Unmuzzling the Oxen: Inflation & Pastoral Compensation
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Are you feeling the crunch of inflation? Yes? So is your pastor and church staff.
Let's take biblical instruction to heart on this matter. "For the scripture says, "You shall not muzzle the ox when it treads out the grain," and, "The laborer deserves his wages." (1 Timothy 5:18 ESV)
I regularly see hard-working pastors faithfully serving all across our district. Our pastors bring strong education and experience, are doctrinally astute, relationally strong, and evagelistically minded. Many Converge pastors are bi-vocational or trying to do a side hustle to make ends meet. Please know that there is no such thing as a part-time pastor in our district. Our pastors serve in the gospel ministry with a tenaciously fervent calling that transcends comfort. Our district's pastors are all-in. We ought not to take this for granted. Are we all in for them?
Calling all elders, deacons, finance committees, church treasurers, and voting church members! It is time to review, update, support, and ultimately affirm increases to the compensation and benefits you are offering your pastor and church staff. Sadly, many year-end pastoral compensation and benefits dialogues are put off until the last minute, do not recieve adequate attention, and result in uniformed decisions or insufficient cost of living increases. Other times, well-intended compensation discussions fizzle out as pastoral compensation and benefits begin to get compared to other members' professions. Please do not permit this to happen!
Consider your pastor. He is typically not a farmer, does not receive a commission, does not earn overtime, does not own large tracts of land nor equipment assets, may not own a home, does not get the summer off, has advanced education, and is typically on call 24-7. Pastors are a uniquely called, equipped, and committed servant who deserve an intentional and contextualized compensation plan and review. However awkward the pastoral compensation discussion is at your church, I urge you to lean into, raise, and even lead this necessary conversation. Here are four great resources that can help you in this work.
- The State of Church Compensation in 2022 (recorded Webinar)
- Making Sense of Inflation for Cost of Living Adjustments (COLA) Raises in 2022 (article)
- Two Major Pressures on Church Pay in 2022: Scarcity and Competition (article)
- Church Finance: The Church Leader's Guide to Church Financial Operations (book)
What does a pastoral compensation & benefits package include? If you see nothing else from this article and these resources, please know that your pastoral compensation and benefits package needs to include and review multiple budget line items that are standard for ministers across the nation. I have divided the following budget items into the two categories of compensation and benefits:
COMPENSATION: This is the combination of salary, housing, and SECA Tax allowance.
- Salary Amount: Just like secular employees, this income is subject to all federal, state, and self-employment taxes. Your pastor's salary, housing allowance, and SECA tax allowance should be considered separate from other benefits.
- Housing Allowance Amount: This portion of your pastor's income is not subject to federal taxes, but it is subject to 15.3% self-employment taxes (SECA). Churches with parsonages should pay a market-rate housing equity allowance into an interest bearing fund because pastors living in parsonages earn no housing equity. This allowance represents what homeowners typically make from owning and caring for a home. For example, the average housing increase per year has been around 3.5%. A home costing $200,000 would warrant a $7,000 annual increase in compounding equity. If the pastor maintains the property but the church pays for major repairs, then perhaps a housing equity allowance of around $4,000 per year, paid into an interest bearing fund, is fair and just. This is especially just and fair if the church expects or requires the pastor to live in the parsonage. A housing equity allowance is not a retirement plan, nor should it be viewed as such. Regarding the necessity of this, just inquire with any given pastor who has retired or moved away from a parsonage.
- Self-Employment Tax Allowance: Churches should ADD at least 7.65% of the combined salary and housing amounts to their pastor's salary to cover the standard employer portion of their self-employment taxes. This "payroll tax" is what all employers, other than churches and the U.S. military are required to do. Though churches are not legally required to do this, to not do it is harmful to your pastoral family. Your pastor is a church employee who legally needs to receive a W-2 from your church. Your church should contribute towards your pastor's taxes, but your pastor is generally responsible for submitting his own tax payments to the IRS. As an example, if a pastor's salary is $50,000 and his housing is $25,000 then the church should increase his salary by at least $ 5,299. This covers the standard employer's self-employment tax portion that your pastor has been paying out of pocket on top of his half of self-employment taxes and the 12% federal income tax that he pays on his salary and taxable benefits, such as medishare health plans. Though it is not often discussed, pastors pay much in taxes!
BENEFITS: These are typically non-taxable items paid on behalf of the pastor or paid to the pastor by reimbursement. Sabbatical funds or gifts may be considered taxable.
- Health Benefits: Your church should do its best to help your pastor afford an HSA or HRA health insurance plan that offers a manageable deductible and concrete limits on catastrophic health expenses. Keep in mind that the IRS does not consider medishare-types of health programs as qualifying health plans. Compensation for these programs is taxable like salary.
- Retirement Benefits: If your church is not utilizing the Converge Retirement Plan, you are missing out on an excellent and rare minister pension plan. At the very least provide a matching retirement investment funds that increases with years of service.
- Disability Insurance: If your pastor cannot serve your congregation due to health issues or physical injury, this insurance allows your church and pastoral family to move forward with grace and provision.
- Pastoral Ministry Allowance: The church should allocate a defined annual amount that covers or helps to cover professional and ongoing education expenses such as conferences, travel, books, and even tuition.
- Vacation Time: The norm for full-time senior and solo pastors is four weeks of vacation per year or more, depending on experience and tenure. Please budget for this including a budget for pulpit supply.
- Sabbatical Allowance: Sabbaticals range from one to three months, every five to seven years of pastoral service. Setting aside annual sabbatical funds will allow your church to bless your pastoral family and to afford pulpit supply while he is away. This should not count against your pastor's vacation time. For churches challenged to afford a pastoral sabbatical, many districts, such as Converge Heartland, offer a sabbatical grant. We want to ensure that district pastors recieve necessary refreshment.
May the Lord grant you wisdom, insight, creativity, resources, grace, and follow-through as you review and update compensation and benefits for your pastor and ministry staff!
Jim Capaldo, Regional President
Jim Capaldo is Converge Heartland Regional President.Additional articles by Jim Capaldo