Government agencies scrutinize how all organizations apply laws and regulations for decisions involving payroll, benefits, work eligibility, and more. When mistakes are made, an individual board member or ministry leader can be personally liable to pay penalties, legal fees, and damages.
Since a leadership member’s savings, retirement, and reputation are at stake, it’s important to know which areas expose personal assets and what protections are available at both the state and federal level. At the federal level, leaders risk personal liability exposure in these five areas:
The burden of collecting and paying payroll taxes, directly or indirectly, falls on the ministry’s governing leaders. Payroll taxes are paid directly to the government and cannot be used for operational and business expenses. Any person who willfully fails to collect, pay, or account for employee payroll taxes will be personally liable for unpaid taxes and penalties.
Tip: Review these guidelines for completing Forms W-2 and W-4, housing allowances, and taxable gifts.
The Fair Labor Standards Act (FLSA) requires employers to follow rules regarding overtime pay; the Family and Medical Leave Act (FMLA) requires that employers allow unpaid leave for certain employees for a medical issue, without it jeopardizing the employee’s job.
Individual ministry leaders and supervisors may be personally liable for FLSA/FMLA violations if their duties include overseeing financial affairs of the organization, hiring and firing decisions, or the ability to affect wages.
The Employment Retirement Income Security Act (ERISA) provides protection for individuals enrolled in a voluntarily established pension or health plan. A church leader who acts as a “fiduciary” could be held personally liable if he or she fails to comply with ERISA’s requirements.
Tip: The Department of Labor offers compliance assistance here.
The government allows an employee to continue receiving ministry-sponsored health insurance after leaving or losing a job, known as COBRA insurance. Plan administrators could be held personally liable if they fail to notify employees and beneficiaries who would have qualified for its benefits.
Tip: The Department of Labor offers resources for employers here.
The Form I-9 verifies a person’s employment eligibility. Ministry leaders could be personally liable for an incomplete form or for knowingly hiring an unauthorized worker. The government could also impose criminal charges, so careful compliance with this law is important.
Tip: Brotherhood Mutual’s MinistryWorks offers additional tips on Form I-9 best practices.
Some federal laws offer protection for volunteers. Note: your state may offer a broader definition of volunteer immunity.
Three additional layers of protection exist for individual board members against someone suing the ministry or board member in civil court. Without these protections, personal assets of a ministry leader could be exposed.
Incorporate. When a ministry is incorporated, board members likely will not be held responsible for the ministry’s debt and the personal assets of individual ministry leaders are generally shielded from a judgment awarded against the ministry. This Legal Q&A from Brotherhood Mutual discusses the issues ministries should consider before incorporating.
Indemnification. Indemnification shields board members and leaders from losses that result from their decisions. Language can be included in your ministry’s bylaws, and a ministry can indemnify its board members with or without incorporation. Awarded damages are paid for by applicable insurance policies and/or ministry assets. This Legal Q&A from Brotherhood Mutual helps explain the process.
Directors and officers insurance. Directors and officers (D&O) and other liability coverages provide protection for a variety of general liability exposures, including bodily injury, employment practices or benefits, sexual misconduct, or financial damages. Awarded damages are paid for by the ministry’s applicable insurance policies and/or ministry assets. This article from Brotherhood Mutual explains more about how D&O insurance protects individual board members.
Protection from personal liability is not absolute. It is essential for ministry leaders to consult with a local attorney to ensure the ministry’s interests are ultimately protected.
For additional guidance see:
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