What’s an intern and

how do you pay them??

By Dave Anderson Church Accounts MGR. YCA

Spring is in the air!  Trees are starting to bud.  Flowers are starting to bloom and there is afresh crop of potential interns that pastors are trying to scoop up before summer break begins.

Churches have different philosophies on how they should compensate and classify interns.  Some see them as young ministers that they need to invest time and resources on. 

Other churches see them as temporary fixes for job positions that they are trying to fill or to cover vacations.  Sadly, there are even some organizations that treat them as cheap or free labor.

Healthy internship philosophies are important, but ultimately, they must align with federal and state laws regarding employment, compensation, and taxation.  Failure to do so can open your ministry up to fines and create undue tax burdens on your interns.

Most often the best course of action is to hire your interns as employees.

There are a lot of good reasons why this is the best course of action.

Can’t interns work for free or receive almost no compensation?

First you must consider how the Department of Labor defines an intern. Calling someone “intern” does legally make them one.

The DOL uses a seven-question test.  Ultimately, the intern must benefit more from the intern-employer relationship than the employer.  Internships must be educational and must not displace regular employees.

These are the questions that the DOL uses:

1.      The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.

2.      The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.

3.      The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

4.      The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

5.      The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6.      The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7.      The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

In addition, the DOL has also stated that an intern’s service should be for less than three months, and they should receive less than twenty per cent of the fair value for the services they provide.

DOL intern requirements make it hard to utilize the tax and employment protections offered to interns versus employees.  It can be done but make sure you understand all the requirements and documentation required to do so. 

Our recommendation is to keep it simple.  Call them interns but hire them as employees.

Can’t you just pay them a stipend and not hire them?

Many churches choose paying a stipend instead of hiring them because it is easy and requires less paperwork.  Most often stipend employees are not employees, they are considered contractors.  Taxes are not withheld, and they do not receive a w-2.  They are instead sent a 1099 form. (Churches must provide a 1099 form to any contractor paid more than $600 during the year.)

This is a grey area to be venturing into.

According to the IRS you can only pay stipends to and not withhold earnings for “contractors.” The Federal Government also has a test to determine who may be paid as a contractor:

  1. You don’t direct when, where, and how their work is done. 

  2. They serve for a fixed duration (no ongoing relationship)

  3. They work less than full time.

  4. They don’t have to provide oral or written reports on the status of their work.

  5. They pay for their own expenses (no reimbursements)

  6. They provide their own tools & equipment.

  7. They do the same kind of work for other churches or business as well.

These are just a few of the criteria that the IRS uses to determine contractor status.  An intern would just have to fail one of these criteria to be considered a employee instead of a contractor.

More than likely you will be directing when and how interns work.  You will provide them with the tools and equipment that they need, and you would likely reimburse them for expenses.  It is unlikely that your interns are considered contractors by the IRS.

Keep in mind that if students are not legally interns or contractors, they are employees. Employees have certain legal protections like minimum wages, working conditions and hours.  It is morally wrong to pay interns almost nothing and demand long hours. It is also illegal.

Churches must remember that any compensations interns receive are considered taxable by the IRS.  Think about things like meals, fuel, instruments, etc. This also includes housing, even if it was provided by a family in the church. 

Some churches choose not to pay interns and then grant them a scholarship.   This is still considered taxable income even if you send it directly to the school.

All the legal requirements are enough to make you question whether it’s worth having interns.

It is worth it.

Churches should be offering students the opportunity to gain hands on experience in ministry. Interns are an incredible way to help meet the ministry needs of your church. They might even join your staff someday. 

Federal and state governments classify them as employees.  Our recommendation is that you do the same.  Treating them as volunteers or contractors can create opportunities for fines.  Don’t risk a great Kingdom building opportunity just to save paperwork and a few dollars.

Tax laws change often and vary from community to community.  

Consult a tax professional for questions specific to your situation.

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