Sometimes board members and other ministry leaders ask the question - “Can I be held personally responsible for liabilities of the ministry?” The short answer is yes.
Government agencies scrutinize how all organizations apply laws and regulations for decisions involving payroll, benefits, work eligibility, and more. Make a mistake, and an individual board member, officer, or supervisor can be personally liable to pay penalties, legal fees, and damages. However, it is possible to reduce the risk with careful effort to comply with legal requirements, corporate indemnification, and the purchase of appropriate insurance coverage.
Since a ministry leader’s savings, retirement, and reputation are at stake, it’s important to know which areas expose their personal assets and what protections are available at both the state and federal level. At the federal level, your board of directors and ministry leaders risk personal liability exposure in various areas. This article will focus upon these five:
Problem #1: Payroll Taxes
Like for-profit businesses, ministries are required to properly collect and pay payroll taxes, including:
The ministry collects these funds and remits the amount directly to the U.S. Treasury or appropriate state or local agencies. Payroll taxes cannot be used in any way for the ministry’s operational and business expenses. Any person who is responsible to collect, account for, and pay any income tax and willfully fails to do so will be personally liable for unpaid taxes plus other penalties. For religious organizations, this could be a ministry board member, officer, or other leader.
Tip: Review these guidelines for completing Forms W-2 and W-4, housing allowances, and taxable gifts. Brotherhood Mutual’s MinistryWorks offers payroll services exclusively for Christian ministries and priced with ministry budgets in mind. Read what Christian leaders are saying about MinistryWorks.
Problem #2: Overtime and Paid/Unpaid Leave
The Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA) standardize minimum employee protections that most employers are required to follow. Generally speaking, the FLSA requires employers to correctly categorize employees as exempt or non-exempt and to follow rules regarding overtime pay; the FMLA requires that employers allow unpaid leave for a medical issue without it jeopardizing the employee’s job.
Board members, officers, and individual supervisors within the ministry may be personally liable for FLSA or FMLA violations under the lens of “sufficient control.” For example, an individual supervisor could be liable under the FLSA if the supervisor had sufficient enough control over the worker’s conditions and terms of employment, i.e., authority over financial affairs of the organization and hiring and firing decisions, or the ability to affect wages.
Problem #3: Retirement Benefits
The Employment Retirement Income Security Act (ERISA) provides protections for individuals enrolled in a voluntarily established pension or health plan. Ministry leaders who act as “fiduciaries” could be held personally liable for noncompliance if they:
Problem #4: Continuation of Health Benefits
The federal government allows an employee to continue receiving ministry-sponsored health insurance after leaving or losing a job, for a specified time frame. This insurance is known as COBRA. Plan administrators of the Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA) could be held personally liable if they fail to give COBRA notifications to employees and other beneficiaries who would have qualified for its benefits. Typically, a health insurer or the employer itself is named as the plan administrator, though it’s possible an officer or director to be so named.
Some states mandate their own continuation plans which may be broader than what the federal governments requires. In addition, COBRA requirements may not apply to churches or federal health insurance plans, so speak to locally licensed attorney about your ministry’s obligations.
Problem #5: Employment Eligibility
The Form I-9 verifies employment eligibility and authorization for any person hired in the United States. All new employees must complete the federal Form I-9; your hiring administrator needs to ensure the form is completed correctly within the employee’s first three days. The I-9 is not filed with any government agency. However, your ministry is required to store all I-9 forms together in a file that’s kept separate from the employees’ files and is available for inspection. Ministry leaders with hiring authority could be personally liable for ignoring Form I-9 requirements or knowingly hiring an undocumented 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.
Many state statutes mirror the liability provisions of federal laws. However, state statutes may create a broader scope of individual liability than their federal counterparts.
Common law generally holds people responsible for any actions that injure someone or damage another person’s property. For example, a ministry representative could be sued for damaging someone’s reputation through libel, defamation, or invasion of privacy.
Potential Protection for Volunteers
Some legal protections are offered for volunteers. The amount of protection, or immunity, depends on the circumstances and the state or federal laws involved. However, protections don’t prevent a person from filing a claim. The volunteer still would be responsible to respond to the suit or defend himself in court.
Payroll Taxes. For instance, volunteer board members won’t likely pay the tax penalty if a nonprofit ministry incorrectly withholds federal taxes from staff paychecks. Legal immunity may apply if the volunteer:
Accidental Injuries. The federal Volunteer Protection Act (VPA) may provide some protection for volunteers who accidentally cause an injury, so long as they are acting within the scope of their assigned responsibilities. However, the protections of the Act are not available for:
Immunity offered by the VPA does not extend to the ministry—the ministry still could be held liable for the volunteer’s actions.
Charitable Immunity Laws. In some instances, charitable immunity laws can offer valuable protection to volunteer ministry workers; however, they do not offer the broad immunity from litigation that many may think. Limited protection applies because charitable immunity laws:
Even if your state’s charitable immunity law applies, the volunteer will likely need to retain an attorney. Is likely to incur several thousand dollars in legal fees.
The federal government and many states have additional laws regarding volunteer protection. The laws limit the civil liability of volunteers with certain organizations under specific circumstances outlined in the statute. Some of the laws make exceptions for claims involving gross negligence, criminal misconduct, or intentionally harmful acts.
Ministry leaders can help protect themselves and their personal assets by acting in good faith and securing corporate and insurance protections. We recommend that ministries place an indemnification provision in the ministry’s bylaws and purchase directors and officers coverage (D&O). With these protections, and to the extent allowed by law, the ministry would likely cover many penalties assessed against ministry leaders, protecting their personal assets. Without them, the ministry leader’s personal assets could be exposed.
In addition, someone seeking a recovery from a ministry leader must overcome several legal “barriers” before the personal assets of such a leader are exposed to liability in a civil lawsuit. While these barriers offer another layer of protection, you still could be responsible to pay defense costs out of pocket even if you “win” your case. Without D&O insurance or indemnification provisions, the cost to defend your ministry can reach thousands of dollars.
Barrier 1: A court must determine that the claim being made against the ministry leader has merit. If the claim is frivolous, the case will likely be dismissed.
Barrier 2: If a claim has merit, a court must then determine if the ministry’s corporate structure will provide protection for the ministry leader—this is known as the “corporate shield “which may apply to ministries who’ve taken the extra step to incorporate their organization. If a court determines the claim has merit, awarded damages would likely be limited to the ministry’s insurance limits and assets. The ministry leader’s personal assets would be safe.
Barrier 3: If a court decides that the corporate shield doesn’t apply, the court must determine if the ministry leader should be held personally liable for his or her conduct. If a court decides the senior staff member or board member acted within the scope of his or her authority, the individual’s personal assets would not be exposed.
Barrier 4: If a court finds that a ministry leader should be held personally liable for his or her conduct, the awarded damages most likely must exceed the combination of:
Note: All insurance coverages will be subject to applicable exclusions and limitations (e.g. certain types of employment liability issues such as wage claims). In addition, if criminal charges are brought, the individual may be found to be criminally responsible.
Ministry leaders, including board members, officers, and supervisors can be personally responsible for their actions while acting on behalf of the ministry.
However, a ministry can add layers of protection to help shield individuals against personal liability while serving ministries. Ultimately, it is essential for ministry leaders to consult with a local attorney on both federal and state laws. A local attorney will be able to offer a formal legal opinion to ensure the ministry’s interests are ultimately protected.
For additional guidance see:
Article: Are Board Members Personally Liable for Board Decisions?
Legal Q&A: As a Church Board Member, What Issues Should I Be Aware Of?
Thank you for your interest in Brotherhood Mutual. We appreciate the opportunity to provide your church or other ministry with an insurance quote and will reply to your request as soon as possible.
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