By Franklin Dumond

One of the major costs in a church’s budget is the cost of employees. Since most churches only have one employee, the major cost in these church budgets will be the cost of the pastor’s salary package. As a rule of thumb 40-65% of a church budget should be spent on employees. These percentages will seem entirely too high for many businessmen who keep employee costs to 10-20% of operations. These percentages will seem too low for many school administrators since education budgets often spend 80-90% of total budgets on employees.

At the heart of the matter is a basic question that, when answered, will guide the process to a fair conclusion. How do you compute a salary package?

1. Is the pastor a self-employed, independent contractor or an employee of the church?

An interim pastor, a guest speaker or an evangelist function as self-employed contractors with limited oversight from the church and a great deal of flexibility about scheduling their limited services. A permanent pastor—whether bi-vocational or fully funded—is an employee of the church by all the standard descriptions of employees. Self-employed contractors receive a 1099 report of payments made to them. Pastors as employees receive a W-2 with a detailed list of income, tax payments, retirement contributions and housing benefits.

2. What benefits will the church provide?

In the United States, some benefits paid on behalf of employees are legally required of the employer. Others have become cultural expectations. Still others have been developed to attract and hold quality employees.

A church would be wise to develop benefits for its employees that address:

• self-employment tax  This can be an added line item in the budget, but remember: it is not part of the pastor’s take-home pay!
• vacation schedule  Should additional days of vacation be earned by employees based on length of tenure?
• health insurance  This is a very BIG issue in light of the affordable care act. Individual health insurance is increasingly expensive. Many pastoral spouses subsidize the church by providing family coverage through their workplace. As a rule of thumb, health insurance premiums are not taxable income if the church pays the insurance company directly. However, if the same premiums are paid directly to the pastor they are probably taxable income.
• professional expenses  What the church will and will not cover as professional expenses must be determined in advance and in writing to avoid misunderstanding, conflict and tax problems.
• retirement  The General Baptist Pension Program provides a strategy of employee contributions with employer contributions in a self-managed portfolio that is available to all General Baptist church employees.  For more information on the Pension Program, click here.

3. Will housing be part of the package?

Many churches provide a parsonage. Others use a housing allowance. Each has its benefits and its pitfalls. Housing in rural communities or small towns is often at a premium. In those cases a parsonage is advantageous. On the other hand, every year spent in a parsonage is one less year’s equity in a home!

4. What about continuing education?

Although it could be included in the benefit list above, Continuing Education merits a separate paragraph. Currently, General Baptist Ministries provides conference and event packages that provide quality continuing education through the Mission & Ministry Summit and the General Baptist Minister’s Conference. Additionally, young leaders have access to the Leverage Conference and Youth Pastors can find specialized training opportunities and networking through the National Youth Conference.

The built-in difficulty for most oversight committees that develop church salary packages is that they have never seen the true cost of having an employee. The weekly pay stub received by most employees will have a list of tax deductions and other contributions but it will not include a behind-the-scenes look at what an employer contributes.

Unfortunately, church budgets often look only at the bottom line of total cost for an employee to determine if that is a fair wage when in actual fact a salary package is very different from take home pay.

The New Testament is pretty clear about salary packages for teaching pastors:

“The elders who do good work as leaders should be considered worthy of receiving double pay, especially those who work hard at preaching and teaching.”  1 Timothy 5:17 (GNT)

This article is part two (read part 1, part 3, and part 4)of a six part series by Dr. Franklin Dumond, Director of Congregational Ministries, on understanding and planning for a pastor’s salary.  Check back over the next few weeks (or subscribe using the box to the right) to learn more about the process and intricacies of paying your pastor.