A reimbursable plan for the pastor’s salary package can seem like a good idea because it is simple to compute, but can be dangerous in actual practice.

In a reimbursable plan, the available salary for the pastor’s family is used in part to pay for the costs of ministry first, leaving the remainder for the take home salary.  In the not too distant pass this strategy was used to reduce the pastor’s tax burden.  The dangers of this approach are five-fold if the plan is not computed from the proper starting point.

A reimbursable plan would state, “We are providing a salary package of $50,000.”  What that statement does not identify is that from this plan the pastor will be reimbursed for items like health insurance, travel, continuing education, and phone that would normally be considered costs to the employer.  Thus a $50,000 package may actually result in only $20,000 to $25,000 in actual take-home pay.

There are five dangers of these kinds of reimbursable plans.

1. Costs are unfairly shifted from the employer to the employee.  In the United States employers are required to match Social Security contributions. Shouldn’t the church at least do the same?  Health insurance, despite the complications imposed by the federal government, is tied to employment in our country.  Shouldn’t the church do the same?
2. Unrealistic assumptions are at work.  One motivation for these kinds of reimbursable plans is the drive to reduce taxes that are owed.  While everyone should take every legal tax break possible, the net result of these plans is that taxes are reduced because income is reduced.  For many years I listened to my mother-in-law complain about paying extra income taxes every year.  I offered to let her have my reduced tax burden if she would give me her level of income.  She never made that trade!
3. Unbiblical standards are being used.  The Bible calls for fairness and generosity for those who labor hard to teach and preach.  Enough said.
4. Unskilled bookkeepers don’t deal well with the IRS.  Financial reports and W-2s for this type of system must be carefully maintained.  It does little good to have gone through the pain of careful reimbursement if the financial report or the quarterly 941 misstates what was done.  The complications of this system lead to mistakes by both the church and the pastor.
5. These plans are unfocused on the future.  The reimbursable plan deals only with the moment.  Reduced taxable income is reduced available income.  Reduced taxable income is reduced retirement benefits.  A plan that provides easy solutions for the church treasure today may not provide the management systems necessary to maintain credibility in the 21^st century.

The advice from Scripture regarding compensation for pastors and staff ministers has not always been taken seriously.  Congregations and their leaders often want to be fair, or even generous, but information about what is being done in other churches, along with guidelines and suggestions for implementation, have not been readily available.  On the other hand, the very nature of ministry often finds pastors hesitant to ask for adequate salaries.  Indeed, many pastors would find a means to do ministry even without a salary.

This article is part 5 (read part 1, part 2, part 3, or 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.