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Tips for Setting Fair Compensation
By: Rev. Dr. Perry J. Hopper

Leading a community of faith requires many skills—from preaching and teaching to counseling and administration. The minister serves as the spiritual leader of the church, the visionary and the CEO of a faith-based organization. Specialized lay staff are also often needed to provide financial stability, effective education, meaningful programs, and successful leadership of staff and volunteers.

Stewardship of the church requires fair compensation for both ordained and lay staff.  This establishes a value for the entire ministry. For this reason, churches have the responsibility to provide for the financial needs of their staff to the best of the congregation's ability.

As the Bible says, “Remain in the same house, eating and drinking whatever they provide, for the laborer deserves to be paid.” (Luke 10:7). In other words, a church should provide its ministerial leaders and staff with adequate income so that they can fulfill their roles without undue concern about current and future financial needs. Freedom from financial anxiety allows staff to focus on their service. It also helps a church attract and retain qualified pastoral leadership.

A good compensation package compensates church staff for their investment in education, as well as for their talent, experience, and effort. The benefits and insurance components protect both employees and the church from unexpected setbacks. Finally, a compensation package serves a managerial and motivational function; it can reward staff for meeting agreed-upon goals.

So, with that, the question remains, “What constitutes fair compensation?” First, compensation is, rather than one lump sum, categorized into three categories: salary, benefits, and reimbursable expenses.

Salary includes several components. First, there is cash salary. Second, if one is ordained, there is a housing/parsonage allowance, Medicare-Social Security tax offset and equity allowance for ministers living in a parsonage. Keep in mind there are limitations on the housing allowance.

For instance, the amount permissible for housing allowance is limited to the lesser of 1) the amount designated by church as housing; 2) the fair market value of the parsonage or home furnished with utilities; or 3) the amount you actually spend for housing during the year.

Housing allowance must be designated by the church or employer in advance of the tax year, and allows eligible clergy to deduct the cost of housing from their income for federal income taxes only. Clergy cannot deduct housing allowance from Social Security or Medicare taxes.

A good benefits program is essential for maintaining employee health and morale. There are also tax advantages for employees. Employers generally offer four categories of benefits: retirement savings, life insurance, disability insurance, and health insurance.

Ideally, a church will offer all four benefits to protect the institution in case the unexpected occurs. This also gives staff the extra assurance they may need to fulfill their ministry while knowing that they and their family will be cared for.

Reimbursable Expenses
Ordained staff are often expected to make home visits, represent the church at conferences, entertain guests, and develop professionally through continuing education as part of their professional responsibilities. It is important to budget for and reimburse these items separately from compensation. Otherwise, staff will have to pay taxes on the reimbursed amounts. We recommend the church establish an Accountable Plan for this purpose.

Setting Compensation
Compensation is a fair exchange for labor done. It recognizes the shared stewardship and accountability of the church. To determine compensation it is important to consider the staff member’s education, experience, and responsibilities.

Fair compensation takes into account the cost of living in the church’s area, salaries offered by comparable church-related employers, as well as salaries for those with similar responsibilities, education, and experience in the community at large.

When considering the cash compensation for a senior pastor, for instance, take a look at the package provided to a local high school or middle school principal. This person often has education, responsibilities, and experience equal to that of a senior pastor. For lay staff, consider a compensation that reflects a percentage of the senior pastor’s compensation depending on level of responsibility.

Effective communication is also crucial. Problems that develop between the staff and congregation can frequently be traced to a misunderstanding or other failure of communication.  A church-staff relations committee helps avoid issue of miscommunications with this sensitive topic. This committee exists to discuss what staff need and advocate on behalf of the staff for fair compensation.

Remember, compensation is a benefit to both staff and the congregation.

Rev. Dr. Perry J. Hopper serves as associate executive director and director of denominational relations of MMBB Financial Services, www.mmbb.org. For more detailed information about setting compensation, visit their website and download the MMBB Guide to Negotiating Pastors Compensation. The publication provides guidance in various areas such as steps for agreeing on a compensation package; how to determine compensation for those who are bi-vocational and how to determine a “fair” wage.

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