Unlike many large corporations and big businesses, most churches do not have the luxury of a Human Resources expert on staff. But, I believe that Oliver Wendell Holmes once said, “Ignorance of the law is no excuse for breaking it.” And when it comes to paying people, depending upon the state you live in, the number of laws can be overwhelming. On top of that, as followers of Jesus, churches should strive to remain above reproach. When building a church budget, it is important to categorize all employees into the correct pay type to get an accurate total and stay above reproach. After all, compensation makes up between 45-55% of the entire church budget, and getting it right helps determine the allocation of the other half of the budget.
What are the Pay Types
Without getting too deep into the weeds on this topic, the Department of Labor (DOL) established two basic pay types under the Fair Labor Standards Act (FLSA) – Exempt and Non-Exempt. The FLSA is the federal law that states employees are entitled to at least the established federal minimum wage and overtime pay. Here’s a quick look at both types:
- Exempt employees receive the same salary (amount of pay) week to week regardless of the number of hours they work. But, before you decide to make all employees exempt and cut down on paperwork, there are qualifiers to obtain exempt status. Exempt employees must be classified as executive, professional, administrative, or outside sales employees and meet the specific criteria for the exemption:
- Duties: Perform tasks like managing at least two people and regularly use their judgment and discretion.
- Salary Amount: The federal minimum salary is $684 per week. Many states exceed that minimum threshold.
- Salary Schedule: Paid the same each week regardless of hours worked or quantity or quality of their work.
- Non-Exempt employees are not exempt from the FLSA rules and are entitled to overtime pay. The FLSA defines overtime as anyone working more than 40 hours in a workweek. Check your state for any additional overtime provisions that go above and beyond the FLSA.
The Impact on the Church Budget
I’ve heard stories of churches paying employees a “salary” of $500 a month to cover child-care expenses for part-time employees. Clearly, this does not fit within the FLSA guidance – nor should it. Luke 10:7, 1Timothy 5:10, and Matthew 10:10 refer to Leviticus 19:13, which instructs God’s people not to defraud others and that workers are worthy of their pay. Doing the right thing often costs something; not doing it costs even more.
Once employees are assigned the correct pay type, determining the impact each employee’s compensation makes on the church budget comes into focus. When forming the compensation portion of the church budget, break it down into two categories: exempt and non-exempt.
Calculating Exempt
- List each employee and their annual salary.
- Modify the annual salary to account for COLA (Cost of Living Adjustment) or merit increases.
- Calculate Federal Insurance Contributions Act (FICA) by multiplying wages by 7.65%. (Do not add FICA to pastoral staff taking a housing allowance. They are considered self-employed for FICA.)
Calculating Non-Exempt
- List each employee and their hourly rate.
- Modify the hourly rate to account for COLA or merit increases.
- List the total annual hours for each employee.
- Multiply the annual hours by the rate to determine the gross wages for each employee.
- Calculate Federal Insurance Contributions Act (FICA) by multiplying wages by 7.65%. (Do not add FICA to pastoral staff taking a housing allowance. They are considered self-employed for FICA.)
The wildcard in calculating non-exempt is overtime. It’s unrealistic to think there is not a scenario where the hourly staff will not exceed the federal or state overtime threshold. Make overtime assumptions based on history, upcoming events, and the person.
Calculating compensation for a church budget is not always easy. There’s a natural tension between wanting to maximize donations for ministry and paying the staff. Ease that tension by accurately categorizing the employees and compensating them according to federal and state laws and in alignment with scripture.
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