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CLERGY, CHURCH & LAW

Church guide to "New Church Hire" Reporting

By Richard R. Hammar

In 1996, Congress enacted the Personal Responsibility and Work Opportunity Reconciliation Act, popularly known as the "welfare reform" bill. The Act had many provisions designed to reduce welfare payments and address welfare fraud. One of these provisions requires employers to report all "new hires" to a designated state agency. The purpose of this requirement is locating "deadbeat dads" who avoid their child-support obligations by changing jobs and their place of residence. Forcing these persons to honor their support obligations will enable many women to go off welfare. Another purpose of the new law is to reduce fraudulent unemployment benefits payments to persons who are working.

Technically, states are not required to mandate new hire reporting. But if they fail to do so, they will forfeit federal funding under certain programs. To date, all states have enacted legislation mandating new hire reporting.

Many church leaders are unaware of the new hire reporting rules. This article will explain the rules and provide you with the information you need to comply.

Church Coverage

The new hire reporting requirements apply to all "employers." The new law uses the same definition of "employer" as is contained in section 3401(d) of the tax code. This definition defines an employer as "the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person." This definition contains no exception for religious organizations. And there is no exception for small employers having only one or two employees. But remember—reporting is only for new hires, as defined by state law. This generally will be any employee hired after a date specified by state law.

How It Works

When employers (including churches) report new hire information to their designated state agency, the agency will match the information against its own child support records to locate parents and enforce existing child support orders. Once these matches are done, the information is sent to the National Directory of New Hires, so other states can compare the information with their own child support records. The information also will be shared with

state welfare and unemployment agencies, to detect and prevent fraudulent or erroneous payments.

The federal welfare reform legislation requires that employers include the following information in their new hire reports:

• employee’s name
• employee’s address
• employee’s social security number
• employer’s name
• employer’s address
• employer’s federal employer identification number (EIN)

Note that most of this information is contained on the W-4 form ("withholding allowance certificate") completed by each new employee at the time of hire; and, as a result, most states allow employers to comply with the reporting requirements by sending copies of each new W-4 form completed by a newly hired employee.

Key point. The employer’s federal identification number is inserted on line 10 of Form W-4 only when the form is sent to the IRS. Since this happens infrequently, the employer’s identification number generally does not appear on the form. So, for an employer to use W-4 forms to comply with the new hire reporting requirements, it must manually insert its federal employer identification number (EIN) on line 10. The employer’s name and address may need to be manually inserted on line 8.

Key point. Some states ask employers to voluntarily report additional information, such as date of hire, or medical insurance information.

FILING A REPORT

The deadline for filing a report is specified by state law. However, it may not be later than 20 days after an employee is hired.

Most states allow employers to comply with the new hire reporting requirement in any one of three ways:

(1) Electronic or magnetic reporting. Some states permit employers to report by electronic file transfer (EFT); file transfer protocol (FTP); magnetic tape; or 3 1/2-inch diskette.

(2) Fax or mail. Most states permit employers to fax or mail any one or more of the following:

• A copy of a new employee’s W-4. Be sure it is legible, and that the church’s federal employer identification number (EIN) is included on line 10. Also be sure that the church’s name and address are included on the form.
• A printed list.
• A new hire reporting form provided by your designated state agency.

Key point. If your church hires new employees infrequently, the easiest way to comply with the reporting obligation may be to use the state reporting form. Simply complete one form with your federal employer identification number, name, and address, and then make several copies. This way, you will only need to add an employee’s name, address, and social security number when a new employee is hired.

(3) Voice reporting. In some states, employers can report new hires by leaving a voice message on a special voice response system.

Key point. Be sure to check with your designated state agency to find out what reporting options are available in your state. Telephone numbers for all state agencies are included in a table in this article. Use the option that is easiest for you.

Key point. Does your church use a payroll reporting service? If so, it may be automatically making the new hire reports for you. Check to be sure.

Penalties

The federal welfare reform law prohibits states from assessing a penalty in excess of $25 for each failure to report a new hire. However, states may impose a penalty up to $500 if an employer and employee "conspire" to avoid the reporting requirements or agree to submit a false report.

Privacy Concerns

Federal law requires each state to implement safeguards to protect the confidentiality of new hire reports. In addition, all data transmitted by states to the National Directory of New Hires is done over secure and dedicated lines.

Examples

The application of the new hire law to churches is illustrated in the following practical examples:

Example 1: A church hires a full-time office secretary in September of 1999. The pastor has learned of the new hire reporting rules, but assumes that the church is exempt. This assumption is incorrect. The new hire reporting law defines an employer as "the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person." Since a full-time office secretary hired by a church will always be an employee, the church is an employer subject to the reporting requirements.

Example 2: Same facts as the previous example. What are the legal consequences of failing to comply with the new hire reporting requirements? The church would be subject to a penalty of up to $25, depending on state law.

Example 3: A church treats all of its nonminister staff as "self-employed" persons in order to avoid any payroll tax reporting obligations and the new hire reporting requirements. The church has five nonminister workers, all of whom work full-time. It is virtually certain that all the nonminister workers are in fact employees rather than self-employed. As a result, the church is subject to significant penalties for failing to comply with the payroll tax reporting rules, and will be subject to a penalty of up to $25 (as determined by state law) for each new hire that is not reported to the designated state agency. If the agency determines that the church and its workers "conspired" to avoid the reporting requirement, then it may be able to assess a penalty of up to $500 per worker.

Example 4: A church would like to hire Brad as a custodian. Brad asks the pastor if the church complies with the new hire reporting law. The pastor informs Brad that it does. Brad reveals that he has not been honoring a child support obligation based on a court order in another state, and says that his life "will be ruined" if the pastor reports him. He assures the pastor that he is doing his best to comply with the order, but needs more time to work things out. The pastor agrees not to report Brad as a new hire. The church is subject to a penalty of up to $500 as provided by state law.

Example 5: A church hires Rev. D as a youth pastor. Rev. D asks to be treated as a self-employed worker for federal income tax reporting purposes. The church agrees to do so. The church treasurer assumes that since Rev. D is "self-employed" for tax reporting purposes, the new hire reporting requirement does not apply to Rev. D. This assumption is incorrect. As a full-time youth pastor, Rev. D is almost certainly an employee for federal income tax reporting purposes. This in turn makes the church an "employer" subject to the new hire reporting requirement.

Example 6: A church hires a part-time custodian who will work less than 10 hours each week for an hourly rate of pay. The church will exercise little if any control over the methods the custodian will use in performing custodial services. The custodian probably is self-employed for federal income tax reporting purposes. As a result, the church is not an "employer," and the new hire reporting requirement does not apply to this worker.