Making it on a Pastor’s Pay: Four Factors in a Salary Package

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? calculating a pastor's salary includes considering 4 factors

 

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.

Making it on a Pastor’s Pay: Six Terms Everyone Needs to Learn

By Dr. Franklin Dumond

Every fall thousands of committed believers serving on the finance teams and budget committees of Bible believing churches wrestle with plans for the next year’s budget.  Salary for church personnel is a large factor in most of these discussions since the combined salary line items can easily account for 40%-65% of the total budget.  Pastor search teams confront similar issues as they work on behalf of the church to present not only a prospective new pastor but to also explain the salary package.

Learning some vocabulary

  1. Base salary  This would be similar to the regular income of an employee.deciding on a salary for your pastor can become very complicated. In our society this is often computed on an hourly rate.
  2. Housing  Currently, IRS regulations allow pastors to exclude housing costs from income that is subject to federal income tax.  However, housing may be a housing allowance or the rental value of a parsonage. Housing is subject to self-employment tax.
  3. Self-employment Tax  For Social Security purposes pastors are considered self-employed.  This means that their income, including housing, is subject to self-employment tax at the rate of 15.3%.  Computed on a separate form as part of the 1040 income tax return, a small credit is allowed to offset some of the costs of self-employment tax.
  4. Professional Expenses  Pastors generally incur some costs to undertake their ministry.  These would often include the cost of a cell phone plan, travel on behalf of the church, office expenses, professional dues and continuing education.  Since full time pastors are employees of the church, not contract employees, these are actually costs of the church not personal costs of the pastor.
  5. Matching Contribution  Employers in the United States are required to contribute 7.65% of each employee’s salary to their individual Social Security accounts.  Employees are also required to contribute 7.65% of their salaries to their individual Social Security accounts.  Churches may provide an extra salary line item to address Social Security taxes.  When this is done, it increases the pastor’s taxable income but it is a fair approach in our culture.  A church may not withhold self-employment/social security taxes from the pastor but may, as a courtesy, withhold additional income taxes to offset the self-employment tax if requested by the pastor on his W-4.
  6. Take-home Pay  This is the amount left after deductions for federal, state and local income taxes have been made.  Other deductions for retirement and health care may also be included here.  As most of us know take-home pay is much lower than total income!

Jesus reminded his hearers of the importance of careful planning:

“Is there anyone here who, planning to build a new house, doesn’t first sit down and figure the cost so you’ll know if you can complete it?  If you only get the foundation laid and then run out of money, you’re going to look pretty foolish.  Everyone passing by will poke fun at you: ‘He started something he couldn’t finish.’  Or can you imagine a king going into battle against another king without first deciding whether it is possible with his ten thousand troops to face the twenty thousand troops of the other?  And if he decides he can’t, won’t he send an emissary and work out a truce?”  Luke 14:28-32 The Message

Church budgets and pastor’s salaries demand the same care.

This article is part one (continue reading with part 2, part 3, 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.

 

Life in Saipan

Lori and Robbie Myers are missionaries on the island of Saipan. 

Lori and Robbie Myers with their son, Reagan

Lori and Robbie Myers serve General Baptists on the island of Saipan along with their son, Reagan.

Needless to say, there’s been a bit of a learning curve this past year as we have gotten used to life on this island.  Some things have just made sense and haven’t taken too much adjustment.  Others, however, have gone on my ‘Believe It or Not!” list, and I thought I would share a few of those experiences with our friends and supporters back home.

First, there’s the thing that we had to adjust to early and often, because it hit us right away and continues to affect us most days.  Saipan is an island, and the main industry (overwhelmingly) is travel.  Vacationers tend not to look at their watches much-there is such a thing as “island time” and we are on it!  This is a multi-layered reality.  First and foremost, it affects the demeanor of the people who live here.  The majority of islanders are so pleasant and wear a smile 99% of the time.  I LOVE that about the people here!  On the other hand, if you are a stickler for people being on time, this might not be the place for you!  With my fibromyalgia pain making me take extra time to get ready most days, this is a terrific development!  Events start when they start, people arrive when they arrive.  I love island time and island people!

However, there are things here that make me realize how very spoiled I was all my life without realizing it.  Some of these things I will never take for granted again.  For example, who enjoys a trip to the Department of Motor Vehicles?  No one!  This might make you feel better about your next trip, though:  When we arrived in Saipan last year, one of the first things we needed to do was get driver’s licenses.  Many things are discounted if you are a local resident, and after I saw the grocery and other prices, we wanted that as soon as possible.  We were sent to the courthouse, where we waited in line to go through security and a metal detector.  Once we got through, we went to the appropriate office, paid, and got a receipt.  Then we went to another building-which was unmarked-where we were to show our receipt, surrender our Missouri licenses, and get our new ones.  However, you just have to hope you get there are the right time of day, because they have to close periodically to let their copy machine cool down!

Living in a place that is so diverse is exciting in many ways.  I love making friends from so many parts of the world, and learning about their customs.  There is such a variety to food here, too.  There are Chamorran, Chinese, Korean, Thai, Japanese, Vietnamese, Filipino, (and more!) cuisines available.  Along with my severe fibromyalgia, I have unfortunately developed almost superhuman senses of taste and smell, so I cannot enjoy it quite as much as I once would have.  Buying groceries and eating out in restaurants each present their own challenges.

Packaging and presentation in the grocery stores are also different.  It seems no part of an animal goes unused.  You have the option of chicken beaks and feet in packs.  Also, beef intestine, entire beef tongues (which are huge), pig heads, pork intestines, hooves, fish heads-it all took some time to get used to.  I also had to adjust to the plastic drawstring bags (with the drawstring end not fully closed) of pork chops, short ribs, etc.  That would never get by at Kroger!

I have to cook according to what’s available.  Expiration dates are only suggestions here, it seems.  The produce selection is often made up of things they would have culled from most U.S. grocery stores.  The first two or three times I shopped for groceries, I left the store crying because I couldn’t find much that I recognized, and when I did find something, I couldn’t afford it!  The $10 gallon of milk, $7 orange juice, and $30 bag of frozen chicken breasts was daunting!

But eventually, I figured out how to shop here, what to look for, and which stores to shop at for certain items.  It often means I shop every day or every other day, and visit four or five places instead of buying everything from socks and nightgowns, to chicken and lettuce, to deck chairs and Christmas decorations from Walmart!

There are so many more new experiences and differences we have had to adjust to, but the best thing is that we have met so many wonderful people who have big hearts!  Yes, it’s been difficult at times, being so far away from our family and friends, but I am so grateful to God for His perfect plan for our lives and for our part in His kingdom.  I did not expect any of this at my stage of life.  What a loving, amazing God we serve!  I cannot wait until next summer, when we are back in the states on furlough and can share more of our experiences and ministry here on the island of Saipan.