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 is still reasonable, churches should use outside sources of data. Here are three sources for obtaining outside data: Church Law & Tax's ChurchSalary.com, The Church Network's MinistryPay.com, and independent compensation experts. While many professionals may purport to be compensation experts, keep in mind that attorneys and CPAs are not qualified as compensation experts unless: (1) compensation consulting is their primary service, (2) they have received specialized training, and (3) they have specifically worked in this area for several years.