A Liability Trap

In most states, the church is required to obtain “Workers Compensation Insurance” for their employees and ministers. All to often however, churches engage people to perform work and choose to pay them “under the table,” or misclassify them as “Independent contractors.” This is usually done to avoid paying taxes on the employee, and minimize  record keeping.

In addition to this being a violation of the law, and subject to future problems with the IRS, the church has now unwittingly opened itself up to the possibility of a liability event, with absolutely no coverage from an insurance company. Also, they would discover there would no financial assistance to pay attorney fees and other legal costs.

Let me give an example: A church has a special event such as having an outside speaker, a conference, or a dinner and wants to offer childcare for the event. Normally church volunteers would provide childcare, but because of the circumstances of this occasion, there are no volunteers available. So the church leaders agree to pay someone, on a cash basis [read - under the table], to provide this service. Nothing was reported, and no premiums were paid for Workers Compensation Insurance on the monies paid the worker.

A year or two later, this worker comes to the pastor and says, “Pastor, do you remember when I worked in the nursery for the big church dinner two years ago? Well, that night, little Johnnie Jackson came running to me and jumped up into my arms when I was not expecting it, and as I turned to catch him I hurt my back. Pastor, the doctors say that I have a herniated Disk, and an operation is required to repair the damage. They say this is going to cost about $30,000.00. Pastor, will the church pay for this operation?”

The “Trap” is sprung. The church is now about to discover there is no insurance for this situation. Because the church chose to employ on a cash basis, and not pay Workers Compensation Insurance, there is no coverage for this claim. But, you are thinking, “We always have Liability Insurance.” No, the Insurance Company will inform you that, “Because you circumvented the law, and did not pay for workers Compensation Insurance, we will not regard this as a valid claim on your Liability Insurance.”

Talk to your Insurance Agent, and you will find that if the church provides the facility to members, and the members pay the sitters directly, in the event of a subsequent claim the church is covered by the liability insurance, and Workers Compensation coverage is not an issue, as the sitter is not an employee of the church.

There are three possibilities you should consider as you develop this very important Church Policy. They are:

  • Preferably, all baby sitting will be done by church volunteers; or
  • If sitters are paid, they will be employed by the church, and enrolled on Workers Compensation Insurance; or
  • The church will provide the facilities, the parents will collect offerings from the parents, and pay the sitters directly, without any assistance or coordination by the church leadership.

The above would also be true for those performing yard maintenance, handyman, cleaning of the church facilities, etc.

If you would like more information about similar issues, we have written a Manual called Samples, with more than100 sample Policies, Resolutions, Ratifications and Minutes. This Manual contains a sample “Babysitting Policy.” A Disc is also available, to enable you to easily develop your own Policies.

If you would like more information about similar issues, please consider The Church Administration ‘How To’ Manual.” This Manual, endorsed by three CPA’s, an EA and two attorneys, was updated again in January, 2011, for the 12th time, since its original publication in 1991.

The above information is provided as a service to the Body of Christ by ADMINISTRATIVE ASSISTANCE

Copyright © 2003 by Administrative Assistance

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