Avoid Missionary Worker Misclassification

Support for missionaries working in the field is critical to their success. How the support is provided can also be critical to determining a missionary’s work status as it relates to your ministry.

All U.S. employers, including religious organizations, must classify all paid workers accurately as either employees or independent contractors for tax and employment law purposes. Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) can play pivotal roles in this determination.

The IRS and the DOL use different criteria to determine if a worker is an employee or an independent contractor. This difference means a worker could be an independent contractor for tax purposes under the IRS but considered an employee under the FLSA due to their economic dependence on the employer.

DOL/Fair Labor Standards Act. FLSA worker classification can affect wages, overtime eligibility, and other protections. The DOL uses the totality of the circumstances test when looking at all economic reality factors as described under the FLSA. It focuses on whether the worker is economically dependent on the employer.

Internal Revenue Service. The IRS’ classification can influence how taxes are withheld and paid. It uses a version of the common law control test for tax purposes.

Assessing a worker for IRS tax purposes: Common law employee analysis

The key to assessing a worker’s status is the relationship between the business and the worker. In order to determine if a worker is an employee or independent contractor, the IRS looks at the following three common-law factors:¹

Behavioral Control—Does the organization direct and control what the worker does and how the worker performs the job?
Financial Control—Does the organization direct and control how the worker is paid and expenses are reimbursed?
Type of relationship—Does the organization offer benefits typical of an employer-employee relationship (e.g., health insurance, vacation pay, and pension) or is the relationship defined by a single contract?

A few key questions about the organization’s relationship with a missionary worker may help to reach a proper classification. To look at the behavioral, financial, and type of relationship a church has with a missionary, start by asking:

Does the individual work for a mission organization or does a church give financial support directly to the individual? If the individual works for a mission organization, then the person is likely an employee of the mission organization and not the church. When a church donates funds directly to the organization instead of the individual, it allows the mission organization to direct the money and complete tax paperwork.

Does the individual work on behalf of multiple ministries or mission organizations? If so, the individual likely is an independent contractor and any church offering financial support to the missionary would issue a MISC-1099 Form.

Does an organization control the day-to-day aspects of the individual’s work? If a church or mission organization controls the funds the individual uses to work the mission, the length of the mission, and how the mission is accomplished, then the individual is likely an employee of the organization.

Typically, no single factor makes the determination, and relevant factors in one situation may not apply in another. Make sure you document all factors used in making this determination for workers in your ministry. The IRS also looks at the other tests outlined in its document, Independent Contractor or Employee.

What’s this mean for missionaries?

Ministries and mission-sending organizations often have difficulty deciding if a missionary is an employee or independent contractor. It's an important distinction.

An employee is eligible for certain employment rights and benefits, including Social Security. In addition, an employer is required to withhold taxes and pay one half of the Social Security obligation on behalf of the employee.

An independent contractor is required to participate in Social Security but must pay the full contribution themselves. They also must pay other payroll taxes, such as income taxes and Medicare. Organizations are not required to withhold taxes (such as federal income tax) from payments made to independent contractors.

The key to assessing a worker’s status is the relationship between the business and the worker. The more control an organization has over a missionary, the more likely the individual is an employee for tax purposes. An incorrect classification could leave your organization vulnerable to paying back taxes, large fines, and other penalties if the worker is later determined to be an employee.

Missionaries as independent contractors are rare. Most missionaries have an employer-employee relationship with their organizations. Examples of an independent contractor could be a traveling musician or evangelist, fundraising coach, or a temporary counselor.

If you make the determination that an independent contractor will supply services to your ministry, this sample Independent Contractor Agreement can help your ministry and a locally licensed attorney get started.

Assessing a worker for DOL employment law purposes: Totality of the circumstances test

The DOL looks at the following factors when determining whether a worker is an employee or independent contractor:²

Opportunity for profit or loss depending on managerial skill. Does the worker have opportunities for profit or loss based on managerial skill that affect the worker's economic success or failure?
Investments by the worker and the potential employer. Are any investments by a worker capital or entrepreneurial in nature?
Degree of permanence of the work relationship. Is the work relationship indefinite in duration, continuous, or exclusive of work for other employers?
Nature and degree of control. Does the potential employer have control, including reserved control over the performance of the work and the economic aspects of the working relationship?
Extent to which the work performed is an integral part of the potential employer’s business. Is the work performed an integral part of the potential employer's business?
Skill and initiative. Does the worker use specialized skills to perform the work and do those skills contribute to business-like initiative?

Ask for help

There are several ways to obtain help if your ministry is unsure of how to classify a missionary. For help understanding how the law applies in your situation, check the the IRS's Employer's Supplemental Tax Guide and the DOL's Small Entity Compliance Guide. If you need more specific advice, contact a licensed attorney familiar with international employment situations. An employment lawyer will know the applicable local laws and should be able to tell whether your ministry is in compliance.

If there is still confusion over a missionary’s tax status, you can take your case directly to the IRS by completing Form SS-8.The IRS will make a determination on the missionary’s status based on the facts you present on the form.

Reclassifying Existing Workers. If you determine your ministry has misclassified a missionary, consider the Voluntary Classification Settlement Program (VCSP). VCSP is an optional program that provides eligible organizations the opportunity to reclassify workers as employees. Some benefits of VCSP include:

To participate in this voluntary program, exempt organizations must meet certain eligibility requirements—apply by filing Form 8952.

When in doubt, ask a lawyer. Classifying missionaries can be a complex task and should involve consultation with a locally licensed attorney or ministry tax professional well-versed in international employment law or ministry tax professional. By using these available resources, you can help make sure your ministry complies with the law and continues working toward its mission.

Finally, Legal Assist^SM is a free service offered by Brotherhood Mutual.* It offers guidance on complicated questions related to ministry activity, employment law, contract wording, and more.

*Important information: Brotherhood Mutual is pleased to provide Legal Assist as a complimentary resource. The services we offer through Legal Assist are intended to provide general legal information to our current and prospective policyholders.

Related resources

1 ”Independent contractor (self-employed) or employee?” Internal Revenue Service, 6 Feb 2024. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee.
2 ”Small Entity Compliance Guide.” U.S. Department of Labor, Wage and Hour Division, Accessed 8 February 2024. https://www.dol.gov/agencies/whd/government-contracts/small-entity-compliance-guide.

The information we provide is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Accordingly, no attorney/client relationship is created through this process, and no legal advice will be provided. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.