Many pastors could get a pay raise, and it wouldn’t cost the church a dime extra by following a Salary and Benefits Approach rather than an outmoded Package Approach.
A hypothetical pastor, with annual total compensation of $65,000, could see his take-home pay rise by almost 20%, net of taxes, by applying a Salary and Benefits approach rather than the package approach.
As churches seek to celebrate and honor Pastor Appreciation Month, and as they think toward next year’s budget, now is a great time to review not just what the church pays — but how the church pays it.
In fact, the church would not have to pay one penny more to achieve this “raise.” (See chart at the bottom for the example.)
It may sound too good to be true, but it’s best practice for churches to do so.
“These aren’t loopholes,” explained GuideStone President O.S. Hawkins. “This is the proper use of tax law, as intended, to provide employee benefits to the pastor and other ministers for tax purposes on a church staff. In this manner, it’s following the best practices recommended by most accountants, business managers and others. Essentially, it is what most business owners provide for their employees.”
In a package approach, the church sets aside an amount of money to pay the pastor and then tasks the pastor with delegating money for housing, insurance, retirement contributions, SECA taxes and more. This distorts what the pastor actually earns to provide for his family.
In a salary and benefits approach, the church pays for any insurance — medical, life and disability — and makes contributions to a retirement plan. Money is set aside for housing allowance for ministers for tax purposes. A SECA offset is made available to help pastors who must pay both the employee and employer part of Social Security. Finally, the cash salary is calculated.
The church could pay the same total amount in both the package approach and the salary and benefits approach, but the full package amount is taxable for the minister. In contrast, in the compensation plan, only the cash salary is taxable.
“It’s important that churches look at their local community to determine an appropriate salary for the pastor,” GuideStone President-elect Hance Dilbeck said. “Consider other pastors or other professionals in the community who have similar education, credentials and responsibility in determining an appropriate salary and benefits package.”
Churches, by and large, love and care for their pastors — appropriately structuring the pay can be a demonstration of love and commitment as well.
“At GuideStone, we consider it our sacred responsibility and joy to be an advocate for the scores of thousands of God-called pastors we serve,” Hawkins said. “It is right; it is biblical. Churches are called to provide for those who labor in the word and doctrine.”
To aid churches in their quest to be the best stewards and providers for their pastors, GuideStone provides a free Compensation Planning Guide and other compensation resources at www.GuideStone.org/CompensationPlanning. Additionally, Hawkins offers a chapter on pastor’s pay and benefits in his free e-book, The Pastor’s Primer, available for download at www.OSHawkins.com/books.
“We want to continue to be a resource for churches as they seek to do right by their pastors in the areas of benefits and compensation,” Dilbeck said. “The best practices outlined in GuideStone’s Compensation Planning resources will help churches on that path.”
Roy Hayhurst is the director of denominational and public relations at GuideStone.
Director of Denominational and Public Relations
GuideStone Financial Resources of the Southern Baptist Convention
Roy.Hayhurst@GuideStone.org | (214) 720-2141