Video FAQ’s

You can find answers to some frequently asked questions (FAQs) below with our short, informational videos. Check back soon for more videos, please feel free to contact us with any questions.

FORMATION, CHOICE OF ENTITY AND CORPORATE STRUCTURE

Video Transcription: The term church is found but is not specifically defined in the Internal Revenue Code. But certain generally accepted attributes have been developed by the IRS and through court decisions to define a church. There's 14 of these attributes and they are, one, a distinct legal existence, next, a recognized creed or form of worship, a definite and distinct ecclesiastical government, a formal code of doctrine and discipline, a distinct religious history, membership not associated with any other church or denomination, an organization of ordained ministers and ordination of ministers following completion of prescribed courses of study, literature of its own, established places of worship, regular congregations, regular religious services, Sunday schools for religious instruction of the young and schools for preparation of its members. Now, all 14 of those are not necessarily required for a church to be a church. The IRS uses a combination of these attributes, not all of them, together with other facts and circumstances to consider whether an organization qualifies as a church for federal tax purposes.
What constitutes a "church" under federal law?
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What constitutes a "church" under federal law?

The advantages of incorporating are that the organization's purpose is clearly stated. The extra protections of incorporating are provided with the corporate veil. It puts the public on notice of the existence and formation of the corporation. It establishes membership and voting rights in the articles or in the bylaws, and it creates a clear, distinct legal existence in the corporation. And common problems when you don't incorporate, could be things such as the governance rules of the organization may be vague or default to the state nonprofit code. It may be more difficult to prove the legal existence of the organization. An individual may be sued if no corporate existence is publicly evident and the corporate form is generally more accepted by lenders then when an organization is not incorporated.
Should churches incorporate?
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Should churches incorporate?

Video Transcription: Church formation can be accomplished in several ways. One way is for churches to incorporate under state law by forming a nonprofit corporation. The documents needed for this are a certificate of formation, also known as articles of incorporation. It's always a good idea to create a set of bylaws to govern the church, establish its leadership, set forth membership requirements, discipline and things like that. Another way to form a church would be through an unincorporated association of persons. This is simply an unincorporated group of two or more people joined by mutual consent for a common lawful purpose, whether organized for profit or not for profit. There is no formal document required for an unincorporated association of persons, but it's definitely a good idea to adopt bylaws for this type of entity to govern their membership and leadership and establish rules. Also, churches can be formed by creating a trust under state law, though this is not often used in creating churches anymore. This type of organization is created with a trust instrument, and again, it's advisable to have bylaws that govern the conduct of the church and its members.
What formation documents are required for churches?
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What formation documents are required for churches?

A church should always have bylaws and they should keep them updated as necessary. Bylaws are the internal rules by which churches govern themselves, and unlike Certificates of Formation or Articles of Incorporation, bylaws are rarely filed with the state, they're internal to the organization. Church bylaws should address and provide rules for such things as the organization's purpose, electing directors and defining their duties, what officers the church will have, whether there will be members and whether those members will have voting rights, how meetings are noticed and called, the role of the chief executive or senior pastor, committees the organization may have. It should establish the fiscal year of the organization. Bylaws should contain a conflict of interest policy. They should definitely restate the federal tax law requirements to qualify as a nonprofit. They should address how an organization will go about determining executive compensation. Bylaws should have emergency powers clauses in case of an emergency or a natural disaster. And we also recommend that churches state in their bylaws that the church's Board of Directors is the highest ecclesiastical tribunal for settling disputes involving church members.
Should a church have bylaws and what should the bylaws include?
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Should a church have bylaws and what should the bylaws include?

IRS RECOGNITION OF TAX EXEMPT STATUS

A church is considered tax exempt by its very existence as a church. Churches are not required to apply for tax exempt recognition by the IRS. Other nonprofit organizations are required to apply for tax exempt recognition and they do that by completing and filing a Form 1023 with the IRS and wait for the IRS to approve it. A church may choose to complete Form 1023 and seek formal recognition from the IRS as being tax exempt. Usually they do this for the reason that large donors typically will request a copy of the church's tax exempt recognition letter to provide to their tax preparers so that it can evidence the deductibility of their donation. Many churches go ahead and complete the tax exempt application process in order to be prepared should a [inaudible] donor request such a document in the future.
Should a church formally apply to the internal revenue service for tax exempt recognition?
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Should a church formally apply to the internal revenue service for tax exempt recognition?

CORPORATE GOVERNANCE AND BOARDS

Directors of a church are required to act prudently in handling the church's income and assets. This creates a fiduciary responsibility the director owes the organization. A fiduciary responsibility or duty is the highest duty the law can impose upon an individual. It's such an important duty in the law that it is the same duty a parent owes to their child. The fiduciary duties a director owes the church they serve are the duties of care, loyalty, and obedience. The duty of care requires that a director be reasonably informed about the church's activities, attend directors meetings, and participate in decision making with the same care as an ordinary person in similar circumstances. The duty of loyalty requires that directors undertake their duties in the best interest of the organization and not in their own or someone else's interest, and that directors placed the interest of the church before their own personal or professional interests. The duty of obedience requires that directors abide by laws, local, state, and federal, and follow regulatory requirements. It also requires the directors abide by the rules of the organization, those being things like the bylaws or the articles of incorporation.
What are the duties of a church's board of directors?
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What are the duties of a church's board of directors?

Why is it important that a church's board or elders be designated as the "highest ecclesiastical tribunal" to hear and decide disputes from or amongst church members? Video Transcription: Designating a church's board as the highest ecclesiastical tribunal to decide disputes among members of the church or between a member and the church will typically help to keep such disputes out of the public court system. Under the abstention doctrine, secular courts will abstain from having to interpret the Bible or scriptures in order to resolve a case and this is because of the first amendment protection of requiring separation between the church and state. So designating in a church's bylaws that the board is the highest ecclesiastical tribunal of the church and further stating that the bylaws should be interpreted according to, say, for example, the King James version of the Bible. This will help to ensure church disputes involving membership, discipline or the like will not be subjected to the secular court system.
Why is it important that a church's board or elders be designated as the "highest ecclesiastical...
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Why is it important that a church's board or elders be designated as the "highest ecclesiastical...

Video Transcription: Who decides whether a church is sold or how it disposes of a majority or all of its assets depends upon the churches governing documents. Typically the bylaws will provide for how a church is divested of its real estate or its assets. If the bylaws are in conflict with, say, their Certificate of Formation or Articles of Incorporation, the Certificate of Formation or articles will control. This is because Certificates of Formation and Articles of Incorporation are publicly filed documents, and bylaws typically are not filed publicly. If a church doesn't have bylaws, then determining who has the authority to sell a church or dispose of its assets, typically is determined by the laws of the state where the church is located, and it's usually that state's nonprofit code that will have default provisions to address this issue.
Who can make the decision to sell a church?
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Who can make the decision to sell a church?

How the proceeds from the sale of a church are used or treated depends in large part on the church's governing documents. When a church sells it's real estate that real estate is replaced typically with cash from the proceeds of the sale. Cash proceeds from the sale of a church belong to the church and are to be treated as an asset of the church. Just because cash is given for land and building doesn't mean that any individual or group of individuals have a right to split those proceeds. So the answer is that proceeds from the sale of a church belong to the church just as the asset that was sold did.
How are the proceeds from the sale of a church divided?
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How are the proceeds from the sale of a church divided?

Should a church include the traditional definition of marriage, as well as a marriage policy in its bylaws? If a church believes in the traditional definition of marriage and wishes to protect itself against claims of disparate treatment of believes in nontraditional marriage, the church should include the traditional definition of marriage in its bylaws, in its statement, and in its employment handbook. It should have the board or congregation adopt a facilities use policy, and then require anyone seeking to use the church's facilities, such as for a wedding or a funeral, to sign a facilities use agreement, that contractually obligates the user to use the church's facilities in a manner consistent with the church's policies, and bylaws, and beliefs. By taking these kinds of steps, a church is more prepared to address any media, public, or congregant inquiries it may receive regarding denial of use of its facilities to someone who takes issue with the traditional definition of marriage.
Should a church include the traditional definition of marriage as well as a marriage policy in...
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Should a church include the traditional definition of marriage as well as a marriage policy in...

As far as a formal meeting to undertake some kind of church activity, it depends on the requirements set forth in the church's governing documents. Typically, a church's bylaws will provide who can call meetings, the manner of giving notice of meetings, the timing of meetings as it relates to the notice, who can vote at the meetings, and where meetings are permitted to take place.
Can a meeting of church members be called without the pastors consent?
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Can a meeting of church members be called without the pastors consent?

BUSINESS AND FINANCIAL OPERATIONS

Video Transcription: The governing documents of the church typically provide the duties of its officers. The church's treasurer or the chief financial officer will have some control of day to day finances of the church. A senior pastor will typically also have some measure of control over the church finances. A treasurer or chief financial officers or senior pastors interaction with finances is usually subject to the ultimate oversight and management by the church's board. The board owes a fiduciary duty to the church, and one of those duties is the duty of care, which means that directors should always be generally familiar with the church's financial condition. Typically, as it regards church finances, the buck stops with the board of directors.
Who controls a church's finances?
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Who controls a church's finances?

Do churches have financial reporting requirements? Nonprofits generally have financial reporting requirements in that they're required to file an IRS Form 990, which is a Return of Organization Exempt from Income Tax. Most nonprofit organizations are required to file a form 990 yearly. Churches are not required to file 990s because of the constitutional protections afforded to churches, and other federal laws, such as the Church Audit Procedures Act. The Church Audit Procedures Act provides even more protection for churches in that it requires the IRS to take additional steps before it can audit a church. So really this leaves a church's financial reporting requirements primarily up to its donors. If a donor is dissatisfied with the church's financial transparency, or lack thereof, that donor can simply choose a different church to attend and donate to.
Do churches have financial reporting requirements?
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Do churches have financial reporting requirements?

Video Transcription: Under section 512 of the internal revenue code, "unrelated business taxable income" is the gross income derived by any organization from an unrelated trade or business regularly carried on by it less specific deductions. Section 513 defines the term "unrelated trade or business" as any trade or business, the conduct of which is not substantially related to the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption. Together, sections 512 and 513 outlined three criteria for unrelated business taxable income. One, is the income must be from a trade or business. Two, the trade or business must be regularly carried on by an exempt organization. And three, the trade or business must not be substantially related to the performance by the organization of its exempt purpose or function.
What is unrelated business income?
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What is unrelated business income?

Just like other tax exempt organizations, a church may engage in some income producing activities unrelated to its tax exempt purpose if the unrelated activities aren't a substantial part of the church's activities. However, the net income from these activities will be subject to the unrelated business income tax if three conditions are met. One, the activity constitutes a trade or business. Two, the trade or business is regularly carried on. And three, the trade or business is not substantially related to the organization's exempt purpose. There are some exceptions to the unrelated business income tax, even when those three conditions are met. Income may not be subject to the tax if volunteers perform substantially all of the labor involved in the trade or business, the activity is conducted by the organization primarily for the convenience of its members or substantially all of the merchandise sold was donated and, in general, passive income is excluded from unrelated business income tax unless financed with borrowed money. Some examples would include rents from real property, royalties, capital gains, and interest in dividends.
Do churches have to pay taxes on unrelated business income?
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Do churches have to pay taxes on unrelated business income?

Video Transcription: A church's officers and board of directors have a fiduciary responsibility in connection with the administration, investment, and distribution of church real and personal property. Generally, fiduciaries have three duties, the duty of care, loyalty, and obedience, and they have the implied duty to act prudently in investing based on their duty of care. Now, officers and directors must act with prudence in all matters involving such property and prudence means no less care than one would use to administer their own affairs. Of course, this is viewed through an objective lens. Now this responsibility includes how officers and directors invest donated funds, and they must act with the same degree of judgment in administering the donated funds of the church as each would manage their own personal resources. So officers and directors are not accountable for every bad investment they make. They're just called to a standard of a prudent investor. Therefore, officers and directors should take care not to take any risky investments, invest in companies or opportunities in which an officer or director has a direct tie, with limited exceptions, of course, they should not mismanage donor restricted funds, negligently select an advisor or a manager of the funds, or fail to invest with the longterm needs and best interests of the church in mind. Also, keep in mind that certain income from investments may lead to unrelated business income.
What legal issues should a church be aware of when it invests donated funds?
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What legal issues should a church be aware of when it invests donated funds?

Video Transcription: Insurance options available to churches generally fall under two categories, property insurance and liability insurance. Property insurance protects the church, church's buildings and business personal property. And liability insurance offers coverage against claims resulting from injuries and damage to people or property. Some examples of basic property insurance include special form coverage, which protects against almost all risk of loss except those that are specifically excluded and some additional property coverage can protect against lost business income and water damage. General liability insurance covers paying the damages for the injured party and defense costs for litigation. Some additional liability coverage includes auto, workers' compensation, sexual misconduct, employment practices. You also have umbrella and excess liability policies that are available for high limit protection and a church accident policy is available for extra coverage for medical expenses resulting from an injury during a church activity. So some specific policies for churches include coverage for pastors' personal property, church personal property at a parsonage, water damage from a baptistry overflow, volunteers, pastoral counseling, directors and officers liability, daycare liability, Christian school coverage and copyright infringement coverage.
What different types of insurance are available to churches?
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What different types of insurance are available to churches?

Video Transcription: Aside from the basic property and liability insurance coverage, some church specific policies include coverage for pastor's personal property, church personal property at a parsonage, water damage from a baptistry overflow, directors and officers liability, daycare liability, Christian school coverage, and copyright infringement. Also, for larger churches that host fundraising and other events at different venues, special events coverage, which is distinct from general liability coverage is prudent because it protects against potential property damage to the venue by attendees, employees or volunteers. And, of course, if alcohol is served at the event, liquor liability coverage may be a wise investment to protect against accidents due to intoxicated guests. Another example is coverage for professional liability and counseling acts where pastors, they do counseling and it provides protections against a claim a physical and emotional harm arising from pastoral direction or counseling where there may be legal obligations or damages from acts, errors or emissions during such counseling activities.
What types of additional insurance should churches typically consider purchasing?
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What types of additional insurance should churches typically consider purchasing?

Video Transcription: When purchasing insurance, churches should consider whether the carrier understands the unique needs of the ministry. That is, does the carrier have a detailed understanding of the actual or anticipated activities of the church and are they able to provide an insurance policy that would cover the associated risks with those activities? Also, consider the financial aspects of the insurance beyond just the cost of the insurance such as whether the policy will protect against inflation and whether the policy covers replacement costs rather than actual cash value. Additional considerations include whether the insurance carrier has high ratings and strong financial stability, whether the type of clients, the carrier normally insurers are of the same nature and size as your church and whether the agent is an independent agent rather than a captive agent. Ultimately, when purchasing insurance, do your homework and know your options. Consider the agent, the insurance company and the insurance program.
What kind of things should churches consider when purchasing insurance?
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What kind of things should churches consider when purchasing insurance?

Why is it important that a church’s insurance policy allow the church to select its own legal counsel as opposed to the insurance company selecting the church’s legal counsel? When a church reports to its insurance carrier that it received notice of an actual or potential claim or a lawsuit that will be covered by your church's insurance policy the insurance carrier may provide your church with an appointed legal counsel to defend the church against the claim or the lawsuit. While some insurers will allow the church little or no role in the selection process, it is wise for a church to advocate to the insurer to allow the church's own attorney to handle the claim or lawsuit. A church having its own active legal counsel represent it in a claim or lawsuit is beneficial because the counsel is already intimately involved in the purpose and function of the church. The attorney comprehends the unique and sensitive needs of the church and has built trust and a rapport with the church and also has a very strong knowledge of the special legal needs of the church.
Why is it important that a church's insurance policy allow the church to select its own legal...
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Why is it important that a church's insurance policy allow the church to select its own legal...

VOLUNTEERS AND HUMANITARIANS

Video Transcription: A church should demonstrate reasonable care in the selection of its volunteers. It is important for the church to be aware of any issues volunteers may have had in their past, particularly when they work with children, have access to confidential data or serve in a position of authority. Volunteers should go through a thorough screening process that involves a formal application where it identifies personal and background information, a criminal background check, personal references that are checked by the church and an in person interview. A church will be most effective where the screening is tailored to the specific position and its risks. The best non profit volunteer programs have well-organized systems to train volunteers to help volunteers learn what they need to know, even the things the volunteers may not think they need to know. These programs should include customized volunteer training materials that address the real risk of specific volunteer service. Supervision is another critical component of ensuring safe and effective volunteering. Churches should assign staff to supervise specific types of volunteers. These staff supervisors should communicate with volunteers regularly, establish clear and appropriate expectations, provide additional training and equipment, and evaluate volunteer performance.
What should a church do to screen and supervise volunteers?
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What should a church do to screen and supervise volunteers?

The Federal Volunteer Protection Act provides immunity for volunteers serving churches for harm caused by their acts or emissions if, one, the volunteer was acting within the scope of his or her responsibilities, two, if the volunteer is properly licensed, certified or authorized to act, three, the harm was not willful, criminal, reckless misconduct or gross negligence and four, the harm was not caused by the volunteer operating a motor vehicle, vessel or aircraft. The Act does not prevent a church from bringing an action against the volunteer and despite the Volunteer Protection Act, many organizations remain fully liable for harm caused through volunteers and all volunteers remain liable for some actions such as misconduct that is a crime of violence, hate crime, sexual offense, violation of federal or state civil rights law or acts committed under the influence of drugs and alcohol.
What is the Federal Volunteer Protection Act?
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What is the Federal Volunteer Protection Act?

Most churches offer some form of counseling services. The most common example is counseling of church members by a minister. However, churches also offer lay counseling by unlicensed persons from the congregation who offer counseling services under the sponsorship of the church or denomination, which means they are subject to the rules, policies, mission, and doctrine of the church or denomination. The benefits of churches utilizing lay counselors is that the role allows members to utilize their spiritual gifts in the work of the church. It provides an opportunity for laypersons to engage in biblical discipleship, and it takes the burden off the pastor to counsel every member of the church. As people seeking guidance from lay counselors for a variety of reasons, including marriage and parenting issues, anxiety, grief, and other issues related to the stresses of life, the church should adequately prepare lay counselors by providing clear written lay counseling ministry guidelines, and provide ongoing regular training and supervision.
What are the benefits of using volunteer counselors as part of a church's ministry outreach?
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What are the benefits of using volunteer counselors as part of a church's ministry outreach?

Are there potential liabilities when a church uses volunteer counselors as part of its ministry outreach? Churches are often unaware of the legal and ethical potential pitfalls that can appear in a volunteer counseling ministry. Primary among the potential liabilities are negligent counseling, such as engaging in unlicensed psychotherapy, negligent supervision, a failure to maintain confidentiality, sexual abuse, and the failure to intervene or comply with mandatory reporting requirements, such as the obligation to report child abuse. Churches should check with their insurance providers to ensure that they have the appropriate liability coverage relevant to the lay counseling ministry and spiritual care programs within the church. Churches should also consult legal counsel to ensure that it has regularly updated and appropriate written spiritual care and counseling policies available to church volunteers so it can maintain a written record that each volunteer has read the policy and has agreed to abide by it.
Are there potential liabilities when a church uses volunteer counselors...
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Are there potential liabilities when a church uses volunteer counselors...

Typically, a church is better off in hiring a preemployment screening company that has experience and capability to conduct background searches on both a local and nationwide basis. When hiring a company to conduct background searches, a church should confirm the geographic area that they're going to search, the types of records that will be searched, how far back the search will go, the experience of the agency, whether the agency has insurance to cover any mistakes they may make, cost of the search, of course, and whether the agency's contract has a hold harmless clause that ultimately would hold the church harmless for any mistakes in the agency's reports. Background checks should be updated at least annually. Remember, in situations involving child abuse or injuries, the church is required to act reasonably, not perfectly. The ultimate question is whether the church took reasonable steps to prevent the abuse and whether the church responded to the abuse in a reasonable manner.
How often should a church perform background checks on workers and volunteers who work with children
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How often should a church perform background checks on workers and volunteers who work with children

Churches wanted to be forgiving, and they want to give those who have made mistakes a second chance. Obviously, a church should not allow a registered sex offender to work with or be around children. We typically advise our clients who wished to allow a registered sex offender to volunteer in a non-child-related position to still have someone shadow that person during the entire time they are on the church's property. This is because the church is already on notice of the volunteer being a registered sex offender, and if something were to occur resulting in injury caused by the registered sex offender, and the injury is in any way related to a sexual offense, the liability on the part of the church is practically fixed, leaving only a question of how much in damages to award against the church for allowing the volunteer the access that allowed for the damaging conduct.
Should a church allow a registered sex offender to volunteer for the church?
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Should a church allow a registered sex offender to volunteer for the church?

Under the federal Fair Labor Standards Act, employment is broadly defined as [inaudible] or to permit work. While the act only defines volunteers with respect to state and local agencies, the Department of Labor considers the acts definition when making its own determination of whether a worker is a volunteer at a church ministry or nonprofit organization. According to the Department of Labor, a volunteer is an individual who performs hours of service for civic, charitable, or humanitarian reasons without promise, expectation, or receipt of compensation for services rendered. Basically an individual is a volunteer, so long as one, he or she receives no compensation apart from reasonable reimbursement or allowance for expenses actually incurred, and two such services are not the same type of services for which the individual is employed. Now, issues may arise where a nonprofit employee decides to volunteer for the same employer, under the Fair Labor Standards Act, an individual may not be treated as a volunteer if the employee is otherwise employed by the same entity to perform the same type of services as those for which the individual proposes to volunteer.
How does a church distinguish volunteers from employees?
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How does a church distinguish volunteers from employees?

A person may volunteer their time to religious, charitable, civic, humanitarian, or similar nonprofit organizations as a public service and not be covered by the wage and hour requirements of the FSLA. Individuals general may not volunteer to work in commercial activities run by a nonprofit, such as working in a gift shop. The volunteer must volunteer freely for public service, religious, or humanitarian objectives, and without contemplation of receipt of compensation. Typically, volunteers serve on a part-time basis and do not displace regular employed workers or perform work that would otherwise be performed by regular employees, and generally paid employees of a nonprofit shouldn't volunteer to provide the same services they are otherwise paid to provide by the nonprofit employer to help create a distinction between what they're required to be paid for and what they're volunteering for.
Do wage and hour laws apply to church volunteers?
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Do wage and hour laws apply to church volunteers?

REAL ESTATE AND CONSTRUCTION

Can a church be built on any lot of land? A church cannot be built on any lot of land. Zoning laws may prevent a church from utilizing certain land or buildings and many areas or prevent a church from expanding current facilities. So to protect your church, it is wise to invest in researching zoning laws in advance of purchasing land or adding onto your current facilities. Another consideration for a church that wishes to purchase an existing building is whether the building is designated as a historic property and subject to federal, state, or local preservation laws. However, keep in mind, cities and municipalities cannot discriminate against churches under the Religious Land Use and Institutionalized Persons Act. Cities and municipalities generally are required to treat religious assemblies and institutions the same as non-religious assemblies and institutions under zoning laws. Therefore, anywhere a local government permits a civic or community center theater or other facility for non-religious assembly, it must also allow a church.
Can a church be built on any lot of land?
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Can a church be built on any lot of land?

Video Transcription: One of the most important legal issues churches must address when acquiring land is whether the church has the authority to act. Prior to any transaction, a church must acquire proper authorization of the transaction pursuant to the churches governing documents. A church should examine its Articles of Incorporation and Bylaws to determine whether it has the authority to purchase a building, and with whom the governing documents place authority to enter into land acquisitions or other property transfers. Authority may come from a church vote, which should be documented in certified church meeting minutes or authority may come from a corporate resolution of the board of directors authorizing that transaction. A churches governing documents and records of its authority to act are crucial, especially as title companies will require them to facilitate real property transactions and insure the property. Other legal issues to be aware of prior to any transaction include zoning laws, building codes, land-marking ordinance, all of which may restrict the actual or anticipated use or purpose of the land or building.
What legal issues are important to churches involved in land acquisition?
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What legal issues are important to churches involved in land acquisition?

The most important legal issues for churches involved in building construction all start with the construction contract. More often we see churches proceeding with a bare bones written agreement that has almost no legal effect and fails to protect the church or define the rights and responsibilities of each party to the contract. In either scenario, it is inadequate and it leaves churches almost totally relying on the integrity of the contractor and subcontractor involved in the construction. It may sound elementary, but your church needs to have a signed written agreement with architect, engineers and contractors.
What legal issues are important to churches involved in building construction?
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What legal issues are important to churches involved in building construction?

Video Transcription: Most of the issues churches commonly experience when constructing new facilities all derive from three places. One, a poorly written contract, two, zoning and preservation ordinance restrictions, and three, budgeting issues. For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it. That's Luke 14:28. However, one underestimated pitfall is that churches fail to find a good owner's representative who will act in the interest of the church and as an extension of the church by managing the day-to-day operations of a construction project. A good owner's representative with a strong background in church development can reduce legal and financial drawbacks through advising and representing the church throughout the project. Also, a good owner's representative will be able to keep the construction budget and costs under control, ensure the project will meet the lender's needs, and advocate on behalf of the church to protect against paying excessive fees and the performance of unnecessary work.
What pitfalls do churches commonly experience when constructing new facilities?
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What pitfalls do churches commonly experience when constructing new facilities?

Video Transcription: Retainage is an amount of money held back from each progress payment earned by a contractor or subcontractor during the term of a construction project. Most construction contracts call for a certain percentage of the contract price, generally 5 or 10%, to be withheld from the contractor until the entire project is substantially completed. Withholding retainage provides a strong financial incentive for a contractor to stay on the job, work until completion, and correct any remaining details. Retainage also provides an immediate source of funds for the church to use to cure any performance default if a general contractor fails to complete a project. This is especially helpful because the withheld retainage can be used to pay a subcontractor or a supplier if the contractor defaults.
What is "retainage" and why is it important in church construction?
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What is "retainage" and why is it important in church construction?

A performance bond serves as a guarantee that the contractor will perform in accordance with the contract conditions and state regulations. It's a layer of protection for the church in case there are delays in performance or substandard performance by the contractor, and it covers the church if the contractor does not complete the project as specified in the terms of the contract. Although a performance bond is an additional front-end expense averaging between half to 2% of the project, it can greatly reduce the risk of additional cost due to errors in construction or construction defects.
What are performance bonds?
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What are performance bonds?

Video Transcription: We recommend that churches require contractors to purchase performance bonds for larger construction projects. While the cost of the performance bond may increase a contractor's bid, the cost of the performance bond often is far less than the cost to complete a project when a contractor abandons a construction project. Perhaps it's helpful to apply the principle that it's better to have and not need than it is to need and not have. At the very least, a performance bond can give a church the peace of mind that it is assured of the completion of the project and it does not need to incur additional cost.
Should churches purchase performance bonds when constructing new projects?
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Should churches purchase performance bonds when constructing new projects?

What is the importance of involving licensed professionals, such as architects and engineers, on church construction projects? Video Transcription: Confidence may be the number one reason for a church to involve licensed professionals such as architects and engineers on church construction projects. Having qualified design and construction professionals with experience and expertise on church projects will give the church congregation, financial donors and lenders the believe that the construction project will be done well, on time and within budget. As licensed professionals, architects and engineers have demonstrated that they are competent and ethical within the state and industry standards for their profession. Therefore, a church can rely on their training and expertise to lead the planning and design process. Also, these licensed professionals are familiar with the various building codes, local laws, and ordinances that affect the construction project. If architects and engineers have worked with other churches on similar projects, they also may be able to provide various building recommendations for the function and aesthetics of the project and provide solutions to help the church steward its funds.
What is the importance of involving licensed professionals, such as architects and engineers, on...
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What is the importance of involving licensed professionals, such as architects and engineers, on...

What should a church consider when choosing a general contractor to construct new church facilities or renovate existing facilities? Churches run the risk of paying more money on a construction project when it takes on the role of general contractor for its own construction projects and subcontracts the work out to skilled members of the church. A wiser choice is for the church to hire a competent builder who has experience in church construction. To determine whether the builder is qualified, the church should thoroughly researched the builder's prior work, whether it is of similar nature, size and style. A church should reach out to previous clients of similar projects to ask questions about the contractor's work and determine their overall satisfaction with the contractor. They should check whether the contractor has sufficient consumer ratings or any prior complaints or lawsuits, and confirm whether their contractor has proper licenses to perform the work and verify whether contractor carries adequate workers insurance.
What should a church consider when choosing a general contractor to construct new church...
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What should a church consider when choosing a general contractor to construct new church...

What are the legal differences between a general contractor and subcontractors or material providers as it concerns church construction? A general contractor is the contractor with the main responsibility for the construction, improvement, or renovation of a project, and as the signing party to the prime construction contract for the project with the church. So the general contractor is responsible for the overall coordination of a project, for providing all the material, labor, equipment, and for hiring specialized subcontractors to perform all or portions of the construction work. Now a subcontractor or material provider is a company or a person who is hired by the general contractor to perform the specific task based on a particular set of skills, or provide certain materials as part of the overall project. In contrast to the general contractors, subcontractors and material providers form agreements directly with the general contractor, not the church. And this presents a couple of issues for churches because without a contractual relationship with the subcontractors and material providers, churches generally do not have a cause of action against them and are limited to actions against the general contractor who is responsible for the quality of all the work performed by their hires. And however in many states, the subcontractors and material providers may encumber the church's real property with a mechanics lien if the general contractor who is responsible to pay a subcontractor and material man for the services or materials provided does not pay them.
What are the legal differences between a general contractor and subcontractors or material...
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What are the legal differences between a general contractor and subcontractors or material...

A well written facilities use policy creates a clear understanding between the church and users of the church's facilities of how, under what circumstances and by whom the facilities can be utilized. This understanding is crucial to, one, limit the church's exposure to property damage and injury claims should something go wrong and the use of the facilities. Two, it helps to preserve the church's tax exempt status as the type of user, the nature of the event or the fee that is charged, if any, are factors that may cause the church to lose in whole or in part its exemption from real property taxes or subject the church to the application of unrelated business income tax. And then three, it helps to protect against the appearance of the church being a place of public accommodation, which subjects the church to the imposition of certain nondiscrimination laws that may conflict with the church's religious beliefs that are consistent with biblical principles even though a church would not otherwise be subjected to that categorization and as a facilities use policies, address potential liabilities, tax and legal concerns. It is best for a church to seek competent legal counsel who understands church and tax exempt law prior to allowing outside users any use of church property.
What is a facilities use policy?
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What is a facilities use policy?

Video Transcription: A facilities use agreement is a contract between the church and an outside party that extends a license to that outside party for the non-exclusive use of the church's property. This licensee has no right outside a facilities use agreement to use the property. Now, a facilities use agreement helps shield a church from potential liability for injuries that occur on the property and protect the church from unwanted activities on the property. Therefore, it is important that the facilities use agreement contain well drafted clauses, setting forth the terms for how a licensee will use church premises, specifically that the licensee will utilize the property in accordance with the facilities use policy, which should be attached to the agreement. The facilities use agreement should contain language requiring the licensee to carry sufficient insurance and specify what type of insurance is required and the limits of coverage and if necessary, name the church on the licensees policy as additional insureds. The agreement should also contain language obligating the licensee to hold the church harmless and indemnify it against any and all claims, which means that the licensee agrees to pay the church back if the church has to pay any kind of damages because of an incident. In summary, a facilities use agreement grants a licensee permission to use the property for a specified purpose within the scope of the churches facilities use agreement and subject to provisions that reduce the churches risk and liability.
What is a facilities use agreement?
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What is a facilities use agreement?

What is necessary to ensure a church’s facilities are used only by persons of similar faith as the church that owns the facilities? Although churches can allow certain persons and groups of individuals who do not share a similar faith to use its facilities, a church may want to consider ensuring that it limits the use of its facilities to persons of like faith as the church. At the root of this recommendation is the consideration of federal income tax consequences and local property tax exemptions. In many instances, allowing an individual or organization to use the church facilities who do not have a compatible or substantially-related tax-exempt purpose may result in the church losing its local property tax exemption and subject the church to paying income taxes and in some circumstances cause the church to lose its own tax-exempt status. When another church or persons of like faith use a church's facilities, they will use it consistent with the sincerely held beliefs rooted in biblical teachings. Conversely, when a church allows another organization or person who does not share the same values use the church, there is an argument that the church is operating outside of furthering its tax-exempt purpose, let alone its biblical beliefs, or that the church is a place of public accommodation and therefore exposing the church to tax liability and government regulation.
What is necessary to ensure a church's facilities are used only by persons of similar faith as...
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What is necessary to ensure a church's facilities are used only by persons of similar faith as...

Are churches exempt from ad valorem property taxes? The short answer is yes. Each state exempts some property owned by a church from ad valorem or property tax. The extent of the exemption will vary from state to state where some states exempt property used exclusively for religious worship, while others exempt property use for religious purposes. Generally, houses of worship are exempt and some states exempt church-owned parsonages. Whether the surrounding grounds or adjacent vacant lands are exempt depends on the state. Keep in mind, property used for religious purposes are not automatically exempt from taxation in some states. For certain church property to be exempt within some states, the church must file an application with the local tax authorities. If a church fails to do so, it may not receive the exemption for that current year.
Are churches exempt from ad valorem property taxes?
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Are churches exempt from ad valorem property taxes?

Video Transcription: For a church to maintain its property tax exempt status it must comply with certain state specific rules. If a church fails to follow these rules, it can result in costly fines or the loss in whole or in part of the church's property tax exempt status. Generally, a church's property tax exempt status will be revoked if the state determines that the church's property is not being used exclusively for religious, nonprofit or educational activities, or in some States beyond a limited use for unrelated activities to the church's purpose. Depending on the state, a church may lose its property tax exempt status for failing to file an annual registration or report, allowing the mixing of tax exempt and commercial use in a singular space. That includes the renting of space for commercial use and allowing the primary purpose for the property to be for secular purposes rather than religious worship. How about participating in political campaigns or lobbying and losing its federal tax exempt status for being materially out of compliance with the IRS rules.
What activities can result in a church losing its property tax exemption?
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What activities can result in a church losing its property tax exemption?

EMPLOYMENT AND EMPLOYEES

Video Transcription: Generally, yes, churches should try to take advantage of the use of employment agreements. Employment agreements are beneficial in situations such as the employer wants more control over the employee's ability to leave or if the employee will be learning confidential or sensitive information or if the employer wants to limit the employee's ability to compete against the employer in the future or the employer wants to establish specific job duties or clear guidelines. Employment agreements can provide protections for the church from the beginning of the employment relationship with such things as binding and private Christian arbitration and protection of sensitive church data and information.
Should churches use employment agreements?
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Should churches use employment agreements?

Video Transcription: A church may use or require employment agreements for just a few or all of its employees, even lower level at will employees. We typically encourage clients to have an executive employment agreement with their senior pastor and chief executive officer and to consider having at will employment agreements for all other employees in their employ.
Which church employees should churches use employment agreements with?
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Which church employees should churches use employment agreements with?

Video Transcription:
What terms are important for a church to include in employment agreements?
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What terms are important for a church to include in employment agreements?

Video Transcription: An executive employment agreement in the context of churches is, typically, an agreement between the church and its senior executive, such as the senior pastor. The executive employment agreement will define the role of the executive, the term of the employment, possible renewal options, how compensation is to be determined, perquisites or benefits to be paid. And, typically, will set forth the circumstances under which the executive may be terminated and whether that termination is with or without future payments from the church or with or without cause.
What is an executive employment agreement?
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What is an executive employment agreement?

Video Transcription: Even though a pastor is called to his post, use of an executive employment agreement can still be effective for such things as assigning ownership rights of the senior pastor's intellectual property to him or her, providing specific terms under which the pastor may be terminated. What happens in the event there is a short or longterm disability of the pastor, how compensation is to be determined and the compensation and benefits to be paid, protecting confidential information of the church, choosing the state law to apply to the contract and requiring binding Christian arbitration in the event of a dispute.
Why should churches use executive employment agreements for their senior or lead pastors?
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Why should churches use executive employment agreements for their senior or lead pastors?

Video Transcription: Things that should be included in a church's executive employment agreement with its senior executive or senior pastor would be such things as the term of employment, the method for determining compensation, the items that make up the pastor's compensation package, assignment of the pastor's intellectual property or confirmation of which party owns the pastor's intellectual property, such as his or her sermons, whether the pastor's intellectual property, if given to him or her, is licensed back to the church to use in its bookstore, or other product distribution channels, under what circumstances the pastor may be terminated. It can provide for differences in termination for cause versus termination without cause, determine what happens as far as compensation if the pastor dies during the term of the agreement, and a requirement that disputes be submitted and settled to binding Christian arbitration.
What should be included in a church's executive employment agreement?
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What should be included in a church's executive employment agreement?

A severance agreement is a contract between an employer and an employee that documents the rights and responsibilities of both parties in the event of job termination. For the employer, a severance agreement makes sure the employee agrees to the terms under which they were released from employment, and helps ensure the employee will not be filing a wrongful termination lawsuit against the employer following their termination, and for the employee, a severance agreement provides a description of any payments or benefits that will be paid to them following termination.
What is a severance agreement?
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What is a severance agreement?

The primary benefit of severance agreements is they help ensure that exiting employees will not be filing wrongful termination lawsuits following their termination from employment. Also, the use of severance agreements may further benefit a church employer if the agreement requires such things as confidentiality of sensitive information, binding Christian arbitration if the agreement is challenged, or restricting the employee from recruiting other employees of the church to leave with them, or restricts the exiting employee from competing with the employer in the future.
What are the benefits of a church using severance agreements?
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What are the benefits of a church using severance agreements?

It depends on the particular facts and circumstances of the termination. But we generally advise our church clients to take advantage of the use of severance agreements when terminating employees. There's no requirement that a terminated employee agreed to or sign or enter into a severance agreement and there's no law that requires the use of severance agreements. But typically, the protections obtained by the employer in severance agreements make it worth the employer seeking to get a severance agreement sign whenever an employee is terminated or separated from further employment.
Should churches have employees who have been terminated sign separation or severance agreements?
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Should churches have employees who have been terminated sign separation or severance agreements?

Video Transcription: The important terms for a church employer to include in severance agreements would be such things as confirmation of any amounts owed to the exiting employee as of the date of termination, confidentiality of sensitive information learned by the employee while employed by the church, what will be paid to the employee following termination, and when those payments will be made, an overview of benefits that are available to the employee following termination, a complete and thorough waiver of the employee's right to make a claim or sue the employer in the future, and what type of information the employer may provide to future perspective employers of the employee.
What terms are important for a church to include in a separation or severance agreement?
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What terms are important for a church to include in a separation or severance agreement?

It really depends on what the church's governing documents, such as it's bylaws or any contract with the pastor, may provide. Typically, the church's bylaws will set forth the criteria under which a pastor can be terminated and the process for undertaking the termination. Also, if there's a written employment agreement with the pastor, it will usually provide criteria and a process for terminating the pastor. If there are both bylaw provisions and contractual provisions dealing with termination of the pastor, it is important to determine if there are any conflicts between those documents. An employment contract with the pastor should follow the requirements of the church's bylaws for the criteria and process to terminate the pastor. If there's a conflict between the bylaws and an employment contract on how a senior pastor's terminated, chances are the terms of the contract will apply and control over the terms set forth in the bylaws, due to the contractual relationship. Under the ministerial exception, ministers are prevented from bring employment discrimination claims against the religious organizations that employ them. The United States supreme court has ruled that even if a minister is terminated for reasons that are based upon discrimination, other than religion, such as race or gender, the minister is still barred from bring an employment discrimination claim because of the ministerial exception. The basis for the existence of the ministerial exception is found in both the first amendment, separation of church and state, and the idea that a church congregation should be free to choose its pastor.
How does a church terminate its senior or lead pastor?
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How does a church terminate its senior or lead pastor?

Video Transcription: Title VII of the Federal Civil Rights Act prohibits employers from discriminating in any employment decision on the basis of race, color, national origin, gender, or religion. Most states have also enacted state laws that mirror the protection from discrimination contained in Title VII. Title VII accepts and exempts religious organizations, such as churches, from the prohibition against discriminating on the basis of religion. So, this means churches are specifically allowed to discriminate against church employees on the basis of religion. The church should be careful though, that it doesn't use preprinted forms or materials stating that it doesn't discriminate on the basis of all of the Title VII protected classes, including religion, and that it always accepts out the basis of religion on any materials it uses that set forth Title VII protections. Most jurisdictions allow discrimination on the basis of religion to apply not only to clergy positions, but also to administrative and support positions.
What is Title VII and how does it apply to churches?
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What is Title VII and how does it apply to churches?

Yes. If the church wishes to have its employees live up to certain standards of living consistent with the church's statement of faith, as religious employers, churches are allowed to require the employees to live up to a certain standard of living commensurate with the church's statement of faith so long as those requirements don't result in discrimination based upon such other things as race, color, national origin, gender, or age.
Should churches include standard of living requirements in their employment handbooks?
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Should churches include standard of living requirements in their employment handbooks?

Video Transcription: Typically, churches will require some type of Christian standard of living for their employees that are consistent with the church's statement of faith. The standards may be specifically stated or more generalized and should be decided or agreed upon by senior management or the board of directors. A church wishing to require standards of living for its employees would be well advised to have legal counsel review the requirements to ensure they are enforceable and don't otherwise result in the potential for future claims against the church.
What standard of living requirements should churches include in their employment handbooks?
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What standard of living requirements should churches include in their employment handbooks?

Yes, the federal wage and hour laws apply to churches in the employment and compensation of their employees. The Fair Labor Standards Act, or as we sometimes know as FSLA, is the federal law that contains overtime requirements. The general rule is that overtime must be paid to non-exempt employees who work more than 40 hours in a week.
Do wage and hour laws apply to churches?
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Do wage and hour laws apply to churches?

Video Transcription: Unless they are considered exempt workers, employees must receive overtime pay if they work more than 40 hours in a week, at a rate of not less than time and a half of their regular pay. Exempt employees are salaried and do not receive overtime pay. However, just because an employer pays an employee a salary as opposed to paying them hourly, doesn't mean that employee is automatically considered an exempt employee from overtime pay requirements. Some salaried employees may be entitled to overtime pay because they don't meet the definition of an exempt employee. The FSLA provides three categories of exempt workers. First is the executive category with the primary duty of managing. They direct the work of at least two employees and have the authority to hire and fire. Next is the professional category with the primary duty of work requiring advanced knowledge in a field customarily requiring prolonged specialized or intellectual study. And third is the administrative category with the primary duty of performing office work directly related to management or general business operations and must be able to exercise discretion and independent judgment regarding matters of significance.
What church employees are entitled to overtime pay?
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What church employees are entitled to overtime pay?

Not paying overtime to employees can result in an employee complaining to the wage and hour division of the department of labor by filing a complaint, or with a department within their state that has the same duties. The department of labor can audit an employee's time records to determine if overtime pay is due to the employee. If the employer still doesn't agree, the claim is submitted to an administrative hearing to determine if the employee was denied overtime pay that was legally due. And when the Department of Labor undertakes an audit in response to a complaint regarding overtime pay, they may audit not only the complaining workers' time records, but all time-keeping records of all employees of the organization to determine if overtime pay is due to any of the organization's employees. Such an audit can result in significant overtime pay liability for employers who don't maintain accurate time-keeping records or who choose not to pay overtime pay when it should be paid.
What are the consequences of not paying overtime to employees?
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What are the consequences of not paying overtime to employees?

Video Transcription: Typically, the potential damages are that the employer's required to pay back pay to the employee with interest. However, if it's determined the employer's denial of overtime wages was willful or unreasonable, the employee may be entitled to liquidated damages at double the amount owed.
What are the potential damages in a wage and hour lawsuit?
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What are the potential damages in a wage and hour lawsuit?

By properly classifying employees as exempt or nonexempt, by keeping accurate time records at the time nonexempt employees work, by paying overtime pay when it is legally required to those legally entitled to receive it, and by being responsive to a nonexempt employee's complaints about not receiving overtime pay they believe is due.
How can a church defend against a wage and hour lawsuit?
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How can a church defend against a wage and hour lawsuit?

Video Transcription: There is an affirmative defense available to employers to insulate them from liability or damages in sexual harassment claims, such as discharge, demotion, or reassignment. To prove this defense, the employer must show that prior to the claim, three things occurred. One, that the employer had taken reasonable care to prevent harassing behavior, two, once the employer became aware of the behavior it acted promptly to correct the behavior, and three, that the employee unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer. So a church should establish an anti-harassment policy before claims arise. We recommend churches adopt anti-harassment policies with zero tolerance for harassment, and include features such as a simple illustration of what harassing behavior consists of and a policy statement against all types of harassing conduct, a reporting procedure allowing employees to bypass a harassing supervisor, a procedure to explain and distribute the policy to its employees, training for managers to recognize and report harassing conduct, mandatory monitoring of supervisors by top management, and a plan for prompt corrective action when an allegation is made.
What should a church do to prevent sexual harassment in the workplace?
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What should a church do to prevent sexual harassment in the workplace?

This is a situation where the church shouldn't sit back and wait to react to things that happen. The church should react both promptly and firmly. Employers may take any employment action they deem necessary or appropriate based upon a good faith understanding and belief of the facts involved. The employer doesn't have to believe the allegation beyond a reasonable doubt or undertake to prove that it's true, such as in criminal trials. A simple good-faith belief is sufficient for the employer to take action.
How should a church respond to allegations of sexual harassment by an employee?
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How should a church respond to allegations of sexual harassment by an employee?

Churches should adopt a zero tolerance anti-harassment policy prior to any claims taking place. Also, they should take prompt and firm action against harassing employees when they learn of a claim, they should act promptly to correct the behavior situation, they should make preventative or corrective opportunities available to the employee who's claiming harassment, and they should always maintain an open, transparent workplace where management seeks to know more about the inner workings of the organization.
How can a church defend against an employees sexual harassment claim?
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How can a church defend against an employees sexual harassment claim?

The safest answer here for a church employer is simply no. Obviously a church should not employ a registered sex offender in a position that deals with children, or anyone considered vulnerable. Even if a church employee is a registered sex offender for a position such as a mechanic to service church owned vehicles, it remains a risky undertaking because the church employer will have to ensure the employee is never allowed around children or other vulnerable congregants, because the church is now on notice of the employee's past conduct. It's hard to imagine circumstances in which it would be advisable or acceptable to recommend or allow a church employer to hire a registered sex offender. Of course, the underlying reason of why the potential employee is a registered sex offender may alleviate some of the precautions against hiring them. If the underlying offense for the potential employee of being a registered sex offender is something like them being charged for a minor offense, like relieving themselves in public while on a hunting trip that occurred many years in the past, the church employer may not find those circumstances prohibitive to hiring the candidate. But if the underlying offense was an offense committed against a child, or children, or another person, the church should obviously forego employing that person.
Should a church employ a registered sex offender?
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Should a church employ a registered sex offender?

LITIGATION AND PEACEMAKING

1 Corinthians 6 poses some critical questions. It says, when one of you has a grievance against another, does he dare go to law before the unrighteous instead of the saints? And it continues, can it be that there is no one among you wise enough to settle a dispute between the brothers? But brother goes to law against brother and that therefore before unbelievers. Given the biblical principle that Christians should not bring a grievance or a lawsuit against other Christians in secular courts but rather settle disputes amongst themselves, many churches employee faith-based arbitration, which provides a biblical and professional environment with legally binding results. And faith-based arbitration creates an environment for churches and members to take conflicts to a neutral third party who has received specialized training in resolving conflicts in accordance with doctrines of faith. The arbitrator listens to each party, to a conflict, make a presentation of the merits of his or her position on the conflict and works to get the parties to reach some form of agreement or compromise. They can't do that at the conclusion of the arbitration, the neutral arbitrator will make a ruling that is binding upon everyone.
What is faith-based arbitration?
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What is faith-based arbitration?

Faith-based arbitration is rooted in the biblical instructions in Matthew 18 and 1 Corinthians 6 to not bring disputes between Christians into the courts as Christians should reconcile to one another and resolve their conflicts based on biblical ethics and principles. For this reason alone, faith-based arbitration may be preferable to churches over civil litigation. Additionally, faith-based arbitration offers the benefit of incorporating biblical principles, having private resolution, a conciliatory rather than adversary in nature. There are reduced formalities. It's faster and less expensive resolution and the parties have more control in the outcome.
Is faith-based arbitration preferable for churches as opposed to civil litigation in the courts?
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Is faith-based arbitration preferable for churches as opposed to civil litigation in the courts?

Why is it important to insert faith-based arbitration requirements into a church’s governing documents? Including faith-based arbitration requirements into a church's bylaw is very important because they become part of the rules of law for a church's government as the bylaws manage the affairs of the church and govern the relationship between the church and its members. When agreed upon by members the bylaws and the provisions it contains become binding on all parties. A well-written arbitration clause rooted in biblical principles, which have been agreed in writing by members have consistently been upheld, and enforced in various federal and state courts. However, because some courts have refused to enforce certain arbitration provisions and governing documents because of technical defects it is wise for a church to engage an attorney to draft its arbitration provision.
Why is it important to insert faith-based arbitration requirements into a church's governing...
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Why is it important to insert faith-based arbitration requirements into a church's governing...

The benefits the church law group provides to its client members our 25% discount on published hourly rates for all of our attorneys and staff, a $225 per-month statement credit for consultation with our lawyers, access to a client member proprietary content on our website. We offer after hours emergency legal assistance, continuing education for our clients, and with 30 years of experience in representing churches in many different types of legal situations, whether it be in the boardroom or the courtroom, here at The Church Law Group, we're confident when we tell our clients we also offer them peace of mind.
What benefits does the Church Law Group provide to its Client's Members?
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What benefits does the Church Law Group provide to its Client's Members?

Our client member program is an annual program that can easily pay for itself if the church takes advantage of our services once they sign up for the program. The cost of joining our church law group client member program is $195.00 per month, or $2,100.00 annually, which is a savings of $240.00 over the monthly payments. Each month during the program, our church law group client members receive up to a $225.00 per month statement credit against any legal fees they may have incurred for the month. If the church consulted us for example for half an hour each month, the $225.00 statement credit would likely zero out the cost of that consultation and the church would receive an invoice with a zero balance for that month. So by simply maintaining brief monthly contact with our lawyers and paralegals, not only will churches in our client member program ensure they are staying on top of their legal needs, it will also end up not costing them anything for those short monthly periods of service from our lawyers and paralegals, because the $225.00 per month statement credit will apply more than covering the $195.00 per month cost. We created our client member program this way to encourage the relationship part of the attorney-client relationship and to demonstrate to our church clients they can have access to quality, experienced and effective legal services without the barrier of having to pay a large retainer.
How can a church effectively use the Church Law Group's Client/Member program?
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How can a church effectively use the Church Law Group's Client/Member program?

EXECUTIVE COMPENSATION

Video Transcription: An independent compensation committee is typically a subcommittee of the board of directors, or it can even be the remaining members of the board of directors, who don't have a conflict of interest in determining executive compensation, who aren't related to the executive whose compensation is being determined, and who don't own over 35% of a company that does business with the church, and employees subject to the supervision of the executive would be an example of someone with a conflict of interest in the determination of executive compensation. Of course, the executive whose compensation is being determined should also be excused from the deliberation and voting on his or her compensation.
What is an independent compensation committee?
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What is an independent compensation committee?

Yes and if the compensation committee is truly independent and they document the process of determining executive compensation, and they use appropriate compatibility data in setting executive compensation, then the Safe Harbor Rule applies. The Safe Harbor Rule means the burden of proof shifts from the organization having to prove compensation is reasonable to the IRS having to prove compensation is unreasonable. And this burden shifting aspect of the Safe Harbor Rule is important. And it's the reason churches should take the steps necessary to qualify for it.
Should a church use an independent compensation committee to set executive compensation?
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Should a church use an independent compensation committee to set executive compensation?

A compensation study is a report developed by a compensation expert, who is in the business and has experienced and gathering compare ability data to measure and provide advice regarding the setting of executive compensation. A qualified compensation study should provide the compensation committee or the board with a range of compensation from which to set an executive's annual compensation. The compensation study should also contain the comparability data supporting the range of compensation recommended.
What is a compensation survey or study?
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What is a compensation survey or study?

Video Transcription: Compatibility data is typically data of compensation paid to individuals in similar positions and similar organizations offering similar services as the church and that are located in the same or similar geographic region as the church. Comparability data for a compensation study is much like getting comparables for the appraisal on a home and getting comparable properties in the same neighborhood.
What is comparability data as it relates to nonprofit executive compensation and why is it important
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What is comparability data as it relates to nonprofit executive compensation and why is it important

Can nonprofits use comparability data from for-profit companies in determining and setting executive compensation? Yes, they can. The main reason for this is because the Internal Revenue Services says they can. The reasoning behind allowing usage of for-profit comparability data and setting nonprofit executive compensation is because nonprofits have to compete with the for-profit world and hiring their pool of employees. Obviously, a nonprofit should not use for-profit comparability data exclusively in determining executive compensation, but they are allowed to use it to some extent.
Can nonprofits use comparability data from for profit companies in determining and setting...
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Can nonprofits use comparability data from for profit companies in determining and setting...

Are there any reasons why a church shouldn't just use common compensation surveys available to the public? There may be. Sometimes compensation surveys that are publicly available are poor comparisons to either the executive whose compensation is being set or to the organization itself. Churches don't follow 990 tax returns, and therefore they aren't required to publish their financial information. This can make finding suitable compatibility data difficult. More robust compatibility data that is comparable to the position or organization can often be found in well-accepted and established surveys, but obtaining access to these surveys is often costly and expensive. This is why an independent compensation study may be beneficial to the organization, because compensation studies prepared by a professional or expert in the business of measuring and comparing executive compensation often rely upon well-accepted and established compensation survey data.
Are there any reasons why a church shouldn't just use common compensation...
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Are there any reasons why a church shouldn't just use common compensation...

Video Transcription: The only limitation the IRS plays is on executive compensation for nonprofits is that the compensation must be reasonable. The reasonableness requirement includes both cash and non-cash compensation. Cash compensation consists of the executive's wages, any housing allowance paid to them, and bonus payments. Non-cash compensation would be everything else of value paid to the executive in exchange for services of employment, which would be such things as insurance, retirement benefits, and other perquisites.
What are the IRS requirements or limitations on executive compensation for nonprofits?
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What are the IRS requirements or limitations on executive compensation for nonprofits?

The IRS's reasonableness requirement has been defined by tax court decisions to include a multi-factor test, which includes factors such as commonalities to the compensation of others in comparable positions with comparable organizations, the location of the organization, including the availability of executives with similar specialties as the executive of being looked at, the executive education expertise, training and experience, written offers from similar or competing organizations, the need of the organization for the executive services and the amount of time the executive devotes to the position.
How does the IRS define "reasonable", as it relates to nonprofit executive compensation
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How does the IRS define "reasonable", as it relates to nonprofit executive compensation

A Rabbi trust is a non-qualified deferred compensation arrangement in which funds are invested in an irrevocable trust to be held for the benefit of an employee or employees for retirement purposes. Funds contributed to a Rabbi trust are tax deferred in a similar manner to other tax deferred vehicles, such as 403Bs or 401(k) plans. The IRS has ruled that funds placed in Rabbi trust can be tax deferred as long as the assets of the Rabbi trust are subject to the claims of general creditors of the employer. So if a church becomes insolvent, the funds it has placed into a Rabbi trust, that have not yet vested and been paid out to the recipient, will be attached by the general creditors of the church. This risk of forfeiture is what allows Rabbi trust funding to be tax deferred and not treated as taxable in the year in which it is funded because the risk of forfeiture avoids constructive receipt of the funds by the employee.
What is a rabbi trust?
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What is a rabbi trust?

One of the unique benefits of using a rabbi trust is that a church is allowed to discriminate on which employee or employees to create and fund rabbi trust for. So, as long as the church is financially sound, rabbi trusts are good retirement planning vehicles to use for senior pastor retirement because they can be created just for the senior pastor without having to offer similar retirement vehicles to other employees. They can be funded in any amount in any given year subject only to the reasonableness limitation on nonprofit executive compensation. Funds placed in a rabbi trust are protected from an employer changing its mind or wanting to use the funds for something else at a later date. Also, a rabbi trust can be used effectively if a church desires to make up for prior years of under compensating its pastor.
How can a church effectively use a Rabbi Trust?
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How can a church effectively use a Rabbi Trust?

CLERGY AND ECCLESIASTICS

Section 107 of the Internal Revenue Code allows a minister of the gospel to exclude from income the rental value, including utilities of a home, the church furnishes, which would be a parsonage or the rental allowance, it pays under the same circumstances to the extent the minister uses the allowance to rent or pay for a home as part of his or her compensation. The clergy housing allowance applies to clergy that is allowed to live rent free in a home, which would be a parsonage owned by the church or clergy who received non-taxable housing allowance to rent or buy their home.
What is a clergy housing allowance?
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What is a clergy housing allowance?

Video Transcription: A parsonage allowance is the exclusion from a minister's taxable income of an amount equal to the rental value of a home the church provides to the minister. The parsonage is a church-owned property, and this allows a minister to live in a church-owned property provided to him or her rent free and without having to declare the value of living rent free as income on his or her personal income tax return. A housing allowance is the tax-free designation of a portion of a minister's compensation equal to the fair market rental value of the minister's home that is used to pay for and maintain the home. Housing allowance is used when the minister owns the property he or she lives in and the housing allowance is the lesser of the fair market rental value of the minister's home or the actual cost, whichever is less.
What is the difference between a parsonage allowance and a housing allowance?
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What is the difference between a parsonage allowance and a housing allowance?

Typically, the things that can be included in housing allowance are a rent or mortgage payment amount, property taxes, mortgage interest, maintenance, such as yard, fence, pool, repairs, utilities, insurance, furnishings, cleaning, and home improvements.
What are the allowable components of tax-free clergy housing allowance payments?
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What are the allowable components of tax-free clergy housing allowance payments?

What does the IRS require in order for a clergy housing allowance to be claimed as tax-free by the recipient of the allowance? The hall or rental allowance the church provides must be as payment for services that ordinarily are the duties of a minister of the gospel. The services a minister performs are defined under federal law as sacerdotal functions, meaning the conducting of religious worship, the control conduct and maintenance of religious organizations, and under the authority of a religious body. The housing allowance amount must be designated in writing prior to the year in which it is paid and adopted or approved by the church's board or congregation. The amount of the housing allowance excluded from taxable income is limited by the fair rental value of the house and the furnishings. The minister receiving the allowance must be ordained, licensed, or commissioned, and you must maintain documentation to support the allowance designated.
What does the IRS require in order for a clergy housing allowance to be claimed as tax free by...
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What does the IRS require in order for a clergy housing allowance to be claimed as tax free by...

Video Transcription: The only real limitation on the amount of a minister's housing allowance are that the allowance can't exceed the fair rental value of the minister's home furnished or the actual cost, whichever is less and since the payment of a tax free housing allowance is considered compensation, the allowance can't make the minister's total compensation beyond the bounds of reasonableness.
What is the maximum clergy housing allowance permitted by the IRS?
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What is the maximum clergy housing allowance permitted by the IRS?

Typically, the minister receiving the allowance is responsible for designating the correct amount. Churches are not required to police or confirm housing allowance designations. The minister must include any amounts designated but not actually spent, and there's not a penalty to the church or the minister for over-designating housing allowance. However, any amounts of housing in excess of fair market value must either be returned to the organization or declared as income by the minister.
Who is responsible for maintaining the accuracy of the housing allowance applied for?
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Who is responsible for maintaining the accuracy of the housing allowance applied for?

CHILDREN AND CHILDCARE

Video Transcription: As far as screening, that would include a complete written application that requests necessary information about the applicant. Which would include such things as identifying information, aliases, employment history, education, background information. Things like arrests or prior allegations involving children, whether the application was ultimately convicted or not. A screening would include a criminal background check, a personal interview of the applicant with standardized interview questions, it allows the chance to confirm the contents of the applicant's application. It allows the interviewer to observe body language. Federal and state employment laws generally do not apply to the interviewing of volunteers. So that's important for churches to remember. A reference check of previous employers and churches they've worked or volunteered at and checking personal references. Training would include such things as teaching childcare workers and volunteers how to recognize perpetrators or child abuse. How to identify victims of child abuse. How do properly interact with children. How to properly discipline children. How to properly report abuse in the jurisdiction in which they're located. It should include safety and emergency training, of course, for continuing and ongoing education.
What screening and training should a church provide for child care workers?
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What screening and training should a church provide for child care workers?

Video Transcription: Here at the Church Law Group we've developed a program to help churches take necessary steps to ensure safety of the children in their care. We call it the Guardian System, and within that system is the acronym, STOP, S-T-O-P. S stands for screen, making sure all staff volunteers have been properly screened, including written applications, criminal background checks, personal interviews and reference checks. The T in STPP stands for training, providing the necessary childcare training to your staff and volunteers. O stands for operate, conduct childcare operations according to established and accepted policies and procedures, and make sure those procedures and policies are followed. The worst position a church can find itself in is having a great plan that is never followed. The P in STOP stands for having an agreed-upon plan on how to respond to any claim that a child has been injured or abused while in the church's care. Plan should include which authorities to notify, when to notify them, identifying victim or victims, notifying the church's insurance carrier, public relations and media strategy, and also how to respond to questions from the congregation.
What should a church do to ensure the safety of children in its care?
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What should a church do to ensure the safety of children in its care?

Are church workers and volunteers required to report suspected child abuse of children in their care? Every state has their own mandatory reporting requirements as it concerns child abuse or neglect, and each state's requirements may be different from that of its sister state. Here in Texas, for instance, the law requires that anyone with knowledge of suspected child abuse or neglect report it to the appropriate authorities. Appropriate authorities are defined as any local law enforcement agency or the Texas Department of Family and Protective Services. The Texas mandatory reporting requirement applies to all individuals, and it's not limited to teachers or healthcare providers, and it even extends to individuals whose communications may be privileged, such as attorneys, clergy, and healthcare professionals. Texas requires reports to be made immediately, and for some reporters, such as teachers, nurses, and doctors and childcare workers, the report must be made within 48 hours from when it was received. If you're unsure about what your state's mandatory reporting requirements are, you should contact an attorney or feel free to call us at The Church Law Group.
Are church workers and volunteers required to report suspected child abuse of...
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Are church workers and volunteers required to report suspected child abuse of...

INTELLECTUAL PROPERTY

Video Transcription:
Why are music publishing agreements important to churches?
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Why are music publishing agreements important to churches?

Video Transcription: Generally when a person creates an original work, that person is considered the author. However, there is an exception to this general rule called works made for hire. The rule comes into effect when an employee creates a work while on the job. If the work is a work made for hire, the employer, the church, and not the employee is considered the author of the work. This scenario is commonly seen in churches as many pastors or other church employees develop sermons, books, worship music, and other materials while employed at the church. If a work is to be considered a works made for hire, then one, the person creating the work must actually be a church employee and two, the employee must have created the work within the scope of his or her employment.
What is a Works Made for Hire?
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What is a Works Made for Hire?

There is a general presumption under the law that intellectual property created by a church employee is owned by the church. This is generally known as the works made for hire doctrine. Most churches should adopt a policy based upon the works made for hire doctrine, meaning that the creative works created by an employee are owned by the church. You might be surprised to learn that so many clergy are shocked when they learn that their sermons are works made for hire, which are owned by their employing church. Their sermons cannot be used in any other churches with which they are later employed without the permission of the church with which they were employed when the sermons were created. Such confusion can be eliminated through an appropriate copyright policy, which should be drafted by an attorney experienced in handling intellectual property issues.
Is work created by a church employee considered a works made for hire?
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Is work created by a church employee considered a works made for hire?

Works created by pastors within the scope of their employment are works made for hire. The employer, the church, is deemed to be the author of such works and owns the intellectual property or the copyright on it, unless a signed, written agreement is executed assigning the copyright back to the employee or the pastor. The written agreement can be set out as part of the employment agreement or in a separate written agreement. For example, without a signed, written agreement in place that states otherwise, pastor's sermon will be considered works made for hire whenever and wherever they are composed. Since sermons are the most important function that a pastor performs, this means that the church will own all of the pastor's sermons, and if or when he leaves the church's employment, he will have no legal right to take the sermons with them.
Does a church own the intellectual property created by its pastors?
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Does a church own the intellectual property created by its pastors?

Can a church profit from the intellectual property of its pastors? Whether a church can profit from the intellectual property of its pastors depends on if the pastor actually owns the work in a works made for hire situation where the church owns the intellectual property produced by the pastor. The church can generate revenue from the royalties of the sale of the intellectual property. But be aware that certain income that the church receives from that intellectual property may be subject to unrelated business income tax, or in some cases cause the church to lose its tax exempt status. If the church gives money back to the authoring pastor, this may constitute prohibited inurement that will jeopardize the churches' tax exempt status and churches can run into similar issues that jeopardize that tax exempt status when the church holds a license to a pastor's intellectual property.
Can a church profit from the intellectual property of its pastors?
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Can a church profit from the intellectual property of its pastors?

A music publishing agreement is an agreement entered into between a songwriter and a music publishing company whereby the publisher owns or licenses the copyright to a writer's song for a certain period and administers and exploits the works to generate income to be shared between the parties. Generally, the writer will be paid royalties for those works. When a song writer creates an original song, the writer owns 100% of the song until the writer conveys or assigns the right to a music publisher. If the song writer is an employee of the church, then it is likely that the song is owned by the church as a works made for hire and the original owner, whether the church as a works made for hire or the songwriter by an employment contract is both the songwriter and the publisher until the publishing rights are conveyed to a publisher, which can be the church itself through a music publishing agreement.
What is a music publishing agreement?
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What is a music publishing agreement?

Absolutely. A church should trademark its logo. Just like with church names, trademark protection is available to all of the logos and symbols associated with the church's religious and charitable service so long as they are unique and distinguishable from any other trademark. Your churches work hard to earn the goodwill and reputation that is key to advance in your mission, so why would you not protect that by filing a trademark and ensuring that detractors cannot deliberately blemish or destroy it? And churches must protect their trademarks by registering it and then using a proper registered symbol like the little tiny R with the circle around it. Provide notice for your church's claim to the mark. Use written licensed agreements with those. Your church allows you to use the mark. And keep an eye out for infringers on your church's mark and ask others to stop using conflicting marks. Technically, yes. But there is an added step if the pastor is employed by the church under the Copyright Act's works made for hire doctrine. Ownership of a sermon produced by a pastor while employed by the church belongs to the church. However, under the act, a church and pastor can draft a written agreement that specifically assigns all copyrights of sermons to a pastor. In doing this, the pastor has all of the sermon rights and responsibilities regarding the use of the sermon. Alternatively, a pastor can obtain the copyright to his sermons where a pastor writes his sermons at home with his own computer and software without utilizing any church resources or facilities. Of course, unless he compensates the church for the use and it's done on his own time and not as an employee of the church.
Can a pastor copyright a sermon he writes?
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Can a pastor copyright a sermon he writes?

A pastor may want to own the copyright to a sermon. Although the church owns the copyright to a sermon created and presented by the pastor while in the employee of the church, a church and a pastor can execute a written contract that gives the ownership of the sermon to the pastor. In doing this, the pastor has all of the sermon rights and responsibilities regarding the use of the sermon, which is beneficial if the pastor transitions to another church, and wants to reuse his old work. And vesting the ownership of the sermon with the pastor will allow the pastor to produce derivative works such as the right to license the sermon to be produced in audio or visual form, be broadcast on TV or the internet, and publish books based on the sermon.
Should a pastor copyright his sermons?
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Should a pastor copyright his sermons?

Absolutely, a church should trademark its logo. Just like with church names, trademark protection is available to all of the logos and symbols associated with a church's religious and charitable service, so long as they are unique and distinguishable from any other trademark. Your church has worked hard to earn the goodwill and reputation that is key to advancing your mission, so why would you not protect that by filing a trademark and ensuring that detractors cannot deliberately blemish or destroy it. Churches must protect their trademarks by registering it, and then using proper registered symbol, like the little tiny R with a circle around it. Provide notice for your church's claim to the mark, use written license agreements. With those, your church is allowed to use the mark. Keep an eye out for infringers on your church's mark and ask others to stop using conflicting marks.
Should a church trademark its logo?
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Should a church trademark its logo?

It is possible for a church to trademark its name. Trademark protection is available to all of the names, logos, symbols, and slogans associated with a church's religious or charitable services so long as these are unique and distinguishable from any other trademark so not to cause confusion, a mistake, or deception. One of the greatest benefits for trademarking a church name is that it can help a church maintain doctrinal integrity as people will be confident in associating specific, trustworthy beliefs with your church without the fear of confusing your church for another like sounding church. Therefore, if a church's name is unique, the United States Patent and Trademark office may grant trademark protection if the name is generic or merely contains descriptive terms or is a mark already in use, the USB TCO will not. So churches, if you want to register a name, be creative, come up with a unique name that truly distinguishes your church from all the other churches.
Can a church trademark its name?
YouTube Video UEw3WGc4OUNrRzYyZTZHWEVSUTdfLVE5cGc0VUxmSGZHdy40NzZCMERDMjVEN0RFRThB

Can a church trademark its name?

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