Part 2 – The Salary Package

Steve Petty
Written by Steve Petty

After careful prayer and deliberation, you have decided to accept the appointment.  Congratulations, you are on your way.  Now let’s think about what needs to happen to keep this process harmonious and positive.  The biggest hurdle is often the salary package.

I believe firmly that your District Superintendent (DS) should handle your salary negotiations!  Provide your DS with your current salary as approved by your last Charge Conference with all the line items as you have them now.  Along side those figures list the figures as they were quoted to you during the phone conversation.  Then make suggestions about what the new salary might be as you make those two come together.

Hopefully by now you’ve driven by the parsonage, you know your own health needs, you understand a little about the financial condition of the church.  These are the pieces you need to put together:

1. Housing:

  • Do you want to live in the Parsonage?
    • Is there a parsonage and are you expected to live in it?
    • If you will be living in the parsonage, what renovations need to be made before you can move in?
    • How does the church handle the utilities: water, electrical, sewage, trash, cable/phone/internet?(*) Do they pay directly or give an allowance for the pastor to pay?  If so, how much was budgeted for that for your predecessor?  Is your family larger or smaller, do those figures need to be adjusted?
    • How much is budgeted for maintenance and repair? Who approves those expenditures?
  • Do you want to secure your own housing:
    • Would you rather rent or buy a home?
    • Does the church have an Equity Fund to help a pastor with the down payment or first months rent?
    • How much down payment could you bring to a purchase?
    • Estimate what it will cost to meet your needs in that community.
    • A housing allowance for a pastor owned house will include all the ancillary items that go with owning and operating a house, (See the lists above with an (*) as well as insurance, maintenance, and taxes.

(Note: If you decide to find your own housing, try to move into the community.  I strongly believe that to lead a congregation you must live with them.  Pitch tent with your tribe.  It is much harder to lead a people when you commute to be with them.)

2. Health Insurance:

  • What does the church expect?
    • Does the church currently pay for health insurance? (Note: Today many spouses have coverage at their work that is better and cheaper, so the local church sometimes just drops that line item from their budget.)
    • Do they use the conference-sponsored plan? Are you required to use it?
    • Do they expect you to sign yourself up for the Affordable Care Act?
  • What do you expect?
    • Does your spouse have health insurance at their work?
    • Or, do you need coverage for your spouse and family?
    • Are you happy with your current plan?
    • Is the plan you are currently using available in the new area?
    • Are there specialists you will need to keep from your old plan?

Make sure to figure out these issues now.  If you assume nothing will change, and discover your existing plan has no doctors in your new area, it may cost more to secure acceptable coverage.  Going back to the church for more money mid year will not make you popular, and may leave you traveling back to see your old doctors.

3. Salary

Most pastors want to determine their salary first.  But I think salary is third because it will be affected by the two items above which are tax deductible for you.  Because they are tax deductible you get each dollar in those categories at full value.  Salary is taxable, and depending on your tax bracket, it will be reduced by the taxes you will pay on it.  So, your salary isn’t worth 100% face value, it might be worth only 85%, or if your spouse has a significant income perhaps 75%.

The first two questions are very important:

  • What is the salary paid to the outgoing pastor?
  • What is the salary you are making at your current position?

One of these figures should be the baseline for your new salary.  You need to decide which one that will be. Keep in mind, the salary is directly tied to the housing line.  This happens in two ways:

  1. The IRS sees housing as salary, income tax free salary. Any amount you receive for housing must be spent on housing or it will be added back onto your salary when you file your taxes.
  2. You can slide money back and forth from salary to housing without any complication to the church budget.

You may prefer to buy your own house.  In this case you will want to shift as much income as you can into the housing line, reducing the salary line.  You might be happy with a housing allowance of $35,000 and a salary of $30,000.  All the money you will spend on the house should be lumped in this one catch all category: principle, interest, taxes, insurance, utilities, furniture, linens, appliances, cable/phone/internet services, gardener, etc.  You must estimate this pretty close because as we said, the IRS will add back to salary any part you don’t spend on the items above.  Further any amount you over spend on the house cannot be slipped back into housing.  Whatever the church gives you when the budget is adopted is your amount for that year.

Be sure to sign a new Housing Exclusion letter with the new church, especially in the first year.

4. Professional Expenses

There are several categories that may be included under Professional Expenses.  There are also two ways to receive these:

  1. Line Item Allowances:

Most churches give their pastors allowances.  These are typically set up something like this:

  • Automobile and Transportation Allowance
  • Travel Allowance
  • Professional Expense Allowance (Books, office supplies, etc.)
  • Continuing Education Allowance
  • Annual Conference Expense Allowance

Often these amounts are included in the Minimum Salary guidelines of the Conference Rules, so churches and pastors are under the assumption this is the way things are done.  Routinely, churches and pastors roll these amounts into the monthly payroll check to the pastor and do not ever audit the expenses that the pastor makes in these areas. Any expense the pastor cannot verify will be taxable income.  The same is true for any allowance the pastor receives that cannot be verified.  If the IRS audits the pastor and finds anything not accounted for, they can go back up to seven years and hand out a big tax bill with penalties.

  1. The Professional Expense Reimbursement Fund.

I feel the best way to handle this, which frees you from being held to the line item restrictions, is the Reimbursement Fund.  Take all those Allowances listed above and lump them into one big Reimbursement Fund.  Now you need to do two more things to make it easy: Get a church credit card and keep a mileage log. (Click Here to download a simple mileage log.) If the church will not give you a credit card, get a card that you only use for business expenses.

What goes onto the mileage log?  Date / mileage start / mileage end / purpose of trip

You cannot deduct your daily commute to the office.  The IRS understands you will go to the office once a day and that’s not deductible that’s on you.  BUT, suppose you go home for dinner and back to the office for the Finance Meeting – the second trip is business related and deductible.  Hospital calls, home visits, trips to District or Conference meetings, mileage to a lunch with a member, mileage to the High School Football game a church member is playing at on Friday night, all are deductible and should be listed on your mileage chart.  If some will be lumped together put them on one line for a single date.

Use the Church owned credit card for those lunches with members, books on Theology, or registration at a conference, just remember to give the receipts to the church treasurer at the end of every month with a note about why that was church related.

If you handle it this way:

  • You have 30 days to submit your reimbursable expense sheet. (Click here for an example of this spreadsheet.)
  • You are only paid for what you used.
  • You can be reimbursed for mileage at the Federal Business Mileage Rate – 53.5 cents per mile in 2017 regardless of what you actually spend on your vehicle.
  • You will not be audited for a reimbursable account.

Get these figures in writing: Housing, Health Ins., Salary and Professional Expense.  Then you and the DS and the SPRC are all on the same page before you make eye contact.

Part 3 – The Introductory Meeting

Copyright 2016 – Steve Petty