DALLAS (BP) – Many churches could give their pastor a pay raise, and it wouldn’t cost the church an extra dime, said O.S. Hawkins, president of GuideStone Financial Resources. How? Simply by changing the structure of his salary and benefits.
A hypothetical pastor, with annual total compensation of $65,000, could see his take-home pay rise by almost 20 percent, net of taxes, by applying a salary and benefits approach rather than a package approach.
“These aren’t loopholes,” Hawkins said. “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.”
As churches seek to celebrate and honor their pastor during 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 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,” said GuideStone President-elect Hance Dilbeck. “Consider other pastors or other professionals in the community who have similar education, credentials and responsibility in determining an appropriate salary and benefits package.”
Restructuring his salary package could be an easy way for a church show its appreciation for its pastor.
“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 a 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.”