The Pastor’s Salary Package and Business Expenses

I was recently asked for advice in negotiating a pastor’s salary package for 2017. That request reminded me of an excellent, free resource that MMBB publishes, the title of which is “Guide to Negotiating Pastor Compensation.” I have uploaded a copy on our web site for easy access at www.abcnw.org/pastors-compensation-guide.

Often there is confusion as to what constitutes the pastor’s salary and what is a benefits package, and what is simply business expense and is not considered compensation. This MMBB guide helps in sorting out these details.

For example, the “Cash Compensation” aspects of a pastors salary includes “cash salary, “housing allowance” as well as “social security offset” and “equity allowance”.

Section 107 of the Internal Revenue Code allows ordained ministers to exclude from federally taxed income some or all of the cost of providing their principal residence. A church that fails to establish a portion of pastoral compensation as housing allowance is penalizing the pastor by increasing his, or her, tax burden. The amount designated as housing allowance needs to be established and recorded in the board’s business meetings prior to the start of the new year. Consult the Compensation Guide for more details.

Some churches confuse Pastor’s Benefits with Cash Compensation. These cover expenses that are essential for maintaining employee health and morale. Typically these fall in four categories and pastors do not pay taxes on them: 1) Retirement savings, 2) Life insurance, 3) Disability insurance and 4) Health insurance.

Then there are a good number or expenses that pastors incur through simply carrying out the duties of their ministry. These should be reimbursed through an “Accountable Plan” as the pastor submits receipts for each expense. Typically these fall into several categories: 1) Business-related travel and auto use, 2) Hospitality 3) Conference attendance 4) Continuing education 5) Subscriptions/books/periodicals 6) Fees and dues for professional associations, and 6) Work-related cellphone use.

Unfortunately, there are times when churches, usually under financial duress, lump these last items under compensation when they are not. Yes, they are part of the cost of having a pastor, but they should not be considered as part of the salary package.

I commend this resource to our pastors and churches as you make financial plans for 2017. Our region accountant, Cherie’ Vidovich, is also available to answer additional questions that you may have in this arena.