Salary vs. Package

The compensation package is NOT the salary!

compensation packageOur church is in the market for a new Collegiate/Young Adult pastor. As we were working through the numbers on our budgetary finance committee, one of the members was aghast at how much we budgeted for this new pastor: “Is that how much pastors get paid?!”

The answer is, “No, that’s not how much pastors get paid.”

The numbers we were looking at weren’t just the salary, they were the total compensation package. This number includes health insurance (“Couldn’t we just not give them health insurance?”), travel budget, continuing education, retirement (“Why should we pay for them to retire?”)…

Your pastor is likely an employee, not an independent contractor. And as an employer, the church has to pay the entire compensation package for the pastor. Church members may see the pastor’s pay as a line-item in the budget and think that the pastor is getting rich off the backs of the members: “I don’t make that much money at my job!” Yes. Well, neither does the pastor. In fact, a pastor may be making only $50,000 out of a $75,000 employment package:

$50,000 salary
$12,000 health and disability insurance (or more with kids)
$5,000 mileage and travel reimbursements
$3,000 continuing education, seminars
$5,000 403(b) match for retirement

Add to this the amount it takes to interview, hire, and move a pastor, and you’re looking at substantial total compensation package.

This can make it very awkward for a pastor going into salary negotiation. Instead of dealing with a Manager or HR professional who understands salary vs. benefits, you may be dealing with church members who are new to the concept, hearing about this for the first time. Or you may be dealing with people who want to “keep the pastor humble.” There may even be people on the church board who have a bone to pick and would love to force the pastor out any way possible.

It can feel downright defensive to have to justify a health benefit and a disability insurance benefit and mileage and a 403(b) match. And this defensive, justifying posture can really derail the entire negotiation!

This is why I believe it’s important to have a standing committee that is educated on these matters. It should be a small subcommittee of the church board. The members should be tasked with reading and bench-marking to become familiar with the overall cost and structure of a competitive compensation package in your area and your denomination. This subcommittee would then make recommendations to the budgetary committee or church board. Ideally, this committee would be bumping the salary every year just to keep up with inflation.

As a pastor, it’s relatively easy to put a standing committee like this in place. And it’s relatively easy to give them resources and benchmarks to look at.

Taking this extra step as much as a year in advance of asking for a pay raise will drastically increase your chances of receiving one!

What are you doing to make sure you have the right structure in place to pay you and all future church employees a fair compensation package?

Do you need to negotiate a better salary? Or better benefits package? You may need a coach to help you. Schedule a free, no obligation 30-minute strategy session to see if Clergy Financial Coaching is right for you!

Step 8. Save a 3-6 month emergency fund.

emergency fundYou know you need an emergency fund, right? 

After you’ve paid off all of your debt, you need to stay motivated and frugal to save up a full emergency fund.

This is money that is sitting there not earning much interest, but keeping you from the edge of disaster. It needs to be money that you can get to fast! Some people have their emergency fund in a simple savings account or in a money market account. Others keep cash at home. If you keep your emergency fund in CDs or investments, there’s a good chance that you’ll have to pay heavy fees to liquidate it or it might even be gone when you need it.

Financial planners will tell you that a fully-funded emergency fund is 3-6 months of household expenses.

“Household expenses” means the irreducible bottom line that your family needs to survive: housing, utilities, transportation, and food. So maybe your normal budget is $5,000 per month. It wouldn’t be surprising if your monthly “household expenses” came in at $3,500 or less.

But there’s a huge difference between three months and six months.

How much should you actually save? Remember, an emergency fund is about managing your risk.

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Buy this book every year at tax time!

The Zondervan Minister’s Tax and Financial Guide
is a “must have” for all ministers who prepare their own taxes. Even for those who don’t, this book tells you what to expect, what to keep track of, and how to structure or restructure your compensation package to be sure you are getting the greatest tax savings.

Written by Dan Busby, CPA, J. Michael Martin, JD, and John Van Drunen, JD, CPA, this book covers the tax return, insurance, social security, housing, retirement, reimbursement plans, self-employment, salary, compensation plan structuring, and contains a bunch of sample forms.

This book also contains the “10 Biggest Tax Mistakes Made by Ministers,” including #3: “Failing to have at least a modest housing allowance designated when living in a church-provided parsonage.”

Several of the strategies in this book can save the pastor $1000s per year on taxes and cost the church $0 extra to implement!

I especially like the integrity points at the end of each chapter, helping pastors to think through the moral implications of what they are doing with taxes, social security, ordination, etc. and avoid muddy grey areas or illegalities.

You can’t beat the price and the up-to-date information. Buy the new version every year to stay on top of the different changes in the tax code!

(But you really might want to pick up this year’s copy just so you can start planning for next year.)

RANT: Should I opt out of social security?

should pastors opt out of social security?“The improper (actually, the word is ‘illegal,’ but it is such a harsh word) opting out of social security by ministers is one of the dirty little secrets of the profession.”
2015 Zondervan Minister’s Tax & Financial Guide

I can’t tell you how many times I’ve been listening to Dave Ramsey and a pastor will call in asking if he (it’s always male for some reason) should opt out of social security.

Dave doesn’t take any time and ask about the pastor’s religious convictions or whether the pastor is conscientiously opposed to receiving ANY kind of public assistance (social security, FEMA assistance in case of a natural disaster, CHIP, SNAP, Medicaid, Medicare, etc.) and would never take them if needed and offered.  Dave simply cuts the guy off, gives his pat answer about how you can invest the money better than the government can, and tells the pastor that he should opt out of social security if possible.

It is possible for a pastor to opt out of social security (within the first two years after ordination). It may even make sense from a pure money-management standpoint (if a pastor were to actually invest that money in retirement accounts). But usually, the pastor just doesn’t want to pay it and wants to use the money for something else instead.

I personally know several pastors who opted out of social security because they didn’t want to pay it. These were some of the same pastors who didn’t file quarterly taxes, freaked out on April 15, and ended up owing massive taxes with penalties and interest year after year after year! And guess what? They weren’t taking that social security money and putting it away into their 403(b) for retirement. They were just using it.  And now they’re stuck and poor and there’s no social security coming in either. At least they’re getting medicaid and food stamps now (but weren’t they opposed to public insurance?).

Oh, wait. It is.

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