Compensation: Handle with Care

All too often churches approach compensation packages in a haphazard way. They make quick decisions without much forethought and with little or no documentation. These churches are asking for trouble.

Set Reasonable Compensation

When it comes to compensation, churches must guard against excess benefit transactions. Such a transaction takes place when an employee is: (1) paid too much for the services rendered, (2) paid without the proper authority (e.g., the pastor sets his or her own compensation), or (3) receives benefits that are not approved and properly reported for tax purposes. Along with the possibility of severe penalties, excess compensation can jeopardize a church's tax exempt status.

It's essential that churches determine the maximum compensation that can be paid to an employee or minister for services rendered to the church. To prove that the maximum compensation proposed ...