Church Budgeting 103 N – Building the Non-Exempt Employee Compensation Projection

The Church Budgeting basics lessons equip churches with the basic steps to create an effective and accurate church budget. Lesson 103 E covered how to project compensation for exempt employees, and now it’s time to estimate the compensation for non-exempt employees. Because most churches spend roughly half their operating budget on compensation costs, it’s vital to be as accurate as possible. If the church estimates too high, it puts financial limits on accomplishing its mission. If the estimates are too low, the church could find itself in a cash flow catastrophe. Remember to be discrete and discerning when working with salary information. Above all, remain above reproach by having appropriate levels of accountability to avoid the appearance of any impropriety. 

What’s Not Covered

Since this is a budgeting series, lessons 103 N and 103E refrain from clarifying the Department of Labor Standards (DOL) Fair Labor Standards Act (FLSA). Meaning churches need to know the Federal minimum wage, overtime calculations, and other State and local laws related to paying employees. On top of that, each church should have a basic understanding of housing allowance benefits for qualified, licensed/ordained pastors. Finally, the church is responsible for accurately classifying exempt vs. non-exempt employees, per the DOL website.

Projecting Compensation for Non-Exempt Employees

Estimate the compensation total for all non-exempt employees, commonly referred to as hourly employees. Start by obtaining the current payroll information for all non-exempt employees to project compensation for the next fiscal year. Once the current non-exempt compensation data is available, follow these steps:

1. Create a spreadsheet page for Benefits: Start with the understanding that non-exempt employees may qualify for benefits. For example, an employee working 30 hours or more a week is considered full-time, and full-time employees are eligible for benefits. Create and populate a spreadsheet page with columns allowing for the Employee Name, Medical, Dental, Vision, Long-term Disability, Short-term Disability, Life Insurance, etc. The column headers should include any benefit that the church contributes financially. (Example Chart 1)
2. Create a spreadsheet page for Retirement: As with the other benefits available, non-exempt employees may be eligible for a matching employer contribution towards retirement. Create and populate a spreadsheet page that contains the employee’s name and the employer’s (the church’s) contribution. Then add rows for each eligible non-exempt employee and the contribution. (Example Chart 2)
3. Create a spreadsheet page for Compensation: Create a new page with the following column headers: Employee Name, hourly rate, average annual hours (avg. weekly hrs. x 52), % of Change in the hourly rate, New Total, FICA, Benefits, Retirement, Total non-exempt Compensation. Then list each employee and fill in the appropriate information in each column. The total of your spreadsheet should match your current payroll information for non-exempt employees. Add the new employees included in the upcoming budget at this time. (Example Chart 3)
4. Link the Benefits and Retirement pages to the Compensation spreadsheet: Link the totals from the benefits and the retirement pages on the Compensation spreadsheet for the non-exempt employees.
5. Input Cost of Living Adjustment (COLA) and merit increases: With the Compensation spreadsheet for non-exempt employees’ current data complete, enter the COLA or merit increases to arrive at the annual projection.

Create a Summary of Compensation for the Church Budget

After creating a detailed breakdown for non-exempt employees, it’s time to provide the budget team with a summary of the compensation costs for the upcoming fiscal year. The summary report should include the following totals: Non-exempt Salary, FICA, Worker’s Compensation, Short-term Disability, Long-term Disability, Medical Insurance, Dental Insurance, Vision Insurance, Group Life, Retirement, and Total Compensation. (Example Chart 4)

Once the church completes lesson 103 N and estimates the total compensation for non-exempt employees, provide a cumulative summary to the budget team of the accurate estimate of total compensation costs for the upcoming fiscal year.

Example Charts