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When is a Church Board Member’s Resignation Effective?

A board member can simply present a letter of resignation to the church board that is later approved by an official action.

Richard R. Hammar, Attorney, CPA

Bio

Q: Occasionally, a board member of our church will resign due to health problems or relocation. At what point is a resignation effective? And, is there any legal significance to the timing of a board member’s resignation?

The method, and timing, of a board member’s resignation is very important from a legal perspective, since it is the general rule that board members are not responsible for actions taken by the board prior to their election to the board (unless they vote to ratify a previous action). Similarly, directors ordinarily are not liable for actions taken by the board after their resignation. Again, they will continue to be liable for actions that they took prior to their resignation.

Hypothetical scenario

Consider an example. Terry was elected by her church to serve a four-year term on the church’s board. After three years, Terry’s employer transfers her to another state. A few months after she moved, the church board approves a day-long youth group trip to a nearby lake, but fails to require an adult supervisor with CPR certification despite the fact that the lake that was selected for the outing did not provide lifeguards. One of the minors drowns, and cannot be resuscitated. The victim’s parents sue the church, and they also sue the members of the church board as a result of their gross negligence in failing to provide adequate supervision for the trip. Terry is shocked to learn that she was named as a defendant in the lawsuit. She had assumed that she ceased to be a board member when she moved.

Timing is everything

This example illustrates the importance of determining the timing of a board member’s resignation with clarity. How can this be done? There are several options. Most simply, board members can simply present a letter of resignation to the church board that is later approved by an official action that is recorded in the board minutes. This procedure should provide a sufficient basis for determining the date when a board member ceases to be a member of the board. Had Terry and her church board utilized this procedure at the time of her move, she would have reduced, if not eliminated, her risk of liability.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Can We Not Pay Employees Who Fail to Turn in Timesheets?

Is it legal to delay employee’s wages?

Kathleen Turpin

Q: We have several employees who are routinely late in submitting payroll time sheets. What recourse do we have? Can we delay pay until the next time period, or will this get us into legal trouble?

A better approach

No, in most situations it is not appropriate to withhold pay because the employee fails to submit a time card in a timely manner. The best approach is for the employer to pay the estimated time that the employee is believed to have worked.

The estimated time would be the time the employer actually knows the employee worked.

If the employee fails to submit a time card and the employer includes what is reasonably believed was worked (even if it was less than what the employee actually worked), any necessary corrections can be made at the next pay period.

So, if an employee normally works 35 hours a week, and you have no reason to believe that employee didn’t work 35 hours that week, the employee should be paid the standard wage. If it is unclear what the employee worked, a good estimate should be made.

Example:

Let’s say the employee normally works 35 hours a week (five seven-hour days), and took one day off. You aren’t sure how many hours the employee actually worked (let’s assume the employee is out of vacation time), so you only pay that employee for 28 hours that week. Later, the employee disagrees with the time card you submitted, or you discover the employee actually worked 30 hours that week. You would then add the additional two hours the following pay period. You still have to pay the employee the hours worked, but you have complied with the legal requirement to pay an employee for the time you know the employee actually worked.

The best approach with an employee continuously submitting time cards late is to discipline the employee for not following your guidelines or requirements. This is a better practice than just not paying the employee.

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Tips For Screening Underage Church Volunteers

How can we adequately screen adolescents before recruiting them to work in our children’s ministries?

Richard R. Hammar, Attorney, CPA

Bio

Last Reviewed: February 13, 2025

Q: Our church uses teenage workers to assist adults in various children’s ministries and programs. We screen adult workers. Should we do the same with teenagers? If so, how?

Criminal checks not possible

Most churches use minors to assist in various children’s or youth programs, and so some screening should be done. You obviously cannot perform criminal records checks on persons under 18 years of age, and even for persons who are 18 or 19 a criminal records check will have limited significance. You really need to approach the screening of adolescents in a different manner. Let me suggest two options.

Step 1: Ask for references

First, obtain two or three reference letters from persons who have seen the applicant interact with other minors (this would include church workers, coaches, school teachers, scout leaders, etc.). You want an opinion from such persons about the applicant’s suitability for working with minors. Obviously, if you receive two or three references from such persons, you have very compelling evidence that you exercised reasonable care in the selection process, and in the final analysis, this is the standard by which you will be judged if your church is sued for the molestation of a child by an ado-lescent worker. The bottom line is that you cannot conduct criminal records checks on such persons, but you must take other steps to demonstrate reasonable care.

Step 2: Learn he “community practice”

Second, contact local youth-serving charities such as the public school district, Boy/Girl Scouts, YMCA, Boys/Girls Clubs, etc. and ask them what screening they use for adolescent workers. Be sure to make a record of each contact. By basing your screening policy on “community practice” you will be reducing your risk of liability based on negligent screening.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Understanding Federal Rules Related to Certifying Church Buses

Are church buses subject to state motor vehicle regulations?

Richard R. Hammar, Attorney, CPA

Bio

Q: Our church owns a small bus that has 18 seats. While the bus is used mostly for local transportation, we occasionally use it for out-of-town trips. Some of these trips go across state lines. Some members of our church have asked if the bus needs to be certified by the U.S. Department of Transportation and display a Department of Transportation sticker. Does it?

Understand federal rules and regulations

Any vehicle designed to carry more than 15 passengers (including the driver), that is used across state lines, and that does offer transportation services for hire, is a “private motor carrier of passengers” (PMCP) subject to Federal Motor Carrier Safety Regulations (FMCSRs). Even if you do not operate your bus in interstate commerce, you may still be subject to state regulations similar to the FMCSRs.

Business or non-business use

As a private motor carrier of passengers, your vehicle will fall into one of two groups: business or non-business. In most cases, church-owned PMCPs are non-business, meaning that you provide private, interstate transportation of passengers that is not in the furtherance of a commercial enterprise. The Department of Transportation lists “churches, scout groups and other charitable organizations that may purchase or lease buses for the private transportation of their respective groups” as examples of non-business PMCPs.

PCMP requirements

As a PMCP, you must meet certain requirements of the FMCSRs. These requirements differ slightly depending on if you are classified as a business or non-business PMCP. Business PMCPs must meet (1) eight driver qualification requirements; (2) seven “driving of motor vehicle” requirements; (3) eight “parts and accessories” requirements; (4) “hours and services” requirements; and (5) inspection, repair and maintenance requirements. Non-business PMCPs are subject to these same requirements, except that they are exempt from the recordkeeping requirements under the driver qualification provisions.

USDOT number probably required

Note that a United States Department of Transportation (USDOT) number is required if you are an interstate PMCP regardless of business or non-business status. No fee is assessed to obtain a USDOT number. You must complete Form MCS-150 (Motor Carrier Identification Report) to obtain a USDOT number. Form MCS-150 can be completed online or you can print a copy of the form to complete and mail to the address indicated. If you do not have access to the Internet, you can call the Federal Motor Carrier Safety Administration’s toll-free number at 1-800-832-5660 to have the form mailed to you.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Are Church Members Allowed to Insert “Write-in” Candidates?

Along with turning to your version of parliamentary procedure, you should consult two other legal resources.

Richard R. Hammar, Attorney, CPA

Bio

Q: Our church bylaws state:

“All nominees for the office of deacon shall be chosen from the membership of the church and must be nominated by a nominating committee of seven members appointed by the pastor and church board. A list of all nominees shall be distributed to all members on the night of the election.”

During our annual church business meeting, one member asserted that write-in ballots are always permissible. He insisted he was right, and also stated that both state law and parliamentary procedure allow it.

Was he right? Do members have a right under state law or parliamentary procedure to insert “write-in” candidates on their ballots when this is not authorized by our bylaws?

Refer to Robert’s Rules of Order

There are several published versions of parliamentary procedure. Many churches use Robert’s Rules of Order, Newly Revised, which contains the following brief mention of write-in voting:

If the bylaws require the election of officers to be by ballot and there is only one nominee for an office, the ballot must nevertheless be taken for that office unless the bylaws provide for an exception in such a case. In the absence of the latter provision, members still have the right, on the ballot, to cast “write-in votes” for other eligible persons.

This language suggests that church members have the right to “write in” the candidate of their choice when voting in an election, even if that person is not a candidate who was selected by a nominating committee.

Other legal resources

However, there are two other legal resources that must be consulted when deciding if write-in candidates are permitted. One of these is the state nonprofit corporation law under which a church is incorporated. While most state nonprofit corporation laws do not address write-in voting, some do so. Church leaders should know how their state nonprofit corporation law addresses this issue.

A second legal resource that may address write-in voting is a church’s own bylaws or governing document. Once again, church leaders should be familiar with any provisions in their church’s governing document that address write-in voting. Note that such provisions generally supersede conflicting provisions in state nonprofit corporation law.

If write-in voting is not addressed in either state nonprofit corporation law, or a church’s governing document, then future confusion over this issue can be resolved in advance by amending the church’s governing document to explicitly permit or prohibit this practice.

Church governing documents often list qualifications for board members. The common practice of using a nominating committee to select nominees for board positions helps to ensure that candidates meet these qualifications, since such committees typically limit the list of nominees to persons who are known to meet the qualifications.

There is no such assurance when members are permitted to “write in” the candidate of their choice on a ballot, since members will not necessarily know if the candidate of their choice meets the qualifications mentioned in the church’s governing document.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Church Governance: 15 Essentials

What every church leader should know about bylaws.

Richard R. Hammar, Attorney, CPA

Bio

Most churches, whether incorporated or unincorporated, have a governing document that addresses several issues of governance and administration. While the name for this document varies from church to church, it often is called bylaws, and it is this name that will be used in this article as a matter of convenience. There are several legal issues that are associated with church bylaws. This article will address 15 of them.

What are bylaws?

What are church bylaws? The Model Nonprofit Corporations Act (3rd ed. 2008), which has been adopted by several states, defines bylaws as “the code or codes of rules (other than the articles of incorporation) adopted for the regulation and governance of the internal affairs of the nonprofit corporation, regardless of the name or names used to refer to those rules.”

One court defined bylaws as follows:

The bylaws of a corporation are the rules of law for its government. The term “bylaw” may be further defined according to its function, which is to prescribe the rights and duties of the members with reference to the internal government of the corporation, the management of its affairs, and the rights and duties existing among the members. Bylaws are self-imposed rules, resulting from an agreement or contract between the corporation and its members to conduct the corporate business in a particular way. Until repealed, bylaws are the continuing rule for the government of the corporation and its officers. Schraft v. Leis, 686 P.2d 865 (Kan. 1984).

Because bylaws contain rules for internal governance and administration, they are indispensable for both incorporated and unincorporated churches.

Know your current version

In many churches, the bylaws were adopted long ago, and have been amended numerous times over the years. As a result, there may be various “editions” in circulation. Often, these editions are undated, and this can make it difficult if not impossible to identify the current one. This can create confusion.

Example A church conducts an annual business meeting at which 15 percent of the members are present. Some members question whether a quorum exists. Church staff scour the church office, looking for a copy of the church’s bylaws. Two editions are found. One defines a quorum as 20 percent of the church’s membership, and the second defines a quorum as 10 percent of the church’s membership. Neither edition is dated, and no one knows which of these editions is more recent, or even if either of them represents the current edition. What steps can church leaders take to identify the current version of the church bylaws?

Here are two common procedures that can be very effective in identifying the current edition of a church’s bylaws:

Identify copies of the church bylaws with a numeric designation. To illustrate, a church identifies its current bylaws as “version 1.0.” During the church’s membership meeting in 2010, two amendments are made to the bylaws. Following the meeting, the revised bylaws are printed, and designated as “version 1.1.”
Identify copies of the church bylaws by date. For example, designate the current bylaws “Current as of [date].”

In either case, be sure that all printed copies of the bylaws bear the appropriate designation, and dispose of undesignated versions.

The United States Supreme Court has observed that “all who unite themselves to [a church] do so with an implied consent to its government, and are bound to submit to it.” Watson v. Jones, 80 U.S. 679 (1871). A church’s “government” generally is defined in its charter, constitution, bylaws, resolutions, and practice.

(Cal. App. 2008).

Do Churches Need Both a Constitution and Bylaws?

Some churches maintain both a constitution and bylaws, a practice that dates back over a century. However, having both is rarely necessary unless:

The constitution is clearly superior to the bylaws (by explicit language or a stricter amendment process).
The constitution governs only the most significant matters (e.g., doctrine, property).
The bylaws handle routine governance and administration.

⚠️ Common Conflict

Churches that maintain both documents often include overlapping provisions. Over time, this can lead to confusion and legal risk.

Example:
A church amends its bylaws to change the size of the church board, but forgets to update the corresponding language in its constitution. Now the two governing documents are in conflict.

🚫 Don’t Combine Without Clarity

Using the term “constitution and bylaws” without distinguishing between them is imprecise and should be avoided.

What Should Be in a Church’s Bylaws?

According to the Model Nonprofit Corporations Act (3rd ed. 2008):

“The bylaws of a nonprofit corporation may contain any provision for managing the activities and regulating the affairs of the corporation that is not inconsistent with law or the articles of incorporation.”

Common Bylaw Topics

Include provisions that address:

Member qualifications, selection, and removal
Scheduling of annual and special meetings
Meeting notices and quorum requirements
Voting rights and procedures
Election, term limits, and removal of officers/directors
Filling board vacancies
Board and officer responsibilities
Amendment procedures for the bylaws
Procedures for property transactions
Standing committees (e.g., audit, investment, insurance)

💡 Tip: Drafting bylaws is complex. Always consult an attorney experienced in nonprofit or church law.

Frequently Omitted (But Valuable) Bylaw Provisions

Consider adding these often-overlooked clauses:

Mediation or Arbitration Requirement – To resolve internal disputes.
Parliamentary Procedure Reference – Specify which system (e.g., Robert’s Rules of Order) governs meetings.
Resignation Limits During Discipline – Clarify that members undergoing discipline cannot resign mid-process (see The Guinn Case).
Contract Approval Procedures – Who can legally bind the church?
Check Signing Authority – Require two officers; name them.
Employee Bonding – For those handling funds.
Annual Financial Audit or Review – For transparency and risk reduction.
Indemnification Clause – Protect officers/directors sued over church decisions.
Fiscal Year Definition
Staggered Board Elections – Ensures continuity.
Meeting Flexibility – Allow virtual or phone meetings if needed.
Proxy and Absentee Voting – Must be explicitly allowed in bylaws.
Custody of Records – Clarify who holds official documents.
Membership Record Inspection – Define rights, limits, and procedures.
Voting Clarity – Define terms like “two-thirds vote.”
Automatic Suspension for Absences – Set expectations for board attendance.

⚠️ IRS Alert: In 2008, the IRS denied tax-exempt status to a church, citing the absence of bylaws and a conflict of interest policy. Even though not explicitly required, these documents are strong indicators of responsible governance.

The Guinn Case: Withdrawing During Church Discipline

In Guinn v. Church of Christ, the Oklahoma Supreme Court ruled that:

Churches may discipline active members (still under membership).
Discipline of those who resign first is not protected by the First Amendment.
Churches can prevent resignations mid-discipline only if members waive their right to resign—ideally through a bylaw clause.

What Not to Include in Bylaws

Bylaws govern internal church operations. Other matters are better suited for resolutions or separate policies.

Better Addressed Elsewhere:

Personnel Policies – Use an employee handbook.
Volunteer Screening – Use child protection or HR policies.
Doctrinal Statements on Marriage – Often unnecessary in bylaws if the church already defines the Bible as its doctrinal authority.
Clergy Compensation or Housing Allowances – Use board resolutions instead.

How Bylaws Differ from Articles of Incorporation

Articles of Incorporation (aka Charter) Typically Include:

Church name and address
Duration of existence
Purpose(s)
Names of initial board members
Required dissolution clause (e.g., assets must go to a 501(c)(3) upon dissolution)

🔎 Tip: Many states don’t require churches to file bylaws. Check with your state’s corporations commission for local requirements.

How to Prioritize Governing Documents

When conflicts arise, the following hierarchy generally applies:

Order	Document/Source
1	Charter (Articles of Incorporation)
2	Constitution (if separate and superior)
3	Bylaws
4	Adopted parliamentary authority (e.g., Robert’s Rules)
5	State nonprofit corporation law (gap-filler)
6	Board Resolutions
7	Established custom
8	Majority rule (only if no other guidance exists)

Resolving Conflicts Between Documents

In general:

Charter > Constitution > Bylaws > Resolutions
State law fills gaps unless church documents already address the issue
Courts may avoid ruling on ambiguous bylaws that touch on doctrine

Ambiguity in Bylaws: Why It Matters

Ambiguous language in bylaws can lead to:

Internal disputes
Legal uncertainty
Judicial interpretation (sometimes unfavorable)

🧭 Tip: Regularly review and update bylaws to avoid confusion.

Do You Need to Rewrite Your Bylaws?

You might need to rewrite or revise your bylaws if:

They’re outdated (10+ years old)
They weren’t drafted by a knowledgeable attorney
They were adapted from another church or a template
Your church is now larger or more complex

Filing Requirements

Most churches do not need to file bylaws with the state.
However, some exemptions or zoning applications may require submission.
Always verify requirements with your state’s corporations division.

Denominational Limitations

If your church is part of a denomination:

Your ability to create or amend bylaws may be restricted
Some provisions may be mandatory per denominational rules

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Pastor Emeritus Status: Key Considerations for Churches

Before granting a retiring pastor the title of pastor emeritus, churches must carefully review compensation agreements, legal responsibilities, and tax obligations. Learn the key factors to consider for a smooth transition.

Richard R. Hammar, Attorney, CPA

Bio

Last Reviewed: January 29, 2025

Q: Our senior pastor will be retiring soon, and our church board would like to name him “pastor emeritus.” It is our understanding that concerns have been raised about high-profile pastors manipulating a church board into agreeing to a financially burdensome compensation package following their retirement, often based on their status as a pastor emeritus. Do you have any suggestions for us?

Let me share a number of factors for your consideration:

‘Pastor Emeritus’ is ambigious

Pastor emeritus status is an ambiguous status in many cases due to a lack of any definition in a church’s governing document (i.e., bylaws). If a church’s governing document does not address this status, then it is a purely honorific status conveying no legal authority.

Carefully review compensation agreements

Some churches have adopted compensation agreements for a retiring pastor that may or may not be linked to pastor emeritus status. These agreements are perfectly legitimate so long as the following requirements are satisfied:

The agreement is duly authorized pursuant to the church’s governing document. To illustrate, an agreement adopted by the church board will be legally unenforceable if the board lacked the authority under the church’s governing document to enter into the agreement.
If the church’s governing document authorizes the board to approve a compensation agreement with a retiring pastor, then there are two fiduciary duties that must be recognized and discharged by the members of the board. The first is the fiduciary duty of “reasonable care” that any board member owes to the organization. This duty requires board members to exercise prudence, care, and independence in fulfilling their duties, and this requires the full and objective consideration of any compensation arrangement with a retiring pastor.

Duty of loyalty

A second fiduciary duty that is implicated in such arrangements is the duty of loyalty. This duty, which is recognized by the nonprofit corporation laws of most states, requires board members to place the corporation’s interests above their own. This means, among other things, that board members (such as the senior pastor) who will personally benefit from a particular board decision should recuse themselves from the discussion and take no part in the vote. Further, the duty of loyalty requires full disclosure of all the terms and conditions of a particular action, and that a board-approved action that personally benefits a particular member must be “fair” to the organization. These constraints transcend any ethical imperative. They are a matter of law.

Include language to keep options open

Some compensation agreements with former pastors may become burdensome to the church in future years. For this reason, I recommend that such agreements contain language that gives the church the ability to unilaterally modify or terminate its obligations under the agreement.

Review tax reporting requirements

It is essential that a church comply with the tax reporting requirements associated with such transactions. Any compensation that a church provides to a retired pastor, including pastors who are given the status of pastor emeritus, is taxable and must be reported to the IRS. The notion that such remuneration is a nontaxable “love gift” is widespread but mistaken.

The failure to report taxable compensation to the IRS will convert the compensation into an “excess benefit transaction” under section 4958 of the tax code. This could result in substantial excise taxes (called “intermediate sanctions) of up to 225 percent of the amount that the IRS determines to be excessive compensation.

If a compensation agreement provides for the payment of compensation in future years, it may constitute a non-qualified deferred compensation plan subject to strict new requirements under section 409A of the federal tax code. A failure to comply with these requirements can result in substantial penalties.

Additional compensation

If a pastor emeritus remains employed by the church in some capacity, then several additional issues are implicated, including workers compensation and fringe benefits.

Benefits to surviving spouse

Any agreement approved by the church board or congregation that recognizes a pastor emeritus should address the issue of continuation of benefits to a surviving spouse.

Consult an attorney

Legal counsel should review any agreement pertaining to a retiring pastor before it is executed.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Ground Rules: Why Church Bylaws Matter

Church bylaws are critical, and amending them should not be taken lightly.

Michael Allison

Q: Although our church has bylaws in place, we do not operate strictly according to these as a body. If we amend them to reflect how we operate now, will that create any problems?

Why bylaws matter

A church that is not following the provisions of its bylaws could certainly run into trouble. Bylaws are a critical component of church operations. Yet, in many churches, they are filed away, forgotten and ignored. Church bylaws spell out who will run the ministry and how it will operate. Key organizational issues typically addressed in the bylaws include:

Who in the church is authorized to make various decisions, including major financial decisions;
How the governing board is organized;
The relationship between the governing board and the congregation;
Who has authority to make hiring and firing decisions involving pastors and staff;
When and how meetings of the governing board and the congregation will occur;

…And much more.

Keep bylaws current

An initial set of bylaws is generally adopted when the church is first formed. As time goes by, however, ministry operations change, and a church can find itself to be out of step with its own bylaws. When this is discovered, one of two things should happen as soon as possible: The church should either revise its practices to conform to the bylaws, or the bylaws should be amended.

Because church bylaws represent an important legal document, any change should be done in consultation with an attorney. The bylaws will usually contain a provision stating how they can be amended. This sometimes involves a vote of the governing body of the church, sometimes involves a congregational vote, and sometimes requires both. Your attorney can help walk you through the implications of any suggested change to the bylaws, and the steps that should be taken to ensure that the bylaw changes are done in a way that is legal and binding.

Every ministry organization should review its bylaws every three to five years, or more frequently if it is growing rapidly or changing the way it operates. Again, having an attorney involved in the bylaw review is important to ensure that it’s done properly. Bylaws can be complex, and they differ dramatically depending on whether the church is incorporated, the type of governing approach it uses, the role that the pastor plays in the church, and numerous other factors. Since reviewing and amending bylaws is important to the life and health of the organization, having a legal professional involved in the process is a must. This is akin to having a physician involved in a medical assessment, whether it’s a regular check-up or a more significant medical procedure.

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Managing Health Risks in Children’s Ministry: Balancing Safety and Inclusion

When a nursery worker has Hepatitis B, churches must balance child safety, worker inclusion, and leadership policies. Learn how to assess risks, develop response plans, and create informed policies for your ministry.

Dave Staal

Q: We have a trained nursery worker who has been diagnosed with Hepatitis B. Under normal circumstances, she poses no health threat to the children, plus she works with two other adult volunteers in the room. What is our risk in using her in this ministry?

Here’s how I handled these situations in my work in children’s ministry. First, consider what’s best for the children. Second, think through what’s right for the individual. Third, keep consistent with church leadership. Let’s expand on all three.

What’s best for the children always remains top priority for anyone in children’s ministry. You describe the individual as “no threat” under normal circumstances. Look further into what’s needed to maintain normal, and what could happen to change circumstances into a more serious situation. If you still feel comfortable with the risk, do you have a response plan for when the unexpected happens?

You seem to already address what’s right for the individual. Specifically, open dialogue about the situation is a practice that will keep assumptions and fears low or non-existent. Plus, you have an excellent opportunity to surround this person with a loving, accepting community. However, keep in mind that child safety trumps community in children’s ministry.

Third, don’t make decisions like this alone. Involve your pastor and other senior leaders so that whatever decision happens will fall under the overall risk policies of the church. Your church can benchmark other child-centered institutions to craft infectious risk policies, such as schools, daycare centers, even the public library. While these places have very different missions and values, they likely paid for well-researched policies and procedures that are difficult for churches to afford. Open communication with individuals at your church who need involvement will help the right decision become clear to all.

In this or any similar situation, always prioritize what’s best for the children that God, and parents, have entrusted to your care.

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Legal Considerations for Church Layoffs: Protecting Your Ministry

Layoffs in a church setting require careful planning to ensure compliance with employment laws and ethical considerations. Learn how to protect your church, navigate discrimination risks, and manage severance, benefits, and legal obligations.

Richard R. Hammar, Attorney, CPA

Bio

Last Reviewed: January 29, 2025

Q: In what ways do church leaders need to protect the church from potential legal problems relating to layoffs? And to what extent does the church need to substantiate the need for specific layoffs or position elimination?

If your church is contemplating laying off employees, there are several legal issues to address. Let me mention six of them.

Consult your policy manual

First, most church employees, other than perhaps the senior pastor, ordinarily are employed indefinitely. Such employees have no expectation of continuing employment. However, some church employees are hired for a specific term, i.e., one year. In general, these employees cannot be terminated without good cause. Of course, a sharp drop in church income may well constitute good cause. Church policy manuals often address this issue, and they should be consulted.

Weight the impact to protected persons

Second, be sure that any reduction in the number of employees does not adversely impact persons who are protected by state or federal employment discrimination laws. The courts have ruled that declining revenue is a legitimate, non-discriminatory reason to dismiss employees, including those members who are of a protected class. However, layoffs cannot disproportionately impact them.

Comply with existing policies and procedures

Third, if your church has a policy or employee manual, and it addresses layoffs, be sure that you are fully complying with it.

Pay what is owed

Fourth, be sure that laid off employees are provided with any accrued benefits to which they are entitled, such as unused vacation time.

Understand the tax issues tied with severance agreements

Fifth, some churches use severance agreements when laying off some employees. Church leaders need to be very careful when utilizing such agreements, since there are a number of tax issues that must be addressed, including tax reporting and withholding, the availability of a housing allowance, and compliance with the nonqualified deferred compensation regulations under section 409A of the tax code.

Does COBRA apply?

Sixth, church leaders should be aware of the possible application of COBRA, or similar state laws, to laid off employees. COBRA is a federal law that allows certain employees covered under an employer’s group health plan to continue health insurance coverage at their own expense after the termination of their employment. COBRA was amended by the recently enacted American Recovery and Reinvestment Act of 2009 to reduce an employee’s cost of continuing coverage under COBRA to 35 percent, with the employer picking up the remaining 65 percent. This change only applies to employees who are involuntarily terminated between September 1, 2008 and January 1, 2010.

Church plans are exempt from COBRA, but most states have comparable laws that may or may not exempt church plans. Church leaders should be familiar with the possible application of state law before authorizing an employee layoff.

Seek a lawyer’s advice

Given the complexity of these issues, it is a good practice for church leaders to enlist the assistance of legal counsel before authorizing or implementing any layoffs.

Many for-profit companies have implemented creative solutions to reducing their work force. For example, some companies are reducing compensation across the board, or imposing shorter work weeks, in order to realize the savings needed to retain all current employees. Such adjustments are especially appropriate for churches whose employees often are not eligible for unemployment benefits.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Understanding Insurance Notification Requirements

Failure to promptly notify can result in devastating loss.

Richard R. Hammar, Attorney, CPA

Bio

An insurance company issued a homeowner’s policy to a married couple (the “Taylors”) covering occurrences at their residence. The couple had two minor boys who lived with them. The policy provided coverage for any “occurrence,” defined as bodily injury or property damage caused by an accident. The policy contained the following section regarding the providing of notice of potential claims to the insurer:

In case of an accident or occurrence, the insured will perform the following duties …

A. Give notice to us or our agent as soon as practicable setting forth:

identity of the policy and insured;

reasonably available information on the time, place and circumstances of the accident or occurrence; and

names and addresses of any claimants and available witnesses.

Case study

Mrs. Taylor invited her sister and her family to live with them. The sister’s five-year-old minor daughter (the “victim”) had been sexually molested by a babysitter and the family wanted to move away from the home where the crime occurred. The sister’s family eventually moved out of the home. Several years later, the victim informed her mother that she had been sexually molested by one of the Taylors’ boys when they lived together. The sister threatened to sue the son, who was now an adult, but ultimately chose not to do so after the son agreed to pay the victim’s counseling fees.

Notice came four years after alleged incident

Over time, the relationship between the two families deteriorated, and four years after the initial disclosure of the abuse the sister gave the Taylors notice of her intention to sue their son. It was then, for the first time, that the Taylors notified their insurer of a possible claim. A few weeks later the sister sued the Taylors’ son, and, to the Taylors’ surprise, she also sued them.

The lawsuit alleged that the Taylors’ son sexually molested the victim in his home, and at the church his family attended, during the time they lived together. The sister claimed that the Taylors were aware that their son was molesting the victim, but did nothing to stop him. The lawsuit sought compensatory damages of $3,000,000 and punitive damages of $350,000.

The Taylors forwarded the lawsuit to their insurer, expecting the insurer to provide them with a legal defense and payment of any verdict or settlement. To their surprise, the insurer denied coverage on the ground that the Taylors had failed to notify it of the occurrence “as soon as practicable,” as required by the insurance policy. The insurer asked the court to confirm that it had no duty to defend or indemnify the Taylors.

The court’s ruling

The court began its opinion by noting that “the courts have consistently held that policy provisions requiring that written notice of an accident be given ‘as soon as practicable’ or ‘immediately’ are reasonable and enforceable, and are a condition precedent which, if not complied with, bar recovery under the policy.” Such provisions “only require that the insured act within a reasonable time, considering all of the circumstances.” The question, therefore, was whether the Taylors complied with the policy’s notice requirement by providing notice within a reasonable time under the circumstances.

The court concluded that the Taylors failed to give notice “as soon as practicable,” and therefore their insurer had no legal obligation to provide them with a defense of the lawsuit or pay any portion of a verdict or settlement. It observed: “They were aware of the allegations against [their son] in 2002, but never informed their insurer of these allegations until 2007. A delay of nearly five years is, as a matter of law, unreasonable.”

The court stressed that “the duty to notify arises when an insured learns of an occurrence that, from an objective standpoint, may potentially lead to a claim against the insured that might implicate his or her policy.” It added that the duty to notify is not triggered “only by the anticipation of valid claims that may be covered; instead, the duty of notice is broader; it extends to incidents sufficiently serious as to lead a person of ordinary intelligence and prudence to believe that any claim arguably covered by the policy may be brought, even claims that may ultimately fail or that the insured may believe are not valid in law or fact.”

The court‘s conclusion

In summary … the Taylors were bound by the policy to give notice as soon as reasonably practicable after learning of the sexual molestation allegation. This is so because these allegations were very serious—they alleged the sexual molestation of their niece, by their son, in their home. Such allegations are sufficiently serious to lead a person of ordinary intelligence and prudence to believe that a claim might be brought against them and their sons …

Of course, this does not mean that insureds are required to anticipate every conceivable claim that may be brought. All that is required is that the insured notify the insurer of an occurrence where a reasonable person, based on the facts of the occurrence known to the insured, would anticipate that a claim might be brought that would implicate the policy. This duty of the insured to notify the insurer of occurrences that might give rise to invalid claims is consistent with the duty of the insurer to defend the insured against such claims, as the duty to defend is broader than the duty to indemnify.

Importance to church treasurers

Most insurance policies impose on the insured a duty to promptly notify the insurance company of any potential claim. Failure to comply with this condition can result in a loss of coverage. Be sure you are familiar with the notice provisions in your church’s insurance policies, and comply with all of the relevant requirements. Pay special attention to the following considerations:

Timely notice

Provide the insurer with notice of an accident or occurrence within the time limits specified by the relevant policy. It is common for policies to require the insured to notify the insurer of an accident or occurrence “as soon as practicable,” or “immediately.” In this case, the Taylors failed to inform their insurer of the accident or occurrence until a lawsuit was filed naming them as defendants. This was nearly five years after they had reasonable cause to believe that an accident or occurrence had occurred.

KEY POINT. The gravity of failing to comply with an insurance policy’s notice requirement is graphically illustrated by this case. The Taylors’ failure to provide their insurer with timely notice of the potential claim relieved the insurer of any legal duty to provide them with a legal defense of a $3,350,000 lawsuit or pay any portion of an adverse verdict or settlement. As a result, the Taylors had to retain and compensate their own attorney, and were solely responsible for any adverse verdict or settlement.

What triggers the notice requirement?

The duty to notify your insurer arises when you learn of an “occurrence” that, “from an objective standpoint, may potentially lead to a claim against the insured that might implicate the policy.” The court in this case stressed that the duty to notify an insurer is not triggered “only by the anticipation of valid claims that may be covered; instead, the duty of notice is broader; it extends to incidents sufficiently serious as to lead a person of ordinary intelligence and prudence to believe that any claim arguably covered by the policy may be brought, even claims that may ultimately fail or that the insured may believe are not valid in law or fact.”

KEY POINT. Church leaders should notify their insurer of a potential legal claim even when they are not certain that it is valid. Err on the side of caution. Remember, a failure to comply with the notice requirement can have disastrous financial consequences for the church.

The content of a valid notice

Your insurance policy will describe the information that needs to be communicated when notifying your insurer of a potential claim. The policy in this case required the insureds to notify the insurer of “reasonably available information on the time, place and circumstances of the accident or occurrence” and the “names and addresses of any claimants and available witnesses.”

Notifying your broker may not be enough

Many churches purchase their insurance through a local broker. Sometimes this person is a member of the congregation. Church leaders naturally assume that in the event of an accident or injury they can simply call this individual and everything will be “taken care of.” This is not always the case. A broker may not be deemed to be an “agent” of the insurance companies he or she represents, and accordingly when a church provides its insurance broker with notice of an accident or loss it is not necessarily notifying its insurance company.

If you notify your insurance broker of a loss, insist on a written assurance that he or she will notify the insurance company in writing within the period of time specified in the insurance policy. If you do not hear back within a week or so, contact the broker again to follow up. Better yet, the church itself should notify both its broker and insurance company. The insurance company’s address will be listed on your insurance policy. Ask the insurance company to provide you with written confirmation of receipt of your notice.

Written rather than oral notice

If your insurance policy requires written notice, then be sure you provide written rather than oral notice of a loss.

KEY POINT. Church leaders should be familiar with the insurance policy’s provisions regarding notification of the insurance company. Is written notice required? If so, how soon after a loss? It is essential that these provisions be scrupulously followed in order to prevent a loss of coverage.

If you change insurance companies, be sure to review the new insurance policy. Do not assume that it will contain the same “notice” provisions as your previous policy.

KEY POINT. The duty to inform your insurance company of an accident or loss arises when the injury occurs, and not when a lawsuit is filed. The purpose of the notice requirement is to give your insurance company sufficient time to investigate the incident and provide a defense.

Example. A pastor is informed by a parent that her minor child was molested by a church volunteer. The volunteer is questioned, and admits having molested the child. This incident represents a potential “loss” under the church’s insurance policy, triggering a duty to inform the church’s insurance company of the loss within the period of time specified in the insurance policy. The church should inform its insurance company immediately. It is very important that it not wait until a lawsuit is filed to notify its insurance company. Such a delay not only hinders the insurance company’s ability to investigate the incident and defend the case, but it also may result in loss of coverage under the policy. This could have disastrous consequences to the church.

This article first appeared in Church Finance Today, April 2009.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Who Can Sign Checks for the Church? Understanding Roles and Responsibilities

Understand the roles and liability protections of church check signers, with tips to safeguard your church’s financial practices.

Michael Allison

Bio

Last Reviewed: January 26, 2025

Q: Does the person who signs checks but has no official staff or board position in the ministry have any responsibility if anything goes wrong financially? I am not talking about writing illegal checks, but rather, if the corporation does something wrong or is accused of financial misconduct, can someone who is simply a volunteer be held responsible?

Does the person who signs checks but has no official staff or board position in the ministry have any responsibility if anything goes wrong financially? I am not talking about writing illegal checks, but rather, if the corporation does something wrong or is accused of financial misconduct, can someone who is simply a volunteer be held responsible?

Are Check Signers Personally Liable for Bounced Checks?

In general, a person who signs a check on behalf of a church or ministry will not be held personally liable for a check that bounces, as long as they are unaware that the bank account has insufficient funds to cover the check amount.

Checks are considered “negotiable instruments” under the Uniform Commercial Code (UCC). This legal framework governs liability for people who sign checks and other negotiable instruments. Employees and volunteers who sign checks on behalf of a church are representatives of the organization and are generally protected against claims made by recipients of checks drawn on the organization’s bank account.

What Does Article 3 of the UCC Say About Check Signers?

According to Article 3 of the UCC (Revised), a representative check signer, such as a church treasurer, is not personally liable for a bounced check. However, there are exceptions:

If the signer knowingly issues a check that will bounce, they could be held liable for fraud.
Fraud claims require proof that the signer was aware of insufficient funds at the time the check was issued.

A landmark case, Lippman Packing Corp. v. Rose (1953), established that a representative is not liable for fraud unless they knowingly misrepresented the situation or had actual knowledge of insufficient funds. This principle, known as the “Lippman Rule,” is still referenced today.

Are There State-Specific Considerations?

While most states follow the UCC, some variations exist. For example, New York has not fully adopted Revised Article 3. In such jurisdictions, a check signer may face personal liability unless they clearly indicate their representative role by displaying the church’s name on the check and signing with a title like “as church treasurer.”

How Can Churches Reduce Liability Risks for Check Signers?

To safeguard against potential liability, consider the following practices:

Ensure all checks prominently display the church’s name.
Require signers to include their titles, such as “as treasurer,” when signing checks.
Implement strong internal controls, such as requiring dual signatures for checks over a certain amount.
Consult with a local attorney familiar with UCC and state laws to ensure compliance and reduce risks.

FAQs

Are church volunteers at risk of personal liability when signing checks? Generally, no, unless the volunteer knowingly signs a check that will bounce or fails to follow best practices, like indicating their representative role.
What is the “Lippman Rule”? It states that a representative signer is not liable for fraud unless they knowingly participated in misrepresentation or fraud.
Do all states follow Revised Article 3 of the UCC? No, some states, like New York, have not adopted it fully, which may increase liability risks for check signers in those jurisdictions.
How can churches protect check signers? Ensure proper documentation, use dual-signature requirements, and seek legal advice on state-specific UCC applications.

Conclusion

Check signers for churches, whether employees or volunteers, are generally protected from personal liability under the Uniform Commercial Code. However, implementing best practices and understanding state-specific laws can further reduce risks and ensure proper financial oversight within the church.

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Non-Compete Agreements for Pastoral Staff: Are They Legal?

Non-compete agreements can limit a pastor’s ability to work at a nearby church after resignation or dismissal. Learn how these agreements work, their legal enforceability, and best practices for churches considering such clauses.

Kathleen Turpin

Bio

Last Reviewed: January 29, 2025

Q: Is it legal to add something to a pastoral staff hiring agreement stating that if a pastor or ministry staff person is dismissed or resigns, they agree not to accept employment in any church within a 30 mile radius of our church for three years after their termination date?

This type of agreement or language is often referred to as a “non-compete” agreement. Non-compete agreements are common in the business world, but can be used by not-for-profit religious institutions to limit certain key employees’ options when he or she terminates. Whether a non-compete agreement will be upheld varies state by state, however, most will allow it as long as certain conditions are met.

In most cases, courts will look to whether the agreement was reasonable in scope, geography and term. Here are examples of language that likely would or would not be upheld:

Reasonable: Reverend Smith agrees not to accept a pastoral position with any Baptist church within 30 miles of First Baptist Church for two years following termination. A pastoral position means a job where the primary responsibilities include preaching, teaching, leading worship, or overseeing a Church.

Unreasonable: Reverend Smith agrees not to accept any position with any church in the State of California for five years following termination with First Baptist Church.

Additionally, some states require “additional consideration” (i.e. money or tangible benefit) in order for the agreement to be binding, especially if the agreement is signed after the employee is already employed. As with all agreements, you should have a local attorney review non-compete language to confirm that it complies with your state laws.

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Q&A: What Basic Guidelines Can We Follow to Audit Our Own Record keeping?

A checklist of items to cover when reviewing your church’s financial books.

Vonna Laue, CPA

Bio

Our church board does an audit of our financial records on a quarterly basis. They review the income records, accounts payable and payroll checks for both the church and our Christian school. This past week our finance team got in a discussion about practices an accounting firm would use versus our practices. We have never had a CPA or firm do an audit because of the expense.

I instruct the board in what to audit and check, and I am also responsible for handling the income and paying the bills. I want them to have confidence that we have procedures in place that, to the best of our ability, safeguard the church and me. What guidelines would CPAs use if they were to audit a church’s books?

Here is a checklist of some items that may prove helpful when your board conducts its audit:

Minutes for meetings (board, financial committee, executive committee): look for financial transactions
Internal controls: are they adequate?
Expense reports of executive employees
Pledges/contributions receivable: were any received that were not recorded and should have been?
Unrecorded trusts and estates
Cash: review bank reconciliations
Investments: determine if the statements agree to the general ledger
Accounts and notes receivable: make sure there is support for the amounts
Property, plant, and equipment (PPE): have additions and disposals been recorded and is depreciation accurate?
Inventory: is there support for this amount?
Accounts payable and accrued expenses: have all amounts incurred but not paid (including payroll and vacation time) been accrued?
Deferred revenue: if the revenue hasn’t been earned, is it reflected as a liability?
Revenue: is the donor system reconciled to the general ledger?
Notes payable: does the debt statement agree with the general ledger?
Expenses: is there a reconciliation of the 941 reports with the payroll expenses?

Additionally, it’s generally good to do an analysis of current year to prior year amounts of revenue and expense to see if there are any large or unexplained differences.

While the above list is a portion of what a full audit would encompass, it can still seem overwhelming. Your board may want to select a few items and do them on a rotating quarterly basis.

Vonna Laue has worked with ministries and churches for more than 20 years. Vonna was a partner with a national CPA firm serving not-for-profit entities through audit, review, tax, and advisory services. Most recently, she held the role of executive vice president for a Christian ministry that works to enhance trust in the church and ministry community.

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Does You Need a Church Risk Management Team?

A team should include professionals in areas you intend to address, such an accountant for financial issues, a builder for structural ones, and an attorney for liability issues.

Michael J. Allison

Q: We would like to create a risk management team in our church. What kinds of volunteers should we try to recruit for this ministry? How do other churches use a safety team to help oversee church people, property, and ministries?

The answer is probably yes

Your church is to be commended for recognizing the need to take steps to prevent problems before they happen—the very essence of risk management. Many churches have begun to work on comprehensive risk management plans that thoughtfully consider and address the exposures involved in their ministries.

Resource: Learn how to development a risk management strategy for your church in this downloadable resource.

Choose the right people

Recruiting the right people to develop the plan is an important aspect of creating an effective plan. Create one or more committees of people who understand and value risk management. Include professionals in areas you intend to address, such an accountant for financial issues, a builder for structural ones, and an attorney for liability issues.

Plan development is generally best undertaken by a team. For the team to be effective, it’s important that they be granted sufficient authority by the church to put an effective plan into place.

When a church begins work on a comprehensive risk management plan, the process can seem daunting. Keep it manageable by breaking the project down into smaller steps. Ask the right people (and enough of them) to complete each one and develop a project plan with firm delivery dates along the way.

Six steps to take

Here are six steps recommended by Brotherhood Mutual for developing a workable, well-thought-out risk management plan for your church:

Identify the hazards. Determine what areas of your ministry might pose risks. Consider any hazard that can cause injury, illness, death, loss, or damage to equipment or property. Consider a variety of “what if” scenarios.
Assess the risks. Estimate the probability and severity of each potential risk. Think in terms of worst-case possibilities to get a credible measure of how severe a risk could become. With results in hand, you’ll have a useful tool for identifying which risks should be given closest attention.
Analyze risk control measures. Investigate specific strategies and tools that reduce or eliminate risks. There’s a range of options, from deciding not to take a risk at all to finding ways to reduce, accept, or transfer the risk.
Make risk control decisions. Once you have chosen a strategy, determine the level of risk remaining. Do you still think the remaining risk is acceptable? Or should you modify the plan to develop measures to better control the risk? Capture your decisions in writing.
Implement risk controls. Document your plan fully and implement it with appropriate resources. You’ll also want to communicate the plan—or at least the relevant components—to church employees, volunteers, and members.
Supervise and review. Make sure everyone is playing his or her role appropriately once your plan is in place. As time passes, review the plan periodically to ensure it’s still working. Get feedback from people involved in all aspects of the plan, and use their comments to modify it as needed.

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Understanding Comp Time and Overtime Rules for Church Employees

Many churches mistakenly believe they can offer comp time instead of overtime pay. However, under the Fair Labor Standards Act (FLSA), private employers must pay non-exempt employees overtime for hours worked beyond 40 in a single workweek. Learn how to handle overtime correctly to stay compliant.

Kathleen Turpin

Q: Could you address the “comp time” issue? This seems to be a huge misunderstanding in church circles. My understanding of the Fair Labor Standards Act is that there is no comp time in lieu of overtime pay for non-exempt employees. Overtime is after 40 hours in one work week and you can’t comp it at 1-1/2 hours time off? Is this right?

You are correct. Private employers, such as churches and not-for-profit ministries, cannot offer compensatory time to non-exempt employees in lieu of overtime. Comp time is often defined as substituting overtime with time off work.

The Fair Labor Standards Act (“FLSA”) does allow employees to rearrange hours worked within the same workweek (not pay period) to avoid overtime. However, employees cannot substitute paid time off for the time worked over 40 hours to use in another week.

The FLSA requires employers pay non-exempt employees overtime compensation for all time worked in excess of 40 hours within any workweek.

Here is a common scenario that demonstrates how this works: First Church of Lansing pays employees every other week. Kim, the church secretary, works 44 hours one week and 36 the next week. In this scenario, the employer must pay Kim four hours overtime for the first week. Even though Kim worked 80 hours in the pay period, she still worked 44 hours in one week and therefore must receive overtime compensation.

Some states have additional wage and hour restrictions, such as requiring overtime when an employee works more than eight hours a day, that apply. So make sure you talk to a local attorney to confirm how overtime must be administered in your state.

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Church Liability: Fall Risk Prevention

Protect your congregation from the church’s most common liability.

Richard R. Hammar, Attorney, CPA

Bio

Last Reviewed: February 11, 2025

Along with the winter season comes slippery ice and wet floors, and you will need to consider what you can do to make your church safer for all who will enter and exit. “Slips, trips, and falls,” as a category, is one of the most common liability areas for churches. In fact, personal injury lawsuits (commonly prompted by slips, trips, and falls) are a perennial top reason churches go to court each year.

Help protect visitors and members at your church by using nonskid mats and wax, immediately cleaning up water spills, and always placing signs around slippery floors.

Consider these examples that prompted lawsuits:

Example. A charity permitted an outside group to use its facility for a Christmas party. During the party, a woman suffered serious injuries when she fell on a slippery floor. As a result of her injuries, the woman underwent surgery for a complete hip replacement.

She later sued the charity, claiming that the floor was unreasonably slippery, and that this dangerous condition caused her to fall. The charity asked the court to dismiss the case, but its request was denied. On appeal, a state appeals court suggested that there was sufficient evidence that the charity retained control over its premises during the party to send the case to a jury.

The court began its opinion by acknowledging that a property owner may be legally responsible for injuries that occur on its premises when they are under its custody or control.

The court suggested that the charity had retained control over its premises during the Christmas party on the basis of the following factors: 1) the charity was responsible for setting up tables for the party; 2) the charity provided a custodian during the entire party; and 3) the charity was responsible for opening the premises at the beginning of the party and locking the premises at the conclusion of the party. The charity’s custodian admitted that he had cleaned the floor prior to the party and that he was on duty and responsible for cleaning the floor during the party.

Example. The Mississippi Supreme Court ruled that an unincorporated church and its board of trustees could be sued by a member who was injured when she slipped and fell on a waxed floor while leaving a Sunday school class. The member argued that she was an “invitee” and, accordingly, that the church owed her a high degree of care, which it breached. The church maintained that the member was merely a “licensee” to whom it owed a minimal duty of care.

The state supreme court observed that the term invitee includes both “public invitees” and “business visitors.”

A public invitee is “a person who is invited to enter or remain on land as a member of the public for a purpose for which the land is held open to the public,” while a business visitor is “a person who is invited to enter or remain on land for a purpose directly or indirectly connected with business dealings with the possessor of the land.”

On the other hand, a licensee is one “who enters upon the property of another for his own convenience, pleasure, or benefit pursuant to the license or implied permission of the owner.” In applying these definitions to church members, the court concluded:

Members of religious associations, in general . . . fall within the category of “public invitees.” Religious bodies do expressly and impliedly invite members to come and attend their services and functions. They hold their doors open to the public. While they do not charge admission fees . . . churches do depend on contributions . . . in order that they may continue to be open to the public.

Therefore, a church member who does not exceed the scope of the church’s invitation is an invitee while attending a church for church services or related functions.

Accordingly, the member who slipped and fell on the waxed floor was an invitee to whom the church owed a high degree of care, rather than a mere licensee to whom the church owed only a minimal duty of care.

These examples illustrate the unpredictable ways that courts will determine the duty of care churches owe to people who enter their buildings. Since lawsuits caused by slips, trips, and falls are so common, and because churches do not want to see anyone injured while on their properties, church leaders should actively and aggressively address this risk.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Safely Disposing of Sensitive Information

How does the FTC’s “disposal rule” apply to churches?

Richard R. Hammar, Attorney, CPA

Bio

Q: Our church recently received an unsolicited ad in the mail from a company warning us that we need to comply with a Federal Trade Commission “disposal rule.” What is the disposal rule, and does it apply to churches?

In an effort to protect the privacy of consumer information and reduce the risk of fraud and identity theft, the FTC adopted a “disposal rule” in 2005 requiring “consumer reports to be disposed of in such a manner that they cannot subsequently be reconstructed by identity thieves. The rule requires the proper disposal of information in consumer reports and records to protect against “unauthorized access to or use of the information.”

The definition of a “consumer report” includes credit checks, criminal records checks, and references that are used in making employment decisions. The bottom line is that these kinds of documents cannot simply be tossed into the trash. Instead, they must be shredded, burned, or pulverized, either by the employer itself or by an external vendor. Obviously, the vast majority of churches can comply with this rule by purchasing a $20 shredder at a local office supply store.

According to the FTC, the standard for the proper disposal of information derived from a consumer report is flexible, and allows the employer to determine what measures are reasonable based on the sensitivity of the information, the costs and benefits of different disposal methods, and changes in technology.

For more information about the disposal rule, visit the FTC website.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Do Churches Need to Comply with the FTC Disposal Rule?

Find out how the FTC Disposal Rule impacts churches and why proper document disposal is essential for protecting sensitive information.

Richard R. Hammar, Attorney, CPA

Bio

Last Reviewed: January 26, 2025

In an effort to protect the privacy of consumer information and reduce the risk of fraud and identity theft, the FTC adopted a “disposal rule” in 2005 requiring “consumer reports” to be disposed of in such a manner that they cannot subsequently be reconstructed by identity thieves.

The rule requires the proper disposal of information in consumer reports and records to protect against “unauthorized access to or use of the information.”

Instead, they must be shredded, burned, or pulverized, either by the employer itself or by an external vendor. Obviously, the vast majority of churches can comply with this rule by purchasing a shredder at a local office supply store.

For more information about the disposal rule, visit the FTC website at www.ftc.gov.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Understanding Taxes on Educational Assistance for Churches

Discover how churches can provide educational assistance to employees while meeting IRS requirements and minimizing tax liabilities.

Richard R. Hammar, Attorney, CPA

Bio

Last Reviewed: January 3, 2025

Q: Our senior pastor is pursuing an advanced degree through a seminary located in another state. Our church board would like to pay his tuition expense, since we believe that our church will directly benefit from this additional education. Are we required to report the amounts we pay as taxable income to the pastor, or are these payments nontaxable?

Churches offering educational assistance to their employees, such as senior pastors pursuing advanced degrees, must navigate complex tax regulations. This article explains how to handle taxes on educational assistance in compliance with IRS rules.

Key Takeaways:

Educational assistance up to $5,250 annually can be excluded from taxable income.
Excess benefits may be taxable unless they qualify as working condition fringe benefits.
A written educational assistance program is required for compliance.

Can our church pay our pastor’s tuition without making it taxable income? Yes, under certain conditions. Section 127 of the tax code allows up to $5,250 annually in tax-free educational assistance benefits for employees. Here’s how:

Eligibility for Tax-Free Educational Assistance

To exclude up to $5,250 of educational assistance benefits from taxable income, the church must meet the following requirements:

Establish a written educational assistance program for employees.
Ensure the program does not discriminate in favor of officers or highly compensated employees.
Provide reasonable notification of the program’s availability and terms to all eligible employees.
Offer educational assistance rather than cash alternatives.

What Qualifies as Educational Assistance?

Educational assistance benefits include:

Payments for tuition, fees, and similar expenses.
Costs for books, supplies, and equipment related to coursework.

These benefits apply to both undergraduate and graduate-level courses, regardless of whether the courses are work-related. However, expenses for meals, lodging, transportation, or general supplies are not included.

Tax Treatment of Benefits Over $5,250

Any educational assistance exceeding $5,250 annually must be treated as taxable income unless it qualifies as a working condition fringe benefit. For education expenses to qualify as a working condition fringe benefit, they must:

Maintain or improve skills required for the employee’s current role, or
Meet the employer’s requirements for continued employment or licensing.

Education expenses generally do not qualify if they are for training in a new trade or business or for meeting minimum educational requirements.

Example

Your church pays $10,000 toward your senior pastor’s tuition. The first $5,250 can be excluded from taxable income. The remaining $4,750 is taxable unless it qualifies as a working condition fringe benefit.

Additional Considerations

The exclusion applies to both income tax and Social Security tax.
Self-employed individuals may also qualify for the exclusion under these rules.

FAQs About Taxes on Educational Assistance

What if the educational expenses are related to a new role?
Such expenses are generally taxable unless they meet the requirements of a working condition fringe benefit.
Does the exclusion apply to self-employed clergy?
Yes, self-employed clergy can also benefit under the same rules.
What expenses qualify under an educational assistance program?
Tuition, fees, books, supplies, and equipment qualify, but meals and lodging do not.
How should excess educational benefits be reported?
Amounts exceeding $5,250 must be included in the employee’s Form W-2 (Box 1) unless they qualify as a working condition fringe benefit.

Conclusion

By adhering to IRS regulations, churches can provide educational assistance to employees while minimizing tax liabilities. Establishing a compliant educational assistance program is essential for achieving these benefits. For additional guidance, consult IRS Publication 970 or your tax advisor.

For more information, visit the IRS website or explore resources on Church Law & Tax.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.