Every church faces the challenge of creating a compensation package for their pastor. This process can feel overwhelming. Most churches get it right. Some don’t, and it can leave the pastor and the church financially exposed — and sometimes inadvertently at risk of violating Internal Revenue Service laws.
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Below are six key considerations to ensure pastors are supported, regardless of church size. The information comes primarily from the 2024 Lifeway Christian Resources SBC Church Compensation Study and from GuideStone Financial, a Southern Baptist Convention entity. There are several helpful articles and other resources on the GuideStone website.
1. Understand IRS regulations, housing allowances
The IRS allows eligible ministers to exclude a housing allowance from federal income tax—though not self-employment tax — if designated in advance and used for actual housing expenses such as rent, mortgage, utilities, or furnishings.
For pastors living in a church-provided parsonage, the fair rental value plus utilities is excludable; additional out-of-pocket expenses like furnishings may be covered if properly designated. The exclusion is limited to the lesser of the designated amount, actual expenses, or fair rental value.
Excess amounts are taxable. Small churches may designate housing allowances for bivocational pastors, but 100% of income is rarely advisable. To ensure compliance and maximize benefits, churches should consult GuideStone’s Ministers Tax Guide and use sample resolutions for proper designation.
2. Prioritize medical, life insurance benefits
About half of SBC churches offer health insurance, with small congregations (under 50 attendees) least likely to provide coverage — 67% of small congregations provide no health insurance. GuideStone’s plans accommodate churches with as few as two employees, making coverage accessible.
Larger churches often provide life (52%), dental (39%), or disability (46%) insurance, while small churches often prioritize basic protection. Group life insurance up to $50,000 is tax-free; disability benefits may be taxable if premiums are church paid. Health reimbursement arrangements (HRAs) or health savings accounts (HSAs) offer budget-friendly options, with setup costs around $200 to $300. GuideStone’s insurance solutions balance affordability and care for pastors and their families.
3. Offer fair vacation time
Full-time senior pastors typically receive two -to-four weeks of vacation annually, with time off often increasing based on church size and tenure. Smaller churches should consider providing at least two weeks, especially for bivocational pastors juggling multiple roles. It’s also considered essential by experts to include vacation days in the compensation package and encourage their use to prevent burnout.
4. Incorporate retirement contributions
The 2024 study shows Tennessee pastor compensation ($70,418 in 2016) beats the national average, but retirement contributions lag, especially in small churches. GuideStone’s 403(b) plans let churches contribute tax-sheltered funds, easing financial stress.
Forty-one percent of pastors worry about their family’s financial security. Churches should strongly consider budgeting even small retirement contributions using GuideStone’s resources for long-term pastor support.
5. Benchmark with the 2024 SBC Compensation Study
Pastor pay rose 13% from 2022 to 2024, outpacing inflation (6%). Historical data show Tennessee salaries are above average, but small churches need data to stay competitive. Education boosts pay — a master’s degree adds $17,917, and a doctorate adds $13,953.
To compare with similar churches, leaders can use LifeWayResearch.com/compensation-data. GuideStone’s Salary & Benefits Approach ensures transparency and IRS compliance over lump-sum packages.
6. Invest in ongoing growth
Many pastors value continuing education — such as conferences or seminary courses — to sharpen skills and prevent burnout. Smaller churches can budget $500 to $1,000 annually for events like the SBC Annual Meeting or online training, which can boost ministry impact.
GuideStone emphasizes that professional development is essential to long-term pastoral health, especially for bivocational pastors in smaller congregations. Churches should consider allocating funds for continuing education and include it in the compensation package to demonstrate investment in their pastor’s growth.
EDITOR’S NOTE — This story was originally published by the Baptist and Reflector.
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