Pastor's Compensation Package

The Pastor and His Compensation Package

by Robert F. Valllier, Th.D

Some twenty years ago I began assisting my church with their finances. I was surprised at the small salaries that the church was paying the pastor and Christian school teachers. It has always been my philosophy that, "God's business is the best business in the world; therefore, churches should operate better than any other business in the world." The salaries that we were paying our staff for their four years of college and two years of graduate school were far below that of those in the business world. I would say to my pastor, "If you starve your staff and starve your missionaries you will starve your church." My pastor wanted to pay more, but the funds were not there. We were in the middle of a building program and so many other needs were not being met. Little did I know that God was using those frustrations in the ministry to draw me into full time service for Him as a missionary to churches.

I struggled for a long time knowing that for many of the pastors in our church and in other sister churches, the Pastor's faith may be strong but his finances were weak. In a Christianity Today poll of nearly 600 clergy, "more than two-thirds of the ministers surveyed said their families experienced some tension about not having enough money and were anxious about their financial future." Leadership magazine reported that nearly half of all minister said they thought of leaving the ministry in the past year for a better paying job. It's not easy to ask for a raise when you're supposed to always have the attitude of a servant. It makes it even more difficult to ask for a raise when many on the church board still believe in paying the pastoral staff as little as possible, not as much as possible. After working with more than 900 churches over twenty years, I have discovered that few churches have any policy to give their pastors pay increases and even fewer churches will give the pastor a cost-of-living raise when the church can afford it. In general, higher-paid pastors are more satisfied with their church than under-paid pastors. The low salaries are taking its toll in the ministry. One need only look at our Bible colleges and seminaries to see that the best and brightest are not going into the ministry.

Most ministers are not uncomfortable practicing what they preach, but rather preaching what they practice - austerity! Most of those in the ministry find that their spouses work, and they work because its an economic necessity. Two-thirds of all married couples in America today say that because of economic realities their spouse must work. That frustration is not much different for those in the ministry. A third of those pastors whose spouse work say that they work because they need the income or the medical benefits or both. It is interesting to note that as the income decreases for the pastor, tensions increase in their home. Being a pioneer minister and serving as a sacrificial lamb does have it limits on the pastoral family. Owning one's own home does seem to bring some relief to the ministers financial stress. The pastor's wife does feel better about her husband's job when given the opportunity to own their own home rather than live in a parsonage. The average mortgage payment is about $750 per month for a pastor. Only a small number of pastors have their home paid off. Even though there is the stress of the mortgage payment, the wife finds comfort in knowing that she has a place to live if things should change at church. Where does all the pastor's money go? The church in which the pastor serves is perhaps the biggest beneficiary of the pastors income. In many churches the pastor is among the largest contributors. When one calculates all the pastor's expenses, about 20% of his compensation goes back into the ministry as tithes, supplies, or gifts. In addition to household expenses, about 15% goes for food and entertaining. Another 20% of the pastor's income goes for automobile expenses. The average pastor drives a car that is six-years old and has over 75,000 miles on it. I have always recommended that the church provide the pastor a car for ministry purposes. The church provided auto should never be considered as part of the pastor's compensation package any more than the UPS truck that delivers packages to the church office is considered part of the drivers pay package. The tools to do the job are not part of a compensation package. Credit cards also consume another portion of the pastor's pay. Not because they show unrestraint, but because so many of the things a pastor charges is for the church, such as eating out, study aids, and office supplies. Many pastors feel some restraint in asking to be reimbursed for expenses. Although he knows he should ask for a reimbursement, only about 10% do ask to be reimbursed for all ministerial expenses.

The Church Law & Tax Report 1998 Compensation Handbook for Church Staff provides detailed information on compensation and benefits for nine different church staff positions. (To order call 1-800-222-1840). In that book, Attorney Richard Hammer profiles the Average senior pastor in a church of 100-300 people . That pastor typically receives $27,614 in base salary, $14,328 in housing, $4,431 in retirements benefits, $5,334 in health insurance benefits, $930 in life insurance benefits, and $1,365 in educational funds. Reimbursements for travel to pastoral conferences, nor reimbursements for the business use of a personal auto are ever considered as part of the compensation package. Pastors in churches with a multi-faceted ministry budgets over $300,000 tend to be above average in pay. Tenure and location also affect the pastors compensation. Urban churches provide the highest pay and rural churches provide the lowest pay. Educational achievements have little impact on compensation. Church members are more concerned about how much a pastor cares than they care how much he knows.

Setting the Compensation Package

When setting the compensation package for a pastor (youth, music, visitation, senior, etc.), the most important thing for the deacons or trustees to remember is to have an attitude of compassion and an understanding of the needs of the church staff member.

1. The salary should be commensurate with that of other church members who have a professional employment position. A good starting point would be a review of the average professional church members salary and the new staff member's personal budget. Consideration should be made so that the pastor's wife should not have to work and can truly be a help-meet in the ministry.

2. The housing allowance should be high enough to be able buy into the social economic status of the church's neighborhood. The house payment should not exceed 25% of the monthly gross income. Utilities and telephone consume about another 8% of the monthly spendable income. If the pastor lives in a parsonage, an equity allowance should be set aside so that he can purchase his own home as soon as possible. Home ownership is a key ingredient to
a) retirement planning,
b) security for the pastors wife,
c) privacy to fix the house the way you want,
d) longevity-to keep the pastor planted and attached to the community, and
e) tax advantages of a pastor owning a home. Federal and state taxes are often reduced because the tax laws allow for a double deduction of mortgage interest and property taxes.

3. A family medical plan is necessary for the pastor to protect his family and the church from a catastrophic illness or accident. Some churches have offered their staff a hybrid of a high deductible medical plan along with a self insurance medical reimbursement plan. This type of tax free fringe benefit plan can provide the maximum coverage for the least amount of dollars.

4. If the pastor has elected to stay out the social security program, the church should aggressive seek to provide the pastor a life insurance that is 8 times his annual salary to provide the family an income in the event of the preacher's death. This will be taxable to him to the extent that it is over the $50,000 group term coverage allowed by the IRS. The pastor without social security also should be provided adequate, tax free, disability insurance to protect his family due to a disabling illness or accident.

5. A retirement plan may seem pre-mature when extending a call to a pastor, but it sure shows that the church is concerned about him now and as well as in his later years. A pastor should be in a church-provided 403-b plan, not in an IRA plan. The amount is exempt from Social Security tax , and the distributions can be designated for the retired pastor's housing allowance, thus keeping them from being federally taxed.

6. A church-provided auto can be one of the best benefits to a pastor if the church would allow him personal use of the car. The personal use would be taxable to him at the appropriate IRS rates, but all the auto's expenses would be paid by the church. Automobile reimbursements provided through an accountable reimbursement plan should never be considered as part of the pastor's salary. If the church board wants to include reimbursements of professional expenses in a pastor's W-2, then why shouldn't the church also issue a W-2 to a deacon for the reimbursement of fellowship supplies he bought? Anything paid to the pastor to reimburse him for his expenses incurred while performing his duties is not income. Those expenses he incurred are for the benefit of the church, not the pastor.

7. The IRS considers a pastor a dual-status employee, i.e, he is an employee for federal tax purposes and self-employed for Social Security tax purposes. This means that the pastor must pay 15.3% for self-employment tax. When a church pays half of the pastors S.E. tax, it too must be counted on the pastor's W-2 as taxable income. I recommend that churches consider paying an additional 7.65% to the pastor to cover the amount that the church would have had to pay if he were not a pastor.

Not all churches can follow the above example and averages, but every effort should be made to meet the pastor's and church staff's needs in a fair and equitable way. The church leadership should annually assign two deacons or trustees to review the compensation and make recommendations before the budget is voted upon. When it comes to our church staff, I Timothy 5:17 should be the rule. It may be difficult at times, but through a proper stewardship plan and sincere prayer we can joyfully honor our church staff.