There are at least four reasons your church should move to a salary-and-benefits approach instead of a payment package for pastors.
By Hance Dilbeck
It’s possible your church could give your pastor a raise today without it costing the church one additional penny from the offering plate.
That’s a bold statement, but it’s true for too many churches.
There are two basic ways for churches to compensate pastors. The first is a “lump-sum” or “payment package” approach for pastors. In this approach, the church sets aside a lump sum for its pastor and provides the total amount to him to divide as he sees fit. He’s responsible for designating a housing allowance, funding retirement contributions, insurance costs, the work costs of ministry (think mileage to do hospital visits or other ministry work), and other costs.
This approach seems simple and flexible. But in reality, it will cause the pastor to pay more taxes than he legally must and will reduce his take-home pay to provide for his family.
The second approach requires a bit more work on the church’s part, but it’s infinitely better for the pastor. It’s better for the church in the long run, too. In a properly structured salary-and-benefits approach, the church is responsible for allocating which dollars are salary and which are expenses and benefits.
Why is this important? Work expenses—properly documented—along with housing allowance and benefits like retirement and insurance are generally not taxable, meaning the only income tax owed will be on the salary portion in a salary-and-benefits approach. All the money in pastors’ lump sum or payment package is taxable. Less taxes owed means an effective pay raise.
“Your church could give your pastor a raise today without it costing the church one additional penny from the offering plate.” — @Hance_Dilbeck Share on XThere are many reasons your church should move to a salary-and-benefits approach if it’s still using the out-of-date lump-sum approach. Here are four important ones:
1. It gives your pastor a raise
As mentioned above, paying a lump-sum salary will require the pastor to pay more taxes than he legally owes. This means he has less money to provide for his family. It doesn’t have to be that way. While it may sound like a challenge to make the shift, places like GuideStone make it easier, offering a free workbook with a simple six-step guide to building a compensation plan that follows the salary-and-benefits approach. By simply following this approach, your church can put more cash in your pastor’s check to support his family.
2. It tells a more accurate story
Sometimes, a church member comparing his own salary with his pastor’s can lead to a misunderstanding. A church member may compare his salary based on his take-home pay deposited into the bank every month with the pastor’s salary reported in the budget. The problem is that it’s comparing apples with oranges.
The member’s salary likely already has benefits—including insurance premiums and retirement contributions—taken out. It distorts the difference between the pastor’s pay and the member’s pay.
The member might not understand the difference, so if he sees the pastor is paid $75,000 annually (about the average reported in the 2022 SBC Church Compensation Survey), it may seem sufficient, even generous, when compared to his own $64,000 salary (slightly above the national average wage, according to the Social Security Administration).
3. It follows best practices
If you are a business owner, you already follow these practices with your own employees. If you work for an employer, your employer follows these practices. While the church is not a business in that we don’t worry about profit and loss, it should be the best-run business regarding stewardship and following best practices in employment and payroll matters.
“While the church is not a business, it should be the best-run business regarding stewardship and following best practices in employment and payroll matters.” — @Hance_Dilbeck Share on X4. It communicates value
Matt Bloom, an emeritus professor in the Medoza College of Business at the University of Notre Dame, has provided significant research into the resilience of pastors. His research demonstrates the importance of financial support. Fair salaries, adequate benefits, and a retirement plan provide what Bloom calls a “Supply-Need Alignment.” This helps communicate the value to your pastor, his wife, and his family. It also communicates to a watching world your love and concern for your God-called pastor.
A church could shift from the lump-sum approach to the salary-and-benefits approach today. The church could give the pastor a raise without changing the total budget outlay.
Your pastor will thank you.
Paying the right wage
Having addressed how to pay pastors the proper way, I also want to briefly discuss paying pastors the proper wage.
I’ve spoken to hundreds, if not thousands, of pastors through the years. And I’ve yet to meet an overpaid one. However, some are trapped living on a wage that doesn’t reflect the education, experience, and expectations placed on a pastor.
In cooperation with Lifeway and Baptist state conventions, GuideStone does a compensation survey of church staff every other year. (You can respond to this year’s survey through the end of June.) This provides a helpful snapshot of what similar churches do; it is descriptive, not prescriptive.
When it comes to paying the pastor, surveys are useful guides. But in determining an appropriate salary and benefits package, also consider other professionals in the community who have similar education, credentials, and responsibilities. Business owners, public school principals or superintendents (whose salary and benefits are publicly available), attorneys, and others whose professions require graduate education are all places to consider. If your pastor’s pay is below these professionals, take heart. Once you have the information, you can work as a church to communicate the need and increase the pastor’s salary over time as the Lord provides.
It has been my experience that, with few exceptions, churches love and care for their pastors.
Navigating ministerial tax and compensation issues can be complicated. Here are several videos and short articles for personnel or finance committees, elders, and other church leaders who are interested in learning more.
For permission to republish this article, contact Marissa Postell Sullivan.
