Minister’s Compensation Guide
While answering a call to ministry is not first and foremost a financial decision, compensation is necessary for a minister to be able to devote his or her time to vocational ministry. If a church wants the benefit of having a minister on staff to attend to their needs, they must offer fair remuneration.
Fair compensation is important. As much for the congregation as for the minister. How a congregation treats their ministers and acts as stewards of the leaders that God has provided to them reveals much. A minister’s level of financial stress or freedom greatly affects how much emotional and mental energy he or she has to devote to caring for the congregation. How the compensation discussion is approached from both sides also greatly impacts the relationship between the minister and congregation, which can, in turn, affect many other areas of church life.
For Cooperative Baptists, compensation is a local church decision. Those making the decisions are often lay leaders with no training or expertise in Human Resources, compensation structure, or the financial ramifications of different kinds of benefits. And most ministers don’t know any more about such matters than the committees hiring them.
Some churches use what is referred to as a “lump-sum” approach to compensation. While it may be perceived as an easy approach, this path often leads to a distorted view of the actual income on which the minister depends for living expenses. The lump-sum approach does not normally provide adequate insurance coverage, appropriate retirement planning, or consideration of the minister’s tax situation.
There is much more to a compensation package than simply a salary and there is much more to consider than simply what the church finances can support. Because of the grave importance of this topic and the lack of training on the subject, Church Benefits Board (CBB) created the Minister’s Compensation Guide. This is for both churches and ministers. Our hope is that it will empower the church and the minister to create a mutually beneficial compensation package that empowers both to answer the call of God.
Video: Building a Competitive Compensation Package
Church Benefits Board (CBB) knows that for pastor search teams and finance committees, navigating benefits can feel overwhelming. In this video, we walk you through how to build a competitive compensation package that reflects your church’s values, attracts top-tier talent, and ensures your minister is well-supported for the long haul.
Key topics covered:
- 00:00 – Introduction
- 02:19 – The “Lump Sum” Trap vs. Intentional Compensation
- 05:09 – Anatomy of a Package: Income, Benefits, & Expenses
- 07:31 – How to Handle the Minister’s Housing Allowance
- 10:48 – Dual Tax Status: Employees vs. Self-Employed
- 12:13 – The SECA Offset: Helping with the Tax Burden
- 13:53 – Retirement Strategies: Reaching the 20% Goal
- 16:30 – Health Insurance Options (Small Groups & ICHRA)
- 18:20 – Life & Disability Insurance Coverage
- 21:10 – The Theology of Rest: PTO & Sabbath
- 22:50 – Normalizing the Compensation Conversation
- 27:18 – The True Cost of Recruiting & Retaining Talent
Frequently Asked Questions
How is a minister’s housing allowance determined?
A minister’s housing allowance must be officially designated by the church in advance of payment. It is generally the lesser of the fair market rental value, the amount designated by the church, or actual expenses. See our Housing Allowance Guide for a full breakdown of the rules.
It is important to note that only a 403(b)(9) church plan allows retired ministers to receive their distributions as a tax-free housing allowance. As a qualified 403(b)(9) church plan, Church Benefits Board can facilitate housing allowance for retired ministers (within IRS limits).
What is a SECA offset and why is it important?
Since ministers are considered self-employed for Social Security purposes, they pay the full 15.3% SECA tax. A SECA offset is an optional taxable reimbursement (usually 7.65%) provided by the church to help cover the employer’s portion of these taxes.
What is the recommended retirement contribution for clergy?
We recommend a target of 18-20% of total compensation (including housing) to ensure long-term financial security. This is often achieved through a combination of church basic contributions, matching, and personal salary deferrals.