By Mike Martin
Each year, a congregation and/or leadership is called upon to develop a framework for determining the best course of action in compensating current pastoral leadership or hiring a new pastor who is starting.
Here are four general categories to consider in putting together a salary composition package:
1) Base Salary
The base salary should include items based on objective criteria for the position. As a church, you should determine to answer the question: “What are the qualifying factors associated with the position?” Most job descriptions are categorized into three main areas known as KSAs (Knowledge requirements, Skills, Abilities). These should be determined by the position requirements and not on the individual. Some areas to consider are educational requirements (i.e., are you expecting the individual to have a bachelor’s or master’s degree), experience in ministry, and professional certifications. Other areas include the ability to communicate, personal and professional interaction both inside and outside the ministry, and leadership skills. Another factor to consider is the size and scope of the ministries involved. Another question is whether this is a full-time (40-50 hours a week) or part-time position. Will the individual be allowed to have other jobs or contract work that will provide other income? Finally, when determining compensation, you should consider the local cost of living and what other professionals in your area are paid with similar education, experience, and abilities.
2) Fringe Benefits
It is important to understand any labor laws that may impact fringe benefits. In Hawaii, the Prepaid Health Act of 1974 states that employees who work four consecutive weeks of 20 hours are entitled to Medical Benefits. Also, consider items associated with flex spending plans, educational costs, and SECA offset, to name a few.
3) Retirement Plan
A minister must be more proactive in preparing for their future. We have partnered with GuideStone Financial Resources to help provide guidance in retirement benefits. A church actively contributing to the Cooperative Program and a minister’s annuity can receive matching funds from both the convention and GuideStone. If you need any resources on this, please feel free to contact GuideStone or the convention offices. In addition to the annuity, GuideStone can work with individual churches to set up a 403(b) plan for payroll deductions so a minister can tax defer his income.
4) Accountable Reimbursement Plans
The Tax Cut and Jobs Act of 2017 significantly impacted reimbursement plans for a church in 2018. In 2018, all unreimbursed employee expenses will not be allowed as a tax-deductible expense. Churches with a Nonaccountable Reimbursement Plan might evaluate the tax impact on a minister. For example, if a church has an auto allowance under the nonaccountable reimbursement plan, they may receive the auto allowance as part of their paycheck and pay taxes on it but also get the deduction for unreimbursed employee miles. However, the new tax law will not allow that deduction in 2018. A consideration is to have an accountable reimbursement plan and turn in a mileage log for reimbursement, and the reimbursement would not be taxable income to the minister.
As always, it is good to consult a Human Resources professional or tax professional to understand the taxable/non-taxable parts of the salary composition.
Mike Martin was Assistant Executive Director for Business and Finance for the Hawaii Pacific Baptist Convention from 2017-2023. He is now the Director of Finance for Hawaii Baptist Academy, an entity and partner of HPBC.