Staffing costs typically account for 45 to 55 percent of a church’s budget. But with recent changes in costs, demographics, and giving in US churches, many are questioning that model.
Dan Navarra, a pastor in Turlock, California, lives in a high-cost-of-living area, and his church, like many, is feeling the pinch of rising costs. Four years ago, the church began reducing their dependent medical contributions, meaning Navarra and his spouse have had to look elsewhere for medical coverage for their children. Out of financial necessity, Navarra’s spouse also works—and she’s not alone. “All of the wives of pastors on staff have jobs,” said Navarra. “All of them.”
Becky Nance has worked as a pastor’s spouse for years. Her husband has pastored for over a decade, and they’re currently serving at the Grinnell, Iowa, campus of Prairie Lakes Church. She is now pursuing her own ministry vocation by attending seminary online, but she is anxious about making ends meet when she and her husband both have ministry salaries. “Will it be enough?” she wondered.
One question lingers in the minds of Nance and Navarra: as Navarra put it, “Is nonprofit, pastoral, full-time, exempt work going to be viable for me and my family?” That depends on the emerging trends in pastoral pay. Below are some of the most significant developments you can expect over the next year and beyond.
The housing allowance may not be here for long.
The clergy housing allowance is “the most important tax benefit available to ministers,” according to attorney and CPA Richard Hammar. Not only can ministers have a portion of their salary designated as a tax-free benefit for housing costs, but this costs the church absolutely nothing. Unfortunately, there are storm clouds on the horizon for this important benefit.
In October 2017, a federal judge ruled that “the housing allowance violates the establishment clause because it does not have a secular purpose or effect and because a reasonable observer would view the statute as an endorsement of religion.” In other words, the housing allowance was deemed unconstitutional.
As of the time of this writing, the case has yet to be heard in the federal court of appeals, so it’s yet to be determined if the initial verdict will be upheld. If it is, this would have two immediate effects for ministers. First, many pastors would “experience an immediate increase in income taxes,” said Hammar. Second, “many churches will want to increase ministers’ compensation to offset the financial impact. Such an increase could be phased out over a period of years to minimize the impact to the church.” However, without any increase in pay to offset the additional taxes, pastors would experience an immediate loss in take-home pay.
Younger pastors will face financial uncertainty.
According to PEW Research Center, Millennials now make up the largest share of the US labor force (35%), surpassing Generation Xers (33%) and Boomers (25%). Generation Z (those born after 1996) made up only 5 percent of the workforce in 2017, but that will grow rapidly over the next few years.
Even if pastors tend to work in ministry longer, younger generations will soon comprise the largest share of those working in ministry. What do these younger generations face in the ministry workforce?
Matthew Bloom, a researcher at Notre Dame’s “Wellbeing at Work” initiative, studies wellbeing for pastors. He has concluded that clergy wellbeing lessens the longer one serves in ministry. “Being a pastor is much more difficult than it used to be,” wrote Bloom in an article on the Wellbeing at Work website. “The ecosystem is not as conducive to flourishing: the demands are higher, the support systems are not as strong. As churches have seen their membership rolls drop, they have responded in ways that have sometimes been very detrimental to the well-being of clergy.”
Compensation is just a small part of vocational flourishing, but it is nevertheless crucial to vocational satisfaction—but not in the way most people think.
More and more, fair pay will not be seen as an unattainable ideal for churches but as a necessity.
“The thing that we know about compensation is that it really is not a motivator of people,” said Chris Taylor, director of human resources at Seacoast Church in South Carolina. “It’s not going to motivate [church employees] for long, but man is it a demotivator if you don’t have it right.”
Compensation protects against many of the things that distract from ministry: stress, resentment, bills, and more. Like an immunization shot, fair compensation releases pastors to flourish in ministry.
Younger generations are seeing rising housing costs, rising student debt from undergraduate and seminary studies, rising healthcare costs, a pinch in benefits, and stagnating wages. The young pastors of today—the leading pastors of tomorrow—face a steep climb to financial stability. If churches want pastors to flourish, they must be aware of these economic realities. How a pastor is compensated will help to alleviate or exacerbate these stressors.
Churches will need to prioritize transparency.
Millennials place a particularly high value on transparency, both in communication and organizational policies. Right behind them, Generation Z is noted for being particularly data-driven.
As younger generations further define trends for everyone, churches can expect increased expectations for having a clear compensation-setting policy, fair application of that policy, and clear communication about how pay is determined. Gone are the days of setting salaries that sound right; data will need to justify those decisions.
But if churches are worried about letting pastors peak behind the curtain at the realities of nonprofit budgeting, they shouldn’t be. A large 2017 “Employee Engagement” survey by PayScale found that “employee satisfaction is driven most by feeling the approach to pay is fair and transparent at the organization, not how much someone is actually paid.” In other words, underpaid pastors who know the “why” behind their salaries are more likely to stay at their churches than overpaid pastors who are completely in the dark about how pay is determined.
Healthcare costs will increase, but the rate of increase has stabilized.
According to PricewaterhouseCoopers, employer healthcare costs are set to increase about 6 percent in 2019. Fortunately their rate of increase seems to have stabilized. For those who remember the nearly 12-percent increase in 2007, a stable 6 percent may be welcome.
Churches will deal with this in myriad ways. Some will be able to absorb the annual increase in costs for insurance. Others will have to pass on some or all of these costs to the employed pastor. Still others will find creative ways to strike a balance. As employees, most pastors should expect to bear at least some of those additional burdens.
According to Bob Cartwright, CEO of Intelligent Compensation, “The uncertainty and high cost of healthcare, coupled with generational differences and preferences regarding pay and employee benefits, are causing organizations to rethink what they provide, how much they provide, and how it is provided.” Steadily increasing costs like healthcare will continue to shape the church compensation landscape—often by creating additional burdens for pastors.
Pastors will increasingly advocate for fair pay.
Research on “the effects of employee recognition, pay, and benefits on job satisfaction” published in the Journal of Business and Economics shows that “people who feel appreciated are more positive about themselves and their ability to contribute, i.e., employee recognition can boost productivity and increase satisfaction.” Compensation is just one part of recognition and satisfaction, but it’s an important one.
Pastoral job satisfaction has been high, but financial challenges are on the rise across denominations and geographic locations. Most likely, challenges such as inadequate retirement savings, high consumer debt, high educational debt, and a potential loss of the housing allowance will only increase for those serving in ministry. There is already some evidence showing that the financial costs of serving in ministry are becoming more prohibitive.
In a 2018 ChurchSalary poll, nearly 3 in 10 church leaders (28%) personally knew someone who had left ministry due to inadequate pay, and another 1 in 5 (22%) knew of an individual who had done so. At a gathering of denominational leaders in Indianapolis in 2017, a representative from one denomination shared that their internal research showed Millennial ministers were more likely than clergy from older generations to doubt their future in ministry, citing financial concerns.
Unreasonably low compensation isn’t the only way churches may err in setting pay. According to CPA Elaine Sommerville, “Today, senior pastors, regardless of church size, face decision-making and management responsibilities that are more akin to the duties of a chief executive officer.” Many churches feel they must compete for talent with other churches and organizations, putting them in danger of setting unreasonably high compensation, for which they may face tax penalties. Still, churches are more likely to underpay clergy.
A plethora of denominational studies show that after retirement and debt, compensation is the third-most-important financial challenge identified by pastors across the board. Fair pay in churches has never been more important—nor as universally desired.
More and more, fair pay will not be seen as an unattainable ideal for churches but as a necessity. Paying church staff fairly is ministry, and many churches will decide to do fewer ministries well (including paying a fair, living wage) than to do many ministries with mediocrity. Pastors will increasingly advocate for fair pay in ministry not because they are selfish but because cost of living, their financial futures, and living their principles of justice with integrity will leave them no other options.
[Editor’s Note: This article has been changed to reflect the fact that Dan Navarra’s church began to gradually stop contributing to HSAs for dependents.]
Samuel Ogles is associate editor and special project manager for ChurchSalary, a compensation-setting tool and website made for the church. Visit ChurchSalary.com today to get your customized report for fair pay.
