With the exception of wages and salaries, employee benefits are the primary tools by which churches attract and retain qualified personnel. Most churches voluntarily provide a variety of benefit packages or benefit dollars.
Reasons for providing such benefits range from a desire to be competitive in the relevant labor market to a genuine concern for their employees’ welfare.
Vacation, holidays, medical, dental and vision coverage, and retirement benefits are not required by law. If such benefits are offered, the church may choose to pay all, part or none of the costs. Once the benefits are offered, however, law regulates how the church must apply them. The following highlights some of the key issues of each benefit.
The church has the right to set the amount of vacation employees will earn each year, or if they will earn any at all. Employers also have the right to determine when vacations may be taken, and for how long. It is critical that vacation policies be clear about how much vacation is offered, the rate of accrual, and whether accrual begins immediately or after some period of time.
Churches are not required to offer employees time off for holidays, nor are they required to pay for time for holidays granted. It is wise to set forth at the beginning of each year which, if any, holidays will be granted and whether they will be paid.
The most commonly granted holidays are:
- New Year’s Day – January 1
- Memorial Day – May 31, observed on the last Monday in May
- Independence Day – July 4
- Labor Day – first Monday in September
- Veterans Day – November 11
- Thanksgiving – fourth Thursday in November
- Christmas – December 25
Churches should set forth a holiday policy explaining what will happen if an employee is required to work on a day which the employer has designated as a paid holiday. The common procedure is to grant another day off or pay one and one-half to two times the employee’s normal rate on the holiday.
Churches should establish a policy for the situation where a holiday falls on a day that is the employee’s usual “day off.” If it is the church policy to give that holiday as a paid day, and all other employees are being paid for that holiday, then the employee in question also should be paid for the holiday unless the policy clearly states otherwise.
When an employee quits or is terminated, there is no entitlement to pay for any future holiday that has not yet occurred.
Personal Days and/or Floating Holidays
Some churches elect to grant holidays that employees may take for specific events, such as a birthday or anniversary, or at any time not associated with a specific event. The way a churches policy defines personal days or floating holidays is critical to the issue of whether unused days must be paid out at the end of the employment relationship. Time off which is tied to a specific event is treated as a holiday and need not be paid out at termination. Time off which is not tied to a specific event must be treated the same as vacation time, which accrues and vests, and therefore must be paid out at termination.
Unlike vacation days, any unused sick leave may be forfeited at the end of a designated period of time and sick leave does not need to be paid out upon termination of the employment relationship.
Paid Time Off
Some churches combine vacation, sick leave, personal days and/or floating holidays into one benefit called Paid Time Off (PTO). This allows employees a certain number of days off per year to use for illness, vacation, holidays, and personal needs.
While PTO is an acceptable benefit, churches are warned that the entire sum of PTO is classified as vacation time. Therefore, the entire amount of accrued but unused PTO granted to employees must be paid out at the termination of the employment relationship.
Medical, Dental, Vision
The law does not require churches to provide health insurance coverage for employees. Churches may choose to pay for all, part or none of such insurance.
Churches who do offer health insurance benefits will find that group plans are always less expensive than individual plans. The employer may have a standard plan for all employees or may offer each employee the same amount of dollar benefits and permit the employee to select desired benefits from a “menu” of options offered by the insuring company. For all plans, all employees must be treated equally; however, an employer may offer different insurance plans to different groups of employees, such as clergy leadership versus secular management employees, so long as that distinction is not based on any “protected class” considerations.
The law does not require the church to offer its employees a retirement program, although many churches offer such benefits. If a retirement plan is offered, it must be fully disclosed and offered to all employees. Retirement plans can be financed entirely by the church through periodic contributions; plans also may be financed through church and employee matching funds or by many other means. Periodic accounting should be made to employees or as reported by the retirement fund’s management.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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