Hiring Employees Receiving Workers Compensation Benefits

Recent case illustrates potential problems in hiring employees receiving these benefits.

Church Finance Today

Hiring Employees Receiving Workers Compensation Benefits

Recent case illustrates potential problems in hiring employees receiving these benefits.

State ex rel. Rollins v. Industrial Commission, 2004 WL 422684 (Ohio App. 2004)

Background. A pastor had a second job working for a secular employer. He sustained an injury while working for the secular employer and was awarded monthly benefits under the state’s workers compensation program based on his medical inability to return to work.

The pastor was able to continue his duties as senior pastor of his church where he conducted three services each week. The church paid him a fixed amount each week, payable by check. The checks noted that the money was a “love offering.”

The state workers compensation agency received information that the pastor was employed while receiving workers compensation benefits, and it conducted an investigation. The pastor admitted that he received the money but stated that his service to the church was not employment, and that he was just “serving God.” He said he had been the pastor before the injury and simply continued to serve his church after his injury. He explained that, during a church service, he would read a passage from the Bible and then explain or preach whatever God placed on his heart, which was “not a job but a privilege.” A member of the church stated that there was no job description or job application.

The agency sought to terminate the pastor’s workers compensation benefits and recover the amounts previously paid. It insisted that the pastor’s workers compensation benefits had been based on “total disability” and that his continued employment by the church proved that he was not entitled to these benefits. It pointed out that each workers compensation check that he received contained in the following notice and warning: “If this check is to compensate you for total disability, you are not entitled to it if you are working. Therefore, you should return it to the [agency] immediately.”

A hearing officer ruled that the pastor was not entitled to any of the benefits he had received, and ordered them refunded to the state. The pastor appealed, claiming that (1) he was not engaged in compensated employment while working for the church; (2) the amount he received from the church was generally less than $100 per week and this was too minimal to affect his eligibility for workers compensation benefits; and (3) his service as a pastor should not be viewed as compensated employment since he was “donating” his time to the church with no expectation of compensation, and that any checks he received were “love gifts” rather than compensation.

The court’s ruling. A state appeals court rejected all three of the pastor’s defenses.

Checks issued by the church were not “compensation”

The court first addressed the pastor’s claim that the services he performed for the church were not “compensation” because he “felt privileged to serve” and his hours of service “were a joyful offering to God and to his church.” The court found these sentiments admirable, but concluded that a special exception for those who “are doing work they love or work that benefits the community would be improper. Many teachers, social workers, legal advocates, clergy and other persons view their work as an important mission that they gladly pursue despite low pay, but such workers should not have special permission to receive outside remuneration [while receiving total disability benefits] that is denied to those who perform work they do not like.”

Amount of compensation

In rejecting the argument that the amount of compensation paid by the church was too minimal to affect his eligibility for workers compensation benefits the court observed, “A claimant cannot receive total disability benefits while receiving remuneration for work activities, including part-time or occasional activities. Even when remuneration is nominal or the hours of work are minimal, the remuneration precludes receipt of benefits.”

“Love gifts” rather than compensation

The court rejected the pastor’s argument that the checks he received from the church were “love gifts” (rather than compensation), and that they did not affect his eligibility for workers compensation benefits. The court observed,

Given the regular timing of the checks and the regular amount of the checks over several years, together with the regular performance of preaching duties, the [hearing officer] was within his discretion to conclude that the weekly checks and occasional bonuses were remuneration for part-time employment. The hearing officer made a specific finding that the pastor was receiving remuneration from the church for services performed. Thus, the hearing officer rejected the pastor’s argument that he merely performed volunteer work and that the weekly payments were merely gifts prompted by the love between the parties involved.

With regard to the pastor’s argument that the church’s payments to him were voluntary gifts rather than compensation, the court noted that “the fact of regular weekly payments of a set amount over the course of years could be interpreted as indicating that he was being compensated for services rendered.”

The court noted that any compensated activity precludes total disability benefits, and, that activities “medically inconsistent with the alleged inability to return to the former position of employment” bar total disability benefits regardless of whether the individual is paid. Activities that are not “medically inconsistent,” however, bar benefits only when a person is compensated for them.

Significance to church treasurers. What is the significance of this case to church treasurers? Consider the following points:

1. Are we subject to workers compensation? Church treasurers should know whether their church is subject to state workers compensation law. If you are not sure if your church is covered, consider one or more of the following steps: (1) ask a local attorney; (2) ask your church insurance agent; or (3) call the agency in your state that administers the workers compensation program.

2. The risk of being uninsured. Employers that are covered by workers compensation law generally pay insurance premiums to cover the cost of benefits paid to injured workers. However, many churches have failed to obtain workers compensation insurance, often because of a false assumption that they are “exempt” from workers compensation law. This can expose a church to significant liability, for two reasons. First, an injured employee may be able to sue the church for damages in a civil lawsuit. Unlike workers compensation benefits, there is no limit on the amount a court can award in a civil lawsuit. Second, the damages a court awards in a civil lawsuit will not be covered under most church insurance policies. Often, general liability policies exclude employee injuries on the assumption that they are covered under a workers compensation policy. This can create a dangerous gap in coverage.

3. Do we have workers compensation insurance? If your church is subject to workers compensation law, then be sure you have obtained workers compensation insurance. If in doubt, ask your church insurance agent.

4. Employees. Workers compensation laws only cover injuries and illnesses suffered by employees on the job, but the term employee is defined very broadly to further the objectives of workers compensation laws. As a result, the fact that a church treats a worker as self-employed for income tax reporting purposes does not mean that the worker is self-employed for purposes of workers compensation. The case reviewed in this article is a good example. The employee status of the worker was not questioned, even though he was hired to work only for a limited period of time by the church.

5. Hiring an employee who is receiving workers compensation benefits. Workers compensation benefits are based on the degree and nature of an injured worker’s work-related injury. “Total disability” benefits may be awarded upon a finding that the injured employee can no longer perform compensated employment. As a result, a person’s eligibility to receive total disability benefits is directly affected if he or she begins performing compensated employment. And, such employment may not only result in a discontinuation of benefits, but also a legal obligation to return benefits already paid.

Is a church subject to any penalties if it knowingly hires and compensates a person who is receiving workers compensation benefits? In most cases, the answer is no. It is the employee, and not the employer, who may be required to return benefits paid while he or she was earning wages from a job. Still, it is a “best practice” for churches to consider the following precautions:

  • if a church employee is injured on the job (either at church or at a “second job”), and is receiving workers compensation benefits, be sure the employee is legally permitted to perform compensated employment before allowing him or her to continue working.
  • if a church employee is injured on the job (either at church or at a “second job”), and is receiving workers compensation benefits, be sure the employee complies with any “notification” requirements prescribed by state law. Persons receiving workers compensation benefits may be required to notify a state agency if there is any improvement in their condition, or if they perform compensated employment. Failure to do so may make the recipient legally obligated to return some or all of the workers compensation benefits that were paid.
  • Note that an injured employee is performing “compensated employment” (which may jeopardize eligibility for workers compensation benefits) if he or she is receiving compensation for performing services. As this case demonstrates, the fact that the amount of compensation is small may be irrelevant. And, the employee cannot avoid disqualification by characterizing church compensation as “love gifts.”
  • if your church has at least 15 employees, and is engaged in commerce, then you are subject to the Americans with Disabilities Act. This Act generally prohibits covered employers from discriminating in employment decisions on the basis of the disability of a person who is able to perform the essential functions of a job with or without reasonable accommodation by the employer. There are exceptions. For example, churches are permitted to discriminate on the basis of religion in their employment decisions. Many states have their own disability laws, and some of these laws apply to employers with fewer than 15 employees (and none requires interstate commerce).

This article first appeared in Church Treasurer Alert, April 2005.

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

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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