Preparing for Tomorrow: Three Church Tax, Payroll, and HR Trends to Watch

Churches today face growing complexity in employment, tax, and workforce management. Evolving regulations, changing workforce expectations, and advances in technology are affecting congregations of every size. Staying informed can help churches reduce risk, strengthen financial stewardship, and better support clergy and staff.

The following trends are shaping church administration and deserve the attention of church leaders, treasurers, HR professionals, finance committees, and board members.

Trend #1: Compensation Packages That Go Beyond Salary

Bi-vocational ministry—when a pastor serves a congregation while also holding a secular job—has a long history dating back to the earliest days of Christianity. The Apostle Paul, for example, supported himself as a tentmaker while carrying out his ministry. Today, bi-vocational ministry remains common, particularly among smaller congregations. In 2025, an estimated 35% of U.S. clergy held a second job.¹

While bi-vocational ministry offers many benefits, it also creates unique compensation and tax considerations. Both pastors and church administrators should understand their responsibilities regarding housing allowances, accountable reimbursements, income reporting, and Social Security and Medicare obligations. Churches can support their bi-vocational pastors by ensuring financial administrators receive appropriate training on clergy compensation and tax requirements. Addressing this skill-building proactively can prevent small errors from becoming costly tax issues later.

At the same time, church employees are increasingly looking for compensation packages that provide value beyond salary alone. One tool churches may wish to consider is an accountable reimbursement plan, which allows employees to receive tax-free reimbursement for approved business expenses.

Under an accountable plan, staff members—including clergy—must submit documentation supporting business-related expenses before reimbursement is approved. Even when churches provide employees with church-issued credit cards, documentation is still required to substantiate expenses. The church should designate an individual responsible for administering the plan, approving reimbursements, and ensuring all expenses meet policy requirements.

When properly administered, reimbursements made through an accountable plan are not reported as compensation on an employee's Form W-2 and are not subject to income tax. This can provide meaningful tax advantages for both employees and clergy while helping churches maintain strong financial controls.

Trend #2: Increased Scrutiny of Employee vs. Contractor Classification

The pandemic accelerated many workforce changes within churches. As volunteer participation declined and new ministry needs emerged, many congregations turned to contractors to fill staffing gaps and provide specialized expertise. Contract musicians, childcare workers and custodians were among the volunteer positions that became paid roles. Livestream technicians and video production specialists increasingly became part of the church workforce.

Even as in-person worship has returned, many churches continue to offer online services, Bible studies, and other digital ministry opportunities. As a result, the use of contractors remains common.

However, churches should regularly review whether workers are properly classified as employees or independent contractors. Worker classification affects payroll taxes, reporting requirements, and compliance obligations, making it important to maintain clear agreements and documentation.

The IRS provides guidance to help organizations determine whether a worker should be treated as an employee or an independent contractor.¹ Generally, the determination depends on the degree of control the church exercises over how, when, and where the work is performed.² See IRS: Independent Contractor (Self-Employed) or Employee? page for more information.

Improper classification can have significant consequences. If a worker is incorrectly treated as an independent contractor, a church may be responsible for unpaid employment taxes, interest, and penalties. Regular reviews of worker classifications can help churches reduce risk while ensuring staff members receive the protections and benefits to which they are entitled.

Trend #3: Payroll Automation Is Becoming Essential

Over the past several years, many churches have accelerated their adoption of digital payroll and financial management tools. Automated payroll systems can streamline tax filings, direct deposits, compliance monitoring, employee recordkeeping, and clergy compensation administration. These tools help reduce administrative workload, improve accuracy, and support sound financial stewardship.

Fortunately, churches today have access to a growing number of payroll solutions designed specifically for ministry environments. Platforms such as PowerChurch Plus and Brotherhood Works provide church-focused payroll and tax support, while general payroll providers such as Gusto and OnPay offer automation and compliance features that many churches find valuable.³

When evaluating a payroll solution, church leaders should look for features that support the unique requirements of ministry employment and more general needs, including:

• Clergy housing allowance administration
• Clergy tax compliance
• Direct deposit capabilities
• Automated payroll tax filing
• Form W-2 and 1099 reporting
• Employee and contractor management
• Time-tracking integration
• HR and benefits administration⁴

Investing in the right payroll technology can reduce the risk of errors, improve compliance, and free administrative staff to focus on higher-value ministry work.

Stewardship Through Strong Administration

Tax, payroll, and human resources administration are more than operational responsibilities. When managed well, they become an expression of faithful stewardship—helping churches care for their staff, protect their resources, and support their mission.

By staying informed about emerging workforce trends, maintaining compliance with employment and tax requirements, and leveraging appropriate technology, churches can build a stronger administrative foundation for ministry today and in the years ahead.

Sources:

1.    Lifeway Research. “Evangelical Pastors More Likely Than Others To Be Bivocational.” June 4, 2025. View article. [research.lifeway.com]

2.     Independent contractor (self-employed) or employee? | Internal Revenue Service