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Goals & Components of a Compensation Plan

“… Respect those who labor among you and have charge of you in the Lord and admonish you; esteem them very highly in love because of their work.” – I Thessalonians 5:12-13

It is helpful to begin by considering the goals of a compensation package.

A church should provide its staff with adequate income so that they can fulfill their roles without undue concern about current and future financial needs. Freedom from financial anxiety lets a pastor focus on his or her service. It also helps your church attract and retain qualified pastoral leadership.

A good compensation package is the fair thing to do. It compensates pastoral leaders for their investment in education, as well as for their talent, experience, and effort. The benefits and insurance components protect both the minister and church from unexpected setbacks. They ensure that pastors receive support, even if they are unable to fully carry out the church’s ministry.

Finally, a compensation package serves a managerial and motivational function. It can reward staff for meeting agreed-upon goals.

Components of a compensation package

A compensation package has three components:

  • Cash compensation includes the pastor’s cash salary and housing allowance, plus cash equivalents such as the Social Security offset.
  • A benefits package often includes a retirement savings plan, life insurance, disability insurance and health insurance. It can also include a paid sabbatical. These contribute to an employee’s feeling of security and well-being.
  • Reimbursement of job-related expenses include reimbursement for work-related travel, books, and education. This helps ministers with the day-to-day costs of performing their responsibilities.

The way you allocate compensation between these three categories has a significant impact on the taxes your staff must pay. Read on as we describe each category in detail.

Cash Salary $ 15,209 $ 15,209 $ 15,209
Housing Allowance* 15,000 15,000  
Social Security Offset 3,825 3,825 3,825
Retirement Contribution** 4,228 4,228  
Health Insurance 9,936 9,936  
Auto Allowance 652 652  
Conventions 400 400  
Hospitality 250 250  
Subscriptions/Books 200 200  
Continuing Education 300 300  
Taxable $ 50,000 $ 50,000 $ 19,034