Human resources are our greatest asset in the church. As we consider employee compensation in the church setting, there are several things to be mindful of, as we strive to pay the employee for a job well done and to also protect the church and the employee from potential issues.
Salary benchmarking is helpful to ensure you are paying church employees in a fashion that is comparable to others in their field. Annually, it is important to use a tool designed specifically for ministry and one that will allow you to drill down a bit, to things like region of the country, denomination, church size and budget. MinistryPay.com is a great resource for this.
Components of compensation include things like salary, housing allowance (if clergy), benefits, as well as potential bonuses. You will want to avoid using confusing terms like salary package, since salary is actually only one component of overall compensation. If your church offers anniversary bonuses at each 5-year mark, these will need to be budgeted and paid through payroll and appear on the employee’s W-2 as taxable wages.
Ministers have dual tax status. They are considered employees for income tax purposes and self-employed for Social Security and Medicare Taxes. Because of this unique distinction, you will not pay the employer portion of FICA for a minister, and the minister is exempt from automatic federal income tax withholding. If the minister wants to voluntarily have taxes withheld, he/she can indicate that on the W-4 on Step 4 (c). You can learn more about this in IRS Publication 517.
Housing allowance is a unique consideration for those who are deemed ministers according to the IRS. It is a designated portion of a minister’s compensation used for housing expenses, such as mortgage, utilities, and furnishings, and it should be approved by the board or appropriate governing body. This allows ministers to exclude the lessor of the following three items from their income for federal tax purposes, but it is still subject to self-employment taxes.
- Amount designated and approved
- Amount actually used (documented by receipts)
- Fair marketing rental value of the home
Transparency and communication are important when it comes to compensation. Don’t leave employees wondering if they are going to get a raise or a cost-of-living increase next year. Communicate pay and benefits to employees clearly and in writing, so there is no misunderstanding. If there is a year when personnel cuts must be made, be up-front, honest, and empathetic about it.
Budgeting for personnel is important not only for the upcoming fiscal year, but also as you look to long-range strategic planning. Do you foresee upcoming retirements or growth in particular departments or programs of the church? A healthy personnel budget compared to the overall budget is typically in the 40-60% range, but this could vary based on whether or not the church budget also includes mortgage debt.
Succession planning is also a key compensation consideration, particularly for the senior leader of a church or ministry. There is often an overlap period while a new leader is being trained on systems and authority is being transferred. This could mean that a church is paying two people for one job for a certain amount of time. This is necessary for a smooth transition.
Evaluate staff regularly. Have a clear rhythm for evaluating personnel and put it in writing. If someone is doing a stellar job, reward them in their compensation. Across the board raises can be demotivating for high achievers and can actually encourage the status quo. Let employees clearly know the expectations and evaluate how they do compared to those expectations.
Take a holistic approach to valuing personnel. More money motivates some, but not all. Some value work-life balance or increased funds for staff development. When looking at annual salary increases, consider all of these things, as well as the spiritual and cultural value that an individual brings to the ministry team. At the end of the day, those employees who are working well at the church and contributing to the overall mission should be compensated accordingly.
Human resources are the most valuable resources. As church leaders, individuals are placed in our care to be nurtured, mentored, coached, and embraced as part of the team. Most people don’t get into ministry because of the pay – it’s a calling. However, we don’t need to use calling as a weapon against paying people well for quality work.
Do your homework, and value your staff. The mission is worth it, and your team is worth it.
Denise Craig, CAE, CCA, is a visionary leader dedicated to empowering others to discover and fulfill their God-given purpose, enabling them to live and lead with excellence. With over 30 years of leadership experience, she currently serves as the chief executive officer of The Church Network, where she drives strategic initiatives and fosters a culture of collaboration and innovation, www.thechurchnetwork.com.
