SALARY, FRINGE BENEFITS AND REIMBURSEMENTS
INFORMATION BULLETIN
The Greater Ohio District desires that each pastor receive a fair salary, benefit and reimbursement package from the local church they serve. The responsibilities of a pastor are great, utilizing all aspects of leadership and management. A goal of the local board of administration should be to see that their pastor is compensated near the level consistent with other white-collar professionals in the local community.
Laymen serving on the local board of administration need to realize that their most valuable employee (often the only employee) is the pastor. It is to your benefit to see that they are not preoccupied with the financial survival of their home and family.
STRATEGY:
The local board of administration is to meet annually to review the salary, benefits and reimbursements of the pastor. Each church is requested to divide the pastor’s compensation package into three major categories: Basic Salary; Fringe Benefits; and Ministry Reimbursements. This division will allow easy comparison to local salaries. This breakdown will also assist the board in distinguishing what amounts are actually income to the pastor and which amounts are related to the expenses involved in performing ministry.
1. BASIC SALARY- This area has two parts in compliance with current tax laws.
A. Salary: this is the cash that the pastor receives on the designated pay dates.
B. Housing Allowance or Parsonage Allowance: This amount represents income received by the pastor to provide for their residence. It is stated separately from the salary due to income tax benefits for the pastor. The rental value of the parsonage, including utilities, or the housing allowance provided to the pastor to rent or purchase their own home is added to the salary to determine the basic salary of the pastor. (Please note that the rental value of the parsonage or the housing allowance is subject to self-employment tax.) The amount designated by the pastor as housing or parsonage allowance is to be entered into the official minutes of the Local Board of Administration.
(Please refer to IRS Pub 517 and/or a tax advisor if you have further questions. Housing allowance compensation goes in box 14 of the W2)
2. FRINGE BENEFITS- These are items that provide a degree of care for the pastor and their family. These items are not considered a part of salary and are generally not taxable.
Pastoral Compensation BulletinPage 1
A. Health Insurance: The church is to provide a major medical insurance plan for the pastor and their family. An additional benefit is the allocation of funds to a Health Reimbursement Account that makes money available to the pastor for medical expenses not covered under the major medical plan, ie: dental, vision, co-pays, deductibles, prescriptions. (Due to the extensive nature of the Affordable Health Care Act, health care paid for by the church outside of a group policy may be viewed as taxable income. It is advisable to contact a tax advisor regarding your personal situation.)
B. Self-employment Taxes: The IRS has determined that most ordained ministers are considered self-employed for the purpose of Social Security. Churches are to compensate the minister for the full amount of their self-employment taxes (SECA). You may check with a tax advisor to learn current rates. The self-employment tax reimbursement is considered taxable income to the minister and is therefore subject to self-employment tax.
C. Pension: The Wesleyan Church requires that every pastor be covered through the denominational pension plan (Wesleyan Pension Fund). The recommended contribution is an amount equal to 12% of the pastor’s Basic Salary and Self-employment tax reimbursement. The
denominational pension plan includes a disability income provision. This makes it imperative that contributions be made monthly in order to keep this provision in force. (To make additional personal deposits to the pension plan contact the Wesleyan Pension Department for allowable amounts.)
D. Life Insurance: Some churches provide a term life insurance policy for the pastor. This benefit is generally considered non-taxable if the face amount of the policy is not greater than $50,000.
E. Vacation Time: The Greater Ohio District has established the following recommended guidelines for vacation: minimum of two weeks vacation for 0-5 years of ministerial service; minimum of three weeks vacation for 5-10 years of ministerial service; and a minimum of four weeks vacation for 11 or more years of ministerial service. Ministerial service includes time at their current church as well as previous church locations.
F. Special Meetings: Each pastor is allowed two weeks (including Sundays) to participate as a speaker or leader at special meetings outside their church.
G. Sabbatical Study Leave: Extended periods of study and reflection are beneficial to the pastor for personal and professional development. Pastors are extended the opportunity to take one week annually, with pay, for sabbatical leave. This week is not to be considered a vacation week.
H. Workers Compensation: Ohio law requires that churches carry this insurance on their employees. This coverage is not automatically extended to the pastor. Pastors must register their participation in the plan with the Ohio Bureau of Workers’ Compensation. It is strongly encouraged that pastors be included in the church’s policy.
3. MINISTRY REIMBURSEMENTS- These reimbursements are for expenses incurred by the pastor on behalf of the church. The reimbursement of these expenses is not income to the pastor but the return of personal monies expended in the course of performing their professional duties. (Please refer to IRS Pub 517 on Accountable Reimbursement Plan as this plan must be agreed to ahead of time.) It is wise to establish a limit on the amount of reimbursements to be provided. Monies are released to the pastor upon presentation of acceptable documentation of the expense(s) incurred.
A. Car Mileage: Each church should reimburse the pastor for miles traveled in the conducting of church business at the current IRS rate. A travel log should be kept by the pastor noting the date and purpose of the trip and the number of miles driven. Reimbursement should also include parking fees and road tolls.
B. Host/Entertainment Account: The church should reimburse the pastor for expenses incurred in their ministry for ministerial meetings, meals with members of the church or persons associated with the church, hosting members in their home, etc.
C. Child-care: Some churches allow the pastor to be reimbursed for child-care
when the spouse is also involved in the ministry of the church.
D. Professional Development: It is important for the pastor to be a life-long learner. They are encouraged to participate in conferences and seminars that will enhance the ministry that they render to their church. The church should allocate funds to allow the pastor to attend conferences and seminars and to purchase books and magazines that contribute to their ministry.
Pastoral Compensation BulletinPage 1
COMPUTATION FORMULAS
FOR PASTOR’S COMPENSATION
- SELF-EMPLOYMENT CONTRIBUTION ACT (SECA) REIMBURSEMENT
STANDING RULE: It is recommended that each church assist its pastoral staff by paying them additional compensation equal to the full amount of Self-Employment Tax of their salary. (This is added to the base compensation and is to be included in Box 1 on the W2 as income.) Self-Employment Tax should be paid on the net income as reported on IRS Form 1040, Schedule SE. (503)
- Includes: Salary, Housing Allowance or Fair Rental Value of Parsonage plus Utilities*, and SECA Reimbursement Adj. Amount
- Rate to be applied is 15.3% (.153)
(Check current rate)
- Computation Formula:
$ Salary$ Base Amount$ Adj. Amount
Housing Allowance x .153 x1 .153
+ Utilities Allowance$ Adj. Amount$ SECA Reimb.
$ Base Amount
- Example: Pastor receives $20,000 salary and free use of parsonage (fair rental value is $8,000 per year**) plus utilities which amount to $2,400.
$20,000$30,400$ 4,651
8,000 x .153x 1.153
+ 2,400$ 4,651$5,363 = SECA
$30,400 Reimbursement
- Due dates for submission to Internal Revenue Service:
January 15, April 15, June 15, September 15
- WESLEYAN PENSION FUND (WPF) PAYMENT
STANDING RULE: It is recommended that all full-time district pastoral staff be enrolled in The Wesleyan Pension Plan, with funds equal to 12% of salary, including housing allowance (or rental value of home furnished free) and Self-Employment Tax reimbursement. (504)
- Includes: Salary, Housing Allowance or Fair Rental Value of Parsonage and Utlilities*, and SECA Reimbursement
- Rate to be applied is 12% (.12)
- Computation Formula:
$ Salary
Housing Allowance
Utlities Allowance
$ SECA Reimbursement
$ WPF Base Amount
- Example: Pastor receives $20,000 salary, free use of parsonage (fair rental value is $8,000 per year**) plus utilities which amount to $2,400 and SECA Reimbursement of $5,363.
$20,000$35,763
8,000x .12
2,400 $ 4,292 = WPF Payment
+ 5,363
$35,763
- Payments are to be made monthly to the WPF office at the International Center of The Wesleyan Church. Forward with coupon supplied by the WPF office and include the Pastor’s membership number.
*If the pastor is purchasing his own home and is receiving a “Housing Allowance,” he will not receive a separate “Utilities’ Allowance.” The amount a pastor expends on utilities, in this case, should be taken into account when establishing the amount of his “Housing Allowance.”
**It is the Pastor’s responsibility to establish the “Fair Rental Value” for the parsonage and to enter this amount into the Minutes of the Local Board of Administration each year.
Pastors who are purchasing their own home are also required to establish the amount of their salary they wish to designate as “Housing Allowance” and to have this amount entered into the Minutes of the Local Board of Administration at the beginning of the current compensation period (adjustments can be made during the period, but cannot be made to include funds already expensed for housing.). A worksheet is available to assist with establishing this amount.
Pension payments are to be paid monthly. Lapses in payment may void the members disability insurance funded through the pension payment.
NOTE:
Dan Busby, former General Treasurer of The Wesleyan Church, has written several books that are very helpful in understanding ministerial compensation. They are available through Wesley Press.
SALARY WORKSHEET
1. BASIC SALARY
A. Salary$______
B. Housing Allowance$______
TOTAL SALARY$______
2. FRINGE BENEFITS
A. Health Insurance$______
B. Self-Employment Tax Reimbursement$______
C. Pension$______
D. Other ______$______
E. Other ______$______
F. Other ______$______
TOTAL FRINGE BENEFITS$______
3. REIMBURSEMENTS
A. Auto Allowance$______
B. Host/Entertainment$______
C. Conferences/Seminars$______
D. Books/Magazines$______
E. Other ______$______
TOTAL REIMBURSEMENTS$______
4. TOTAL COMPENSATION PACKAGE$______
Pastoral Compensation BulletinPage 1