Indiana Yearly Meeting Pastoral Agreement

Monthly Meeting:Year:Pastor:

It is essential that the local Meeting and the pastor use the Indiana Yearly Meeting (IYM) Handbook for Elders, especially the sections that offer guidelines to establish the relationship between the pastor and the Meeting, and to describe the area of pastoral responsibilities. In consideration for the pastoral support below, to liberate the pastor from the necessity of “secular” employment, the pastor assumes accountability for furthering the work of the Meeting in worship and service. In consideration for the pastor’s ministry, the Monthly Meeting assumes the following support:

Salary Arrangements

The salary shall be considered each year at least three months prior to the beginning of the pastoral agreement, and current living costs shall be considered as well as the work being done by the pastor, and the years of experience he/she has had in the pastoral ministry. Ministry & Oversight and Stewardship & Finance should recommend the salary jointly to Monthly Meeting.

In developing a compensation package for pastors, it is important to keep in mind that pastors employed by a Meeting are considered “hybrid employees.” This means that they have a dual status, treated as employees by their Meetings but considered self-employed when it comes to FICA. Meetings should therefore issue W-2s to their pastors. Pastors must pay both halves of the Social Security and Medicare taxes, and pastors must either pay quarterly estimated taxes to cover these or request a voluntary withholding arrangement with the Meeting.1All clergy income, including the housing allowance, is subject to self-employment tax (15.3 percent).

SalaryAnnually

1. Salary (less housing allowance) $______

Housing

2. Housing allowance2:$______

  1. Fair Rental Value (FRV) of Parsonage (if provided) 3: $______
  1. Utilities (if provided) 4: oil, gas, water, electricity, phone, cable $______

Benefits

  1. Social Security tax contribution5:$______
  2. Participate in a health insurance plan6: $______
  1. Retirement7: $______

Reimbursements8

  1. Travel Reimbursement9: $______
  1. Professional Expense Reimbursement10: $______
  2. Reimburse the pastor for moving costs (if applicable): $______

Other Benefits and Opportunities

  1. Vacation for (2-3-4-) weeks with pay. The Meeting arranges for pulpit supply and visitation during the pastor’s absence. Duration of pastorate should be reflected by longer vacation period. Some sabbatical time should be considered after 7 years. Consideration should be given to some non-vacation time being available for the pastor to hold special meetings at another church if desired as well as seminars and workshops.
  1. At least one day per week free from regular church assignments (day) ______.
  1. The pastor is released to attend Yearly Meeting Sessions, Pastors’ Short Course, Pastors’ Retreat, Area Pastors’ Gatherings, etc.

This arrangement begins on ______and will be in effect for ______. Either party may notify the other of a desire to change at least three months previous to the end of any pastoral year.

Signed (date) ______

______

Monthly Meeting ClerkM & O ClerkPastor

Please send a copy of the signed agreement to:

IYM General Superintendent, 4715 N Wheeling Ave, MuncieIN47304

Because all income pastors receive is subject to self-employment tax, they can face significant tax liabilities when it comes time to file. To avoid this risk and the need to make quarterly estimated payments, Meetings can withhold extra income tax from a pastor’s wages to cover what he or she will owe upon the request of the pastor. The simplest way to do this may be to have the pastor fill out a W-4, but any written request will work.

2There is no cost to a meeting to designate a portion – or even all in some cases – of a pastor’s salary as housing allowance. There are significant tax advantages for the pastor in doing so. Salary designated as housing allowance is still subject to self-employment tax, but is no longer subject to income tax. This is the case whether or not the pastor lives in a church-owned parsonage. This amount must be established in writing in advance with the monthly meeting and can be as high as the pastor’s entire salary as long as it is reasonable compensation for services and is used for housing (which can include maintenance of the house, its contents, the garage, and the yard as applicable). The Meeting should report and label the housing allowance in Box 14 of the pastor’s W-2.

3There are advantages to providing the pastor with a church-owned parsonage: 1) Easier transitions when turnover is relatively high; 2) no property taxes for church-owned property used as a parsonage; 3) congregation-covered maintenance. Similarly, there are disadvantages: 1) pastor cannot build equity, and may not have sufficient resources for housing in retirement as a result; 2) pastor lacks autonomy and privacy with respect to home; 3) pastor must pay self-employment taxes on the fair-rental value (FRV) of the parsonage. These considerations should be weighed by both the pastor and the Meeting before any agreement is finalized. It is the responsibility of any Meeting that provides a parsonage to determine an appropriate FRV for the home. It may be helpful to consult with local realtors or landlords to get a range of estimates. Any Meeting providing a parsonage should consult IYM’s Parsonage Guidelines regarding expectations for parsonage maintenance and care within IYM.

4 If a parsonage is provided, utilities provided by the Meeting increase the home’s FRV. If no parsonage is provided, utilities provided by the Meeting are taxable income to the pastor. Ministers who own their own homes will want to designate an amount to cover the total cost of owning, cost of their furnishings, cost of decorating, utilities, and etc.

5 Meetings can elect to assist their pastor(s) with Social Security tax payments or give the pastor the employer's half of FICA as income and withhold income tax on it. These contributions are taxable income, and so Meetings may wish to consider “grossing up” their payments to account for this. If a pastor chooses to pay quarterly estimated tax payments, the Meeting may wish to pay their contribution to the pastor on this basis - 9/15, 1/15, 4/15, 6/15.

6 Premiums for accident and health plans are considered a “tax free” fringe benefit.

7 The pastor should be covered under a pension plan, and 10% of salary and housing should be paid on this.

8 If your Meeting pays pastors or other staff for mileage or other expenses, it is best for the individual and the meeting to reimburse these expenses after the individual submits a mileage log or receipts. Allowances are wages and are subject to taxation.Amountspaid under a written accountable reimbursement plan, on the other hand, not only increase transparency but they are not wages and are therefore not subject to taxation.

9 Reimburse the pastor for actual documented travel expenses or on a per/mile basis at the current allowable mileage reimbursement rate set annually by the IRS.