Putting a church budget together is serious business. It is the blueprint that shows the responsible allocation of financial resources. A well-crafted budget demonstrates stewardship, accountability, and how the church accomplishes the church’s mission and vision. And one of the most tension-filled aspects of a church budget is getting compensation right. Questions always arise about how much of the budget to dedicate to compensation. But, it is not always as simple as determining that compensation costs for a healthy church budget range from 45%-55%. Churches on either side of that “healthy” percentage require a deeper dive to understand the reasons behind an imbalance.
When creating a church budget, several sub-categories make up the total cost of compensation:
- Salaries – This includes both non-exempt and exempt employees’ annual wages.
- Housing Allowance – The amount paid to licensed or ordained ministers for qualified housing expenses per IRS regulations.
- Benefits – The employer portion of medical, dental, vision, short-term disability, long-term disability, and life insurance.
- Taxes – The employer portion of the FICA tax.
- Retirement – The employer portion toward a retirement plan like a 403(b)(9) plan.
Below the Average
A church with compensation costs under 50% of the total budget should evaluate the following indicators:
- Facilities Costs – Churches carrying a mortgage, especially in areas with high property values like California or New York, often have to lower compensation costs to cover the imbalance of the high facility costs. Churches pushing the limit of their facilities budget at 35% or more typically have lower than average compensation costs. There is only so much of the budget pie to slice.
- Staff Wages – Churches with compensation budgets below 50% and a facility budget below 30%-35% need to evaluate staff wages and benefits. Ministry is hard work. To retain talented employees, strive for compensation that competes with non-ministry work. Use salary compensation data and tools to determine realistic salary ranges for your area; it may be time to give some much-needed raises.
- Staff Size – Attendance remains a primary marker when determining the size of a church and the number of full-time pastoral staff required to support the congregation. Back in the 1960s, the ratio was about 1:500, whereas today, that number shifted to 1:76. That means a church of 500 should have about 6 full-time pastors on staff. Of course, there is no such thing as one size fits all, and there are several variables to take into account, but this marker will help determine if the church is understaffed.
Above the Average
A church that has compensation costs above 55% of the total budget should evaluate the following indicators:
- Staff Wages – This is a touchy topic. As stated above, full-time vocational ministry is hard work, and ministry compensation is not as competitive as the non-ministry equivalent. However, if the church’s compensation budget is beyond 55% of the total budget, it is time to evaluate the pay scale. This process should include determining if an individual staff member’s pay is out of alignment. Overpaying one staff member can throw the compensation category out of range.
- Benefits – It is no secret that the cost of benefits continues to rise. Evaluate the costs of the benefit plans to determine if there are areas to decrease the overall costs.
- Staff Size – If wages are in alignment and the compensation is over 55% of the total budget, then it is time to consider the size of the staff. Declining attendance means the number of people on the staff needs to be adjusted accordingly. No doubt, hard decisions are on the horizon. Remember, the church exists to fulfill its mission.
Regardless of which side of the compensation percentage scale your church falls, taking the time to carefully, thoughtfully, and prayerfully evaluate compensation costs will help put it on the right track. Use these guides to help find areas in the compensation budget to refine costs and ultimately put the church on the pathway to fulfilling its mission.