When it comes to building church budgets, compensation is a recurring theme of confusion, interest, and opinion. Questions range from how much is too much for a church to invest in compensation to whether churches are exempt from local, state, and federal regulations to best practices to budgeting compensation costs. Without a basic understanding of pay types, overtime rules, and solid budgeting practices, churches often neglect overtime pay in their budget. Not only is this a mistake in budgeting, but it could also be symptomatic of the church’s attitude toward compensating its staff. Leviticus 19:13 says, “You shall not oppress your neighbor, nor rob him. The wages of a hired worker are not to remain with you all night until morning.” This theme that the laborer is worthy of their wages continues in the New Testament: Luke 10:7, 1Timothy 5:10, and Matthew 10:10. With this in mind, use these guidelines to improve the accuracy of the church budget by including overtime pay accurately.
Percent of the Church Budget Toward Compensation
Like any other organization, churches are unique and come in all shapes, sizes, and even organizational structures. Churches can range from a church plant of 25 to a mega-church of thousands in attendance and structure from Pastor-led to congregationally-led. These variables can make it hard for a church when they read about “healthy church” statistics. This information can easily become a weapon or a way to become insecure or prideful. Don’t do that. In the same way the medical profession has established specific standards for a healthy blood pressure range, healthy churches typically spend between 45%-55% of the total budget on compensation. Don’t compare your church to other churches; compare it to a healthy range and consider all the variables that make your church unique.
Pay Types Eligible for Overtime Pay
The topic of pay types is way too complex and vast to cover in a single post. Consider this a movie trailer for the Lord of the Rings trilogy. In simple terms, the Department of Labor (DOL) established two basic pay types under the Fair Labor Standards Act (FLSA):
- Exempt – Employees classified as “exempt” are essentially exempt from the FLSA rules for overtime. These employees receive the same pay week to week regardless of the number of hours worked. However, there are conditions before classifying everyone working at the church as exempt. Exempt employees must be considered executive, professional, administrative, or outside sales employees and perform duties like managing at least two people. Additionally, exempt employees must receive the federal minimum salary ($684 per week) or the State’s minimum salary, whichever is more.
- Non-Exempt – As the term implies, employees classified as “non-exempt” are not exempt from the FLSA rules and receive overtime pay. The FLSA defines overtime as working more than 40 hours in a workweek, but many states exceed this definition.
This basic understanding of pay types makes it clear that any employee classified as non-exempt is eligible for overtime pay.
Budgeting for Overtime
Because compensation is typically about half of the entire church budget, creating an accurate account is critical to the success of the overall budget. Here are the basics to include in the compensation portion of the church budget:
- Salary – Include all payments to employees, exempt and non-exempt.
- Housing Allowance – Since pastors can designate a portion of their income as housing, include this amount as part of compensation.
- Taxes – Budget for the employer portion of FICA for all non-housing salary amounts.
- Benefits – A comprehensive compensation budget includes the employer portion of benefits like medical, dental, vision, disability, life insurance, and retirement costs.
When calculating overtime, remember that this only applies to non-exempt employees. Start by estimating the number of hours of overtime expected by each position for the upcoming fiscal year. Calculate these estimates using the prior year’s historical data (time cards) and then compare that to the plans for the upcoming budget year. After determining an estimate of overtime hours for each position, calculate the hourly overtime pay (typically 1.5 times their hourly rate) with the estimated hours. Remember to update the employer portion of FICA with the overtime hours and rate.
An accurate estimate of overtime is essential when determining the overall compensation costs. After all, a budget is simply a plan to allocate the estimated income (for a church that is primarily donations) to maximize the ability to accomplish the church’s mission – and that’s worth the extra effort.