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Bonuses: Proceed with Caution

Churches must closely follow specific rules or face IRS scrutiny.

I'm often asked this question: Is it legal to pay bonuses to pastors or employees at a church? The short answer is yes. There's no prohibition on the payment of bonuses by a nonprofit organization to its employees. The only requirement is that the bonus, as part of the employee's total compensation, is reasonable.

If you are paying bonuses, you have to take that bonus into account when determining whether or not total compensation is reasonable. In other words, a bonus must be reasonable when it's viewed as part of the total compensation for the employee.

The importance of parameters

There's no law or rule that says your church has to formally define a bonus plan. That means your church's board could simply decide that the merits of one or more individual's work warrants additional compensation that can be paid as a bonus.

For instance, board members could decide ...

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  • November 14, 2017

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