Finance 2018-03-19T15:19:53+00:00

“Hey Fletch” on Finance

From around the globe, people tune in on Fletch’s warm and sound advice. He’s a friend and “church doctor,” bringing an objective perspective, broad knowledge and vast experience. Your question will get a personal reply from Fletch.

Does a Church Pay Social Security on a Pastor’s Salary?

Thursday, June 21, 2018

Hey Fletch … For a pastor that has been licensed by the Board of Elders, my assumption is that the church should not withhold any Social Security or Medicare tax, right?

DRF—This question is one of the reasons that I wrote Smart Money for Church Salaries. This book and the 12 regional workshops in the fall of 2018 get to the heart of this and other similar questions. Issues of pastoral compensation can be murky. The book looks at every salary in WheatFields Good News Church, a complied case study.

Pastors pay into the Self Employed Contributions Act (SECA). IRS Publication 517 outlines Social Security for religious workers (see  U.S. Department of Treasury, Internal Revenue Service, Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, December 29, 2017, available from SECA is 15.3% of wages and go to Social Security or Medicare. Only pastors who have opted out of Social Security are exempt from paying SECA.

The church cannot pay Social Security or Medicare for the pastor! The pastor can ask the church to voluntarily withhold funds and remit them to the government for SECA. Or, the pastor can pay their own quarterly estimated taxes, which takes financial discipline. 

Insurance for Sexual Abuse, Part 2

Saturday, June 16, 2018

Hey Fletch … Our church has $2 million in umbrella insurance. Does that cover sexual abuse as well?

DRF—When I get a question on insurance issues, I always turn to the professionals. Insurance can be a highly technical area—and I always need a refresher course. Yesterday we heard from noted attorney, Gregory Love. Today, let’s hear from Charlie Cutler, a respected a insurance agent in southern California. Charlie is the prototype of a great agent—knowledgeable, helpful, honest, gives it to you straight, gets more information as needed.

Charlie Cutler—Glad to be brought into the conversation! If this particular church hasn’t jumped through quite a few hoops to include abuse in the umbrella, then it likely doesn’t have that coverage. The term “umbrella” is a bit misleading. It sounds like there is a broad policy that covers anything that happens at a church. Policies used to be written this way, but virtually all “umbrellas” nowadays require that there are limits on the base policy and that wording on the umbrella policy says that particular coverage is included in the higher limits. A more appropriate term is actually “excess.” This means that you have limits “in excess” of the base policy.

Key items in the insurance policy should include Directors & Officers, Counseling, Sexual Misconduct, Coverage for your Security Team (especially if you have a formal team and/or if anyone is armed), Cyber Liability, Foreign Liability, and Non-owned Autos. The key to determining the limit is that it shouldn’t ever be one person’s decision. The board should annually be informed what the current limit is and be sure that they are all comfortable with it. 

For an active church like the one you describe, most boards would be comfortable with $1million plus a $2 million umbrella (total protection of $3 million). A key point on the limit is that $1 million for Directors & Officers isn’t $1 million each board member … that is the total amount of protection for the entire board. If you have board members with high assets, those boards want to be sure that the umbrella/excess extends over the Directors & Officers Insurance to cover their personal exposure.

The majority of claim dollars are spent in the property area. With construction growing and unemployment low, replacement costs are growing faster than most insurance policy limits. Most churches should increase their property limit by about 10% from 2017 to 2018. 

Additionally, we see that most churches don’t think about the other costs during a claim … what it takes to rent an alternative location, lost tuition income, decreased giving, and much more. A major property claim (especially where the cities are difficult to work with) can last two years … think of what it would cost to rent a space for two years to keep your ministry going.

Lastly, I’d like to emphasize the importance of Ordinance & Law Coverage. If your church was built more than a couple of years ago, it doesn’t meet current codes…fire sprinklers, “green” upgrades, energy efficient requirements, ADA access, etc. Talk about this with your agent (and hopefully a contractor in your congregation) to get a feel for what would be appropriate.

Insurance is more than an annoying line item in your budget … it’s a tool for ministry protection and continuity. A good agent should have a ministry-focused discussion with how this applies at your church!

Insurance for Sexual Abuse, Part 1

Friday, June 15, 2018

Hey Fletch … Our church has $2 million in umbrella insurance. Does that cover sexual abuse as well?

DRF—When I get a question on insurance issues, I always turn to the professionals. Insurance can be a highly technical area—and I always need a refresher course. Today let’s hear from noted attorney, Gregory Love. Tomorrow we will hear from an insurance agent.

Gregory Love—

As a sexual abuse attorney, I prefer doing prevention work—preparation to prevent an allegation and preparation to respond well if an allegation arises. Insurance is a very important piece of a sexual abuse preparation plan; it is not a substitute for safety measures, but plays a very important role in the event a situation arises. After years of crisis response work, I have created an exercise … a Sexual Abuse Fire Drill. This is a comprehensive study regarding potential sexual abuse risk—and insurance coverage is one of the most significant revealed weaknesses. In short, I have my organization assume it is facing a multi-victim sexual abuse allegation involving a trusted staff member. One of the first categories of inquiry is the available insurance coverage to handle a multi-victim allegation. Most organizations learn that they have insufficient coverages/limits or that they misunderstood which section of the policy involved sexual misconduct/sexual abuse.  

This exercise arose from a number of “in the ditch” experiences. One Texas church, for example, contacted my office on the very front end of a sexual abuse matter involving a children’s ministry staff member and up to four children ages seven and eight. When I reached the insurance part of my inquiry, I was told the church had a $1,000,000/$3,000,000 policy; in essence the church had an aggregate of $3,000,000 available to cover a multi-claimant lawsuit. This seemed reasonable given the size of the church. When I asked for the policy, however, I realized that the church’s executive pastor was misreading the policy. There was $1,000,000/$3,000,000 available for general liability and injury; on Page 3 of the policy, there was a Sexual Misconduct Endorsement limiting coverage to $100,000 for each claim with a maximum possible aggregate of $300,000. Prior to the allegation, the church leadership believed “all is well.”

When the church was sued, the insurance company simply tendered its total obligation of $300,000 and bowed out of the matter. The church had to come out-of-pocket for its legal defense and settlement funds; the church had to sell most of its real estate to resolve the matter.

Morals to the story: (1) read your policy closely; (2) have an insurance agent that is skilled beyond your ‘property and casualty’ needs; (3) do a Sexual Abuse Fire Drill—ask these questions before you are in crisis … while you still have the chance to address potential weaknesses in your system or your coverages.

Percentages of Budget by Ministry Area

Monday, June 11, 2018

Hey Doc … You answered my question regarding the average percentage of General Fund that is allocated towards Creative Arts. Are there rough percentages of General Fund expenses for Youth, Children’s Ministry and Adult Discipleship which would include Life/Small Groups? Thanks for your time, brother …

DRF—Have a look at this. It should give you that data! These are just averages, so you numbers may vary.

Area Percentage
Worship, IT & Communications 9.3%
Kids 1.2%
Jr. High, High & College 1.0%
Minsitry to Adults 1.3%
Leadership Projects 2.4%
Contingency 6.7%
Missions 10.5%
Accounting 1.0%
Facilities & Facilities Capital 15.7%
Business 0.7%
Salaries 43.4%
Benefits 6.7%
Total 100.0%

Giving Away 50% of Church Income

Thursday, June 7, 2018

Hey Fletch … In all of the church connections you have, do you know of other churches that are attempting to give away large percentages (50%+) of what they receive annually? If you do, would it be possible for you to connect me with them?  I’d love to talk with my counterparts in those churches.

DRF—I wish that I had a list a mile long of churches that gave away 50% to local ministries. Think of the impact that could be seen. That would be wonderful.

Many churches give 10-25% to a combination of local and international ministries. The bulk of that often goes to work overseas. I’ve been thinking about your question and, unfortunately, don’t know of another church in your ballpark of giving. I hope that some people write in with examples!

You are laying down the gauntlet. I know that it has taken you more than a decade to go from a low percentage to where you are now. Your church is living proof that it can be done. May your tribe increase!

Legal Issues with Songs on a Church Website

Wednesday, June 6, 2018

Hey Fletch … We live-stream our worship service and also have some recorded worship songs on our website. Someone asked me if that is legal. Thoughts?

DRF—That is a huge can of worms. Actually it is two cans worth. The first issue is live-streaming your worship and the second is recorded songs on your website. 

You will want to get this one right, otherwise the penalties can be stiff. There is an organization that you need to check out: Christian Copyright Licensing International (CCLI). Here is why you need CCLI. A 2017 ChurchLeaders article, stated that:

“Yesh Music (Richard Cupolo and John Emanuele) filed a complaint on October 28, 2011, claiming that First Baptist Church Smyrna (TN) used two of Yesh’s compositions in videos streamed from their website. The complaint also details Yesh’s assertion that no license was granted for this use. Yesh is seeking $150,000 for each infringement in addition to attorneys’ fees.” 

When I said the penalties could be stiff, that was an understatement. There is the fine to consider. There is also the public relations nightmare of having your church in the news and in a lawsuit. Your church’s integrity will be tarnished.

The CCLI Copyright License covers projecting lyrics in worship, song sheets and songbooks. You can record your worship services, provided it is live music (no accompaniment tracks). The CCLI Streaming License enables you to live stream or podcast live-recorded services. This does not cover secular songs. The CCLI Rehearsal License goes even further. See the CCLI website for details.

The prices for annual licenses are based on the size of your church. The base license ranges from $290 for a church of 200, and goes up to $602 for a church of 2000. The streaming is an additional $89 and $223 respectively.

These are fair prices and help support the original artists. If you don’t get a license, you are stealing from the artists. Get the license that fits your need and be legal!

Mrs. Gold and the $300,000 Check

Tuesday, June 5, 2018

Hey Fletch … On Sunday, Mrs. Gold (that’s really her name) handed me an unmarked envelope with a letter in it. When I got back to my office and opened it, the handwritten note only said, “Use this for church expenses.” There was a $300,000 check. I’ve never seen a check for that much money before. I know that you encourage folks to not assume motives, so can you help me understand why she did this? Is she trying to get favoritism?

DRF—You are doing well to not assume motives. A wrong motive to assume is that Mrs. Gold is trying to get preferential treatment from you. As we see in James 2:1-4, this would be a problem:

My brothers and sisters, do not show prejudice if you possess faith in our glorious Lord Jesus Christ. For if someone comes into your assembly wearing a gold ring and fine clothing, and a poor person enters in filthy clothes, do you pay attention to the one who is finely dressed and say, “You sit here in a good place,” and to the poor person, “You stand over there,” or “Sit on the floor”? If so, have you not made distinctions among yourselves and become judges with evil motives?

You don’t want to treat Mrs. Gold any differently than anyone else in the congregation, regardless of how big her check was.

Consider your surprise at seeing such a large check. That was an eye opener. Perhaps Mrs. Gold was ill-at-ease with such a large check floating around in an offering plate or waiting to be picked up in an offering box. She may not have trusted the mail to deliver that much money. You are the person that she trusted to deliver the check to the Finance Office.

Let your normal channels deposit the check and thank her as other gifts might be thanked. The next time you see Mrs. Gold, give a warm “thank you” and move on. She probably knows the James 2 passage and doesn’t want preferential treatment!

Weekly Financial Reporting Spreadsheet

Friday, June 1, 2018

Hey Fletch … Would you mind sharing an example of a Weekly Financial Reporting spreadsheet?  I’d love to see it and incorporate it.

DRF— A weekly financial reporting spreadsheet should contain a church’s actual income and the budget forecast. The following numbers are from WheatFields Good News Church. This church is the basis of my book, Smart Money for Church Salaries and the upcoming 12 regional workshops on the topic.This is a compiled case study church, as no church wants to share their confidential donation numbers.

WheatFields has 2,000 people in worship each week and a thriving 600-child preschool.

To the right you can see an image of their weekly reporting spreadsheet. You can download an Excel copy of it on this page on XPastor.

Pay Staff to not Take Health Insurance

Wednesday, May 23, 2018

Hey Fletch … Thanks again for such a great XP-Seminar. It is truly run with excellence and is so helpful to me. Here’s a quick question for you or whoever you may refer me. The question is regarding full-time employees who are eligible, but do not need or engage in the medical benefits offered by our church. What is your opinion and how do most churches handle this situation regarding additional compensation? The three most common solutions of which I am familiar: 1) Stipend, 2) Covering the additional premium for the employee on their spouses policy, and 3) No additional compensation with a “thank you.” At the moment we opt for number 3, but are curious how other churches handle this.

DRF—I’m so glad that you were at the Seminar. We didn’t get much chance to talk this year, but what a wonderful time everyone had. It was so good. As to your question … Let me answer them in order.

Solution #1—The stipend is money given to encourage people to get their insurance through their spouse. At one church that I was at, they gave $1,000 to each staff person who took the medical insurance offered at their spouse’s place of work. I inherited that system and didn’t change it. This made good economic sense to the church. The church gave a bonus of $1,000 to the employee and saved $7,500 in medical insurance premiums. The humor of it is that the church is giving a bonus to folks who have two incomes.

Solution #2—I haven’t heard of a church paying the premium for an employee on their spouse’s policy. You would need to talk to a CPA or medical insurance specialist to see if this is tax-exempt. The amount that the church pays may be considered a bonus and taxable to the employee. I suspect that there will be lots of fine-print in the answer.

Solution #3—Many churches give no additional compensation. As you said, the church just says, “thanks for saving us $7,500 or more in insurance premiums.” If the two plans are similar, there is little financial incentive for the employee to be on their spouse’s plan. I knew of a family who chose to be on the church plan because “it saved them $500 a year in premiums.” The church should have paid them $500 in a bonus and saved multiple thousands in medical insurance premiums.

Let me ask Jordan Pushos (CFP) at GuideStone Financial Resources and see if he can help.

Jordan—In regards to “a church paying the premium for an employee on their spouse’s policy,” this is a bit of a grey area in the industry due to the many circumstances that can surround a reimbursement of this type. An employer can reimburse premiums for an employee participating in a spouse’s medical plan if the medical plan is considered a group policy. However, many times an employer is not aware of whether or not the medical plan is a group policy. Additionally, an employer must remember what they do for one employee they must do for others; otherwise you could end up in different types of discrimination issues. Because of these issues, many employers steer away from these types of reimbursements.

Raised $10 Million for a Building and Now What?

Monday, May 21, 2018

Hey Fletch … I’m an XP and we just raised $10 million for a new building. Now what?

DRF—The simplicity of the question has profound implications. It reminds me of the movie “The Candidate.” Though Bill McKay (played by Robert Redford) has no hope of winning a Senate race, he succeeds. A final shot is McKay getting into a car and saying, “What do we do now?” McKay had a plan on running for the Senate but not for being a Senator.

Raising funds for a new building is the first part of the plan. It is like winning the Senate seat. Now you need to consider the master plan for your campus, define the exact use of the building, do a Request For Proposal (RFP) for an architect and builder, survive the building process and then move in.

Most Senior Pastors and Executive Pastors are ill-equipped to plan a building and oversee the contractor. To get to that step, you first need an architect who understands your vision and a builder who will construct it.

Get a a great team of advisors, consultants and an owner’s representative. For example, let’s say that you oversaw the contractor on a building project ten years ago. You are now rusty in that discipline and your experience is limited at best. Find a church member or hire someone who will work closely with the contractor. A good owner’s representative can save tens of thousands of dollars and a million headaches.

Congratulations and God’s best on your next steps. 

Knowing the Giving of Congregants

Tuesday, May 15, 2018

Hey Fletch … What is your position on the XP knowing the financial giving of a) the entire congregation, b) volunteers and key leaders, c) staff & elders and d) none at all.

DRF—Whew, those are tough questions! The answers are based on the culture of each church. The congregations where I have served took the position that pastors should have no knowledge of any person’s giving or giving pattern. They based that view from this passage:

My brothers and sisters, do not show prejudice if you possess faith in our glorious Lord Jesus Christ. For if someone comes into your assembly wearing a gold ring and fine clothing, and a poor person enters in filthy clothes, do you pay attention to the one who is finely dressed and say, “You sit here in a good place,” and to the poor person, “You stand over there,” or “Sit on the floor”? If so, have you not made distinctions among yourselves and become judges with evil motives. James 2:1-4

The Bible Knowledge Commentary reflects on verse 4: “The illustration is followed by a penetrating inquiry: Have you not discriminated among yourselves? The question in Greek assumes an affirmative answer. James’ brethren must plead guilty not only to discriminatory divisions but also to assuming the role of judges with evil thoughts of partiality.” The fear in churches is that if pastors know a person’s financial giving, that they will receive preferential treatment. John says that “perfect love drives out fear, because fear has to do with punishment.” 1 John 4:18.

There are ways to preserve anonymity while still helping major donors. You can get a list of the 50 top leaders, without giving data. You can help these folks learn how to give generously and strategically. Churches do a great deal of training, but not with these folks. We may spend 8 hours training someone to work in the nursery or with youth, but what training do we provide for people of means?

Brad Leeper at Generis would suggest that top leadership in a church know the giving patterns, so as to teach and mentor those folks on great giving.

Alan Wildes wrote this article for XPastor: A Pastor’s Guide to Accelerating Generosity in Churches. Brad Leeper has contributed many articles on Generosity (do a search on XPastor), like this article: Generosity Issues Every Church Should Consider for 2013. Brad also wrote this article: Making Unusual Generosity the New Normal.

All Scripture copyright NET Bible®

Church Accounting Software

Friday, May 11, 2018

Hey Fletch … Thank you for putting together another successful XP-Seminar. I enjoyed it once again and look forward to it each year! I was wondering if you had any insights in the area of accounting software. We currently use Quickbooks Desktop and are in the process of evaluating Quickbooks Online for our church’s accounting software. I was wondering if you knew of any solutions that other XPs are using or ones you’ve used in the past. Any help is appreciated!

DRF—That question is beyond my pay grade. Let me see if an accountant can shed some light on it. I contacted CPA Mike Batts of Batts Morrison Wales & Lee. Mike has written extensively about tax-related issues. 


Mike responded by saying, “Let me refer you to a web post by my friend, Nick Nicholaou, with Ministry Business Services. He addresses this topic thoroughly and has a helpful chart that compares the features of the most widely used church management applications.” I almost missed the chart as it is simply a PDF icon at the top of the article. I found the PDF chart to have more data on church software programs than any I have seen before.

Nick says in the article and chart: “Solutions from church and donor management software providers keep improving in their ability to help churches and ministries fulfill their mission! Their features to track and communicate with people, their web and mobile device interfaces, and their powerful database tools make this category of software a big help and a valuable asset for today’s ministries in reaching many with The Gospel and discipling them.” 

This exhaustive material will greatly help you in your search for accounting software. It is so much better than what I could have done! I asked Nick for some additional comments.

Nick—Church and ministry database and accounting needs are unique! Very few solutions solidly help fulfill the church’s mission—the most important on Earth—but those included in the post are leaders in doing so. Keep in mind that no solution is perfect, but an 80-90% meeting of your needs is possible!

Key Salaries in a Church

Saturday, May 5

Hey Fletch … Where should I email the compensation survey questionnaire I filled out for you?

DRF—XPastor has a Compensation Guide available for $49. You can get a $15 discount if you submit information using the provided spreadsheet. The XPastor survey is smaller than other online compensation data guides. But it gives, in table format, all the key positions in a church, like this:

1,400 in Worship 2014
Annual Budget $3,400,000 $3,693,488
Payroll Budget $1,420,000 $1,542,574
Benefits Budget $230,000 $249,854
Total Employees—36
Senior Pastor $125,500 $136,333
Executive Pastor $99,000 $107,546
Outreach Pastor $81,500 $88,535
Campus Pastor $72,000 $78,215
Small Groups Pastor $65,000 $70,611
Worship Pastor $60,000 $65,179
Business Administrator $53,500 $58,118
Children’s Pastor $52,000 $56,489
High School Pastor $45,500 $49,428
Facilities Director $42,000 $45,625
Jr. High Pastor $40,000 $43,453
Administrative Assistant $32,000 $34,762

Look for our 12 Regional Workshops on Smart Money for Church Salaries, coming the the fall of 2018.

General Fund Robbed by Disaster Donations

Wednesday, April 18, 2018

Hey Fletch … I have been a fan of your work and website for several years. I have a question and would love your insight. As a board member, let me say that our church has a history of taking special offerings whenever there is a disaster. Our congregation loves to give to emergency causes (wildfires, hurricanes, earthquakes, famine) and tends to give generously. However, our general fund often drops significantly during those weeks. People give to disaster relief and then our core offering diminishes. 

I have heard of some churches who build “disaster relief” into their budgets so that they can respond quickly when needs arise without draining regular income. Any thoughts on best practices around this?

DRF—Thank you for gracious words about XPastor. That is wonderful that your congregation gives so much to special needs. It sounds like your church has a huge heart for the hurting world … to the detriment of your general fund. It is truly a ‘steal from Peter to pay Paul’ issue!

There is no reason why you can’t have a line item in your General Fund—you can internally restrict it for disaster, compassion, mercies or benevolence. When a disaster hits, you would say to the congregation, “Our General Fund has money for disaster relief. As needed for the relief, gifts above our regular weekly offering will go toward this current need.” You may even want to salt the food by saying, “and we have already given $25,000 this week to get help on the way.” 

The issue that I see is one of communication. If people are accustomed to giving to a special fund, they will feel like the rules have shifted. You are changing away from a donor restricted fund, one which the money can only be used for disaster relief. You are moving to an internally restricted fund, where the Board can use the money as they see fit for the current disaster, future local needs, etc.

You should communicate the new style of giving well in advance of the next disaster. Share the reason for the change, in print and in person, with the Governing Board, Finance Team, staff and key leaders. Once a month for six months, share a carefully worded statement with the congregation about the change. Ensure that any online giving reflects the wording that your church formally adopts, such as “Give at this link for disaster relief. This is a part of our General Fund and will be targeted for the current need. Unused funds will be used for other church ministry.” 

I would also position this as one of great potential vision areas for the church. “We want to do so much and celebrate God’s generosity among us. By having these donations in the General Fund, we have governing board approved methods to strongly continue our ministry and disaster relief.”

Is Deficit Budgeting an Act of Faith?

Saturday, April 14, 2018

Hey Fletch … Our church is barely keeping the payroll and bills paid and we enter the budget process in June. Our elders keep casting a vision that requires 10% or more of deficit budgeting. Historical data says we will not receive from donors the needed amount. They say we should budget by “faith.”  As a member of the finance team, I have a problem with continually asking the members to approve a deficit budget. We also have -0- reserves. Can you share some biblical principles that I can share with the finance team and leaders to show it is not a “lack of faith” to present a balanced budget? If giving doesn’t increase, we are either going to have to cut a position or sell a parsonage.

DRF—I’m a fan of balanced budgets. A budget that has a built-in deficit is a disaster waiting to happen. Jesus says in Luke 14:28-30, “For which of you, wanting to build a tower, doesn’t sit down first and compute the cost to see if he has enough money to complete it? Otherwise, when he has laid a foundation and is not able to finish the tower, all who see it will begin to make fun of him. They will say, ‘This man began to build and was not able to finish!’” Net Bible® Your church budget should adequately cover your existing obligations.

You can add to your church budget a special contingency budget. This can be a faith based approach. You inform the congregation that with current giving, the church budget is balanced. Then lay out the contingency budget, “if we receive $50,000 more in the next six months, then we will do these projects.” It is not a good idea to put salaries in the contingency budget, but do include special projects or renovations. If the extra funds don’t come in, then those projects won’t happen.

As for cash reserves, my friends Dan Busby & Michael Martin at the Evangelical Council for Financial Accountability say on this page: “Cash reserves are the cushion that ensures: Operating expenses are paid on-time instead of incurring late fees; The church is in compliance with mortgage covenants; Funds are available to replace worn-out HVAC; The church has the necessary funds ready to launch a new ministry.”  You can download the ECFA free e-book, “Essentials of Church Cash Reserves.” Let me ask Dan Busby for his thoughts:

Response from Dan Busby, President of ECFA: 

Thanks for the opportunity to provide input in relation to this request. What you have written in response to the email is RIGHT ON!  Here are a few more thoughts:

    • 10% of more in annual deficit budgeting with zero reserves is TOTALLY incompatible. If a church has excess reserves—say beyond six months of operating reserves, then perhaps a deficit budget might be appropriate to use some of the excess reserves but without proper reserves (let’s say at least three months of operating reserves, deficit budgeting indicates a lack of adequate responsibility by the governing board.
    • This church is on the verge of failing John Wesley’s test. He said, “Our responsibility is to give the world the right impression of God.” A church that is barely keeping payroll and bills paid, is flirting with sending a very bad message to people inside and outside the church, as well as taking Jesus Christ off center stage and placing financial mismanagement on center stage.
    • Restoring sanity to the financial planning for this church will require a conservative estimate of the next year’s revenue. When the governing board chooses, what I call, the “Big Number” for the next year’s budget, that number should probably be less than last year’s revenues. Otherwise, it is unlikely the church can build reserves. It goes without saying (except for this church) that reserves are only built when cash in exceeds cash out.
    • If you need more scripture references, here are a few: “The wise store up choice food and olive oil, but fools gulp theirs down.” Proverbs 21:20.“Go to the ant, you sluggard; consider the ways and be wise? It has no commander, no overseer or rules, yet it stores its provisions in summer and gathers its food at harvest.”  Proverbs 6:6-8.

Response—We had a church meeting the other evening regarding the finances and paying off a $3,900 credit card balance (which should have never happened). As a member of the finance team, I cut to the chase and informed those present that there must be a new attitude toward spending or else we were looking at cutting staff or selling the parsonage. I think people left better informed about the serious situation we are in. I’m going to propose to the finance team next week that we impose a spending freeze for items other than salaries and normal operating expenses for 3 months and see if we can get $1,500-$2,000 in the checking account. I’m working on forecasting now for finishing out the year and budgeting for next. Keep our church in your prayers and the finance team as we consider planning and honoring God with our decisions.

Percentage of Overall Budget for Worship

Saturday, April 7, 2018

Hey Fletch … I doubt you remember me but I was part of a group in 2011. I am currently an XP of Operations. I serve under two Co-Lead Pastors…two young guys who are great! I wanted to ask if you have any metrics/information on the percentage of an overall church budget that goes towards the entire Worship, Arts, Marketing, Media department? We are a church of 1000+ with an annual budget of $1.3 million. So, for example should the percentage be 5%, 10%, 15% or 20%? 

DRF—Of course I remember you, beginning with the time that we met for coffee. Even lately, when I was doing some XPastor work, I saw your paper. It has helped thousands!

It can be challenging to answer your question because church budgets vary so much in what they include. My rule of thumb is to include the following budget areas: Communications, Welcome Team, Information Technology, Audio-Visual Technology Capital &  Maintenance, and all Worship expenses. As I reviewed budgets from several churches, the number was 10% of General Fund expenses.

Online Donations Confusing for a Church School

Thursday, March 22, 2018

Hey Fletch … Our school is owned by our church. They are the umbrella. All online donations are being completed through the church. For example, if I want to donate to our school, I press the ‘donate now’ button on our website but get redirected to the church website in order to donate. How can I get around this? Folks who wish to donate to our school get confused when they get redirected to the church website and think their donation will be supporting the church and not the school. Please help.

DRF—You can put a “donate now” button on another website. The funds can still go through your church as designated funds for the school. I would suggest clear wording on the page saying that the donation is a restricted gift to the church and can only be used for the school.

The technical issue is the software piece. This is generally pretty workable, to have a “Donate Now” button on another site but there may be some complications. One way to get around this is to have a specially branded page on the church’s website, one that specifically helps people see that they are making a designated contribution to the school. When a donor makes a designated contribution, it can only be used for that purpose. It cannot be redirected, unless the page explicitly says “for the school and church use.”

Pastor & Assistant Falsifying Timecards

Wednesday, March 21, 2018

Hey Fletch … A pastor here at the church allows his assistant to work overtime and then they don’t put it on the assistant’s timecard. I have warned both of them but what more can I do?

DRF—How do you spell ‘hot water’? Let me get started by saying that Churches can be exempt from the enterprise coverage of the Fair Labor Standards Act. However, there are some finely tuned rules that invoke individual employee coverage where the employee engages in inter-state commerce (such as emails, phone calls, purchases, travel arrangements). A best practice is for all non-ministerial staff who are below the FLSA wage levels to be considered “non-exempt from FLSA.” That means that wage and hour laws need to be observed. Your state may have regulations that come into play as well. 

Another issue is that you have warned the pastor of the problem. The bigger question is, “Why is the pastor not responding to you and your fiduciary responsibility to uphold the church’s policy and federal regulations?” The assistant is lying on the timecard and the supervisor is knowingly signing it. A biblical word for that is “deceit.” Instruct the pastor on these issues and evaluate their response.

You will need to have the assistant compile and sign honest timecards for the entire period of unpaid overtime. The ethical response is to pay the assistant for all the prior overtime hours, including any time and a half or double time that is required by state or federal law. Unwittingly, your church has stolen from the employee. Get an attorney to draft a release statement that the employee will sign. Pray that the employee, a friend or family member, doesn’t ask the State to do a payroll audit. Those audits look at the timecards of all employees. Irregularities can incur fines and penalties to the church.

This is a significant issue and you would do well to inform your governing board of potential church liability.

Ultimate Tax Avoidance?

Monday, March 19, 2018

Hey Fletch … Someone who is a supposed tax expert emailed me the following letter in response to a question: “If you buy everything you need or want in the name of the church, everything is deductible. As an employee of a corporation, you have no “income.” The church corporation receives the church donations and you are in charge of their dispersion. You own nothing but have the use of everything. You can be the caretaker and draw a salary for it, but as the caretaker the church can supply your food and other needs.” What do you think about what he is saying? Is there any truth in it?

DRF—In looking at his website, he seems to take a position outside of the mainstream. For example, it would be challenging to justify food for your family as a ‘church expenses.’ For a church owned car, the IRS requires that personal mileage be counted as taxable income. I’m not a CPA, but these issues surfaced quickly. If you want to follow his advice, I’d suggest talking to a tax professional so that you will know the consequences with the IRS. Ensure that your actions are in line with your values and that, if needed, you will be willing to go to pay back taxes and penalties, or go prison for tax evasion.

One Size Fits All Retirement Plan

Saturday, March 17, 2018

Hey Fletch … My question is regarding retirement and employer contributions. We’ve had a one size fits all approach but now our staff has grown in numbers and levels of responsibility and we need to revisit it asap. I’m wanting to know how others categorize which staff gets what for retirement.

DRF—That question may be out of my pay grade (pun intended). Let me copy Dixie Beard at GuideStone on this as she is an expert at GuideStone Financial Resources. I might give the correct answer … or she may have to set me straight. To my knowledge, you can still separate your employees into classes—such as pastors, administrative personnel, facility workers, preschool teachers, etc. Each class can have a separate retirement structure.

Dixie Beard—You were on the right track, David. If the church is offering a 403(b) non-ERISA retirement plan, the church has flexibility. The church can provide different levels of employer contributions for various classifications of employees. For example, the church can provide a 10% employer contribution for the ministerial employees, 5% for the administrative employees and 3% for all other employees. Or, the church can state they want to provide employer contributions for only the Senior Pastor. It is up to the church as to how it wants to establish the employer contributions.

Stolen W-2s: Follow-up

Friday, March 16, 2018

Hey Fletch … There was a column on January 14, 2018 that all of a church’s W2s vanished. Some insurance policies have coverage for this and the church may have a legal obligation to monitor the credit of those employees that had their personal information stolen. In California, if it was stolen electronically, cyber hack or a lost computer, there is a protocol for how this needs to be handled. If it is paper copies, there may be a liability as well for the church. I’d recommend that the church at least put their insurance company on notice and have a pro guide them through it. There could be coverage and an experienced adjuster could be of assistance.

DRF—As a capable leader of an insurance agency, you have made an excellent point. Thanks for giving more ideas for the church to consider. I immediately forwarded your thoughts to the church that had the problem.

Church Without a Tax-Exempt Status

Friday, March 2, 2018

Hey Fletch … I just began as the pastor of a rural midwestern church with 150 in worship. We do not have a tax exempt status. We pay tax on what we purchase, but we haven’t paid tax on our income. Maybe that’s not related to being 501(c)3, but I don’t know. I’ve not had to look into this before. Many thanks.

DRF—Congratulations on your new role. That is exciting! Don’t get to worried too fast. You may be fine. Here are selections from the IRS in Tax Guide for Churches & Religious Organizations: “Churches that meet the requirements of IRC Section 501(c)(3) are automatically considered tax exempt and are not required to obtain recognition of tax-exempt status. Many churches seek recognition of tax-exempt status from the IRS because this recognition assures contributors that the church is recognized as exempt.”

The IRS explains the requirements: “To qualify for tax-exempt status, the organization must: be organized and operated exclusively for religious purposes; net earnings may not inure to the benefit of any private individual; no substantial part of its activity may be attempting to influence legislation; the organization may not intervene in political campaigns; and the purposes and activities may not be illegal or violate fundamental public policy.”

I’m not a CPA or Attorney—perhaps you have one in your congregation. Get professional advice to confirm your church’s position.

Lifetime Salary from a Church

February 16, 2018

Hey Fletch … A guy just told me that he has a lifetime salary from his church. What are your thoughts about that kind of retirement plan?

DRF—In a GuideStone presentation at the XP-Seminar, one year we learned about Rabbi Trusts. They are valid unless the church goes bankrupt. I never thought that I would hear about it again. According to news reports, the Rev. Robert Schuller learned a hard lesson when the Crystal Cathedral filed for bankruptcy and apparently he lost his retirement.

Though different from a Rabbi Trust, a pastor that receives a “lifetime salary” could be headed for future trouble. I would be wary and would consult an attorney and financial advisor about the concept. My preference is to provide cash for a church sponsored retirement plan for all staff.

Weekly Financial Reporting

February 5, 2018

Hey Fletch … I’m working my way through the Finance 1 course on XPastor. There was a spreadsheet in class 5 on “offerings received” with an accompanying analysis of current week versus the income budget. More broadly, I’m looking for resources to help our finance reporting so anything you may be able to share with me would be greatly appreciated!

DRF—My favorite reporting mechanism is a 52 row spreadsheet, one line for each week. Here are the titles for the columns: Weekly Donations, Weekly Budgeted Donations, Weekly Delta. You can add more columns if you want to see year-to-date actual and budget deltas. I sent you the full sample file, enjoy! Remember: keep the data in your financial reports manageable. Don’t drown in a sea of meaningless data. 

Recording Songs in the Worship Service

February 1, 2018

Hey Fletch … Someone suggested that we record some songs during our worship service and create a CD from them. Any thoughts on this?

DRF—Off the top of my head, I can think of three issues. First, you will have to pay royalties if you perform a published song (see a lawyer). If the song was created in-house, you will want to have an IP agreement in place, if you want the composer to be paid. Second, there are plenty of technical challenges. These can be contained in a studio, but your worship space may have mixing and recording issues. Have you thought about noise from the crowd? Third, to sell a CD requires a market that wants to buy it. What will be your unique edge that will encourage someone to pay $9.99 or $14.99 for your music?

Church Finance 101

January 23, 2018

Hey Fletch … I’m looking over this PDF that you taught at Dallas Seminary on Church Finance 101. Could you send me the full copy of this topic?

DRF—For several years, I gave that lecture on “Basics of Church Finance.” The 36 slides in the PDF constitute the entire lecture. I enjoyed giving the talk because the audience was so unaware of the issues. They came alive when they learned the upsides of good accounting and then unglued when paying for Social Security was explained to them. 

Church Finances is an enormous area. To help understand it, XPastor created 10 classes in Church Finances, Part 1 and another 10 classes in Church Finances Part 2. Issues range from cash to invoices, from expense reporting to audits, from insurance to legal issues.

Stolen W2 Statements for All Staff

January 14, 2018

Hey David … A shipping firm claimed they left the W-2s for all of our employees at the church’s front door. No signature was required and they left the package at 9:00 pm. Financial data, social security numbers, addresses … all vanished.

DRF—I haven’t heard of that one before! I’m so glad that you looked into identity theft protection for all of those affected. All I can suggest is that you go electronic next time. Perhaps use a service that empowers the employees to download their W2. A Finance Office worker could print out a W2 for anyone without internet access.

Compensation can be murky

How does your church get salary data?

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