or not, you still have to report all taxable income you give your intern to the IRS.
If your church is among those that expect interns to raise their own support while they are serving, there are a couple of things you should be aware of. First, you need to be sure that any fund raising done conforms to deputation fund raising rules. Those rules are beyond the scope of our current topic, so were going to pass on going deeper for now. Second, assuming those duties are being followed properly, if the amount that they raise is not sufficient to cover what the church would be obligated to pay them under the other rules weve discussed, the church must make up any difference.
Okay if hiring an intern is so complicated, you may be asking why shouldnt we just treat them as independent contractors and leave it at that. Probably the simplest way of determining whether someone can be considered an independent contractor or not is this. If the employer only controls the result achieved and not how its achieved, then a person can be considered as an independent contractor. Because of the training nature of intern work, we doubt that many interns would pass this test.
In the end if you want to keep your pay plan for interns as simple as possible, the easiest option for you is to forego all the various exclusions and reimbursements and pay them like you would any other non-exempt employee. It may not be the least expensive option for you, but it will be legal and pretty much free from the headache of keeping track of all the exceptions and exclusions that weve mentioned here.
We at Church Administrative Professionals believe that there is value in demonstrating to your interns that your church values Jesus admonition to
give back to Caesar what is Caesars by following the tax and labor laws of our country and state. If you would like some help in formulating a policy on compensating interns, call us. We can help.
Please Note: This information is provided with the understanding that Church Administrative Professionals is not rendering professional advice or service.
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