Compensation Management

 

Employee costs comprise two-thirds or more of a standard church budget.  This alone makes it important for financial leaders to understand how the numbers are arrived at, and why this person cost such and such while another costs much more.  Beyond that however, all church leaders have an interest in the employment environment they help create for their staff.  Costs are a big factor in the environment, but there are others too.  Most churches are pretty lax in thinking about best personnel practices.  But, churches as employers have a responsibility to be rigorous in exploring the underlying values, subsequent design, and the implementation practices of employee relations.  We expect this Monday through Friday when we go to work in our secular workplaces; we owe the same to our staff.

Employer Philosophy

Staff compensation decisions are grounded in values.  The values are either chosen and articulated or they are implied – meaning they are unarticulated, chosen by default, sometimes less noble.  Why not be clear in choosing?  Isn’t church life specifically about clarifying the values we wish to live by, then working intentionally to integrate them into our decision-making?

Every congregation with staff should develop and adopt a statement of employment philosophy.  This does not mean making pie-in-the-sky statements simply because they sound good; rather, the statement might simply say that the church intends to pay according to the prevailing wage structure in the area or according to some alternate standard, that certain benefits will be available, that every staff person knows where to turn for supervision and for redress of grievances, whether membership in the congregation — or one’s religious beliefs — will preclude employment.  There are many issues to address and many ways to address them.  Every congregation will handle the issues differently.  No one can dictate a Statement of Employment Philosophy to your congregation, but there is a draft sample in Appendix 2.

Distinguishing Employment Types

There are several different ways in which churches hire people, full-time vs. part-time being an obvious distinction.[1]  The different employment relationships can, if you choose, affect the way you apply pay and benefit standards.  We sometimes think that all employees “really should” be treated the same, and in that righteous stand can spend hours discussing how to dole out holiday leave pay, for example, to those who provide child care as needed for evening meetings  I outline five employment categories here, and will use them later to make distinctions about compensation and benefits.  These employment categories are not hard and fast and you may not use them all, or you may modify the definitions.  I find them serviceable in thinking about employment issues.

Ministers are in a special category of their own.  The prevailing doctrine (in most protestant denominations at least and which I have no interest in disputing) is that the nature of the Call to a congregation sets ministers apart from the standard employer/employee relationship.  They usually operate within an agreed Letter of Understanding which is developed at the time they first come to the congregation.  (There are surely many other names for the agreement.)  The Letter of Understanding is not a contract, although most attorneys think it “looks like a duck, quacks like a duck . . . “  The Letter of Understanding frequently is not written with great precision, but offers guidelines and hopes for the ministerial relationship with the congregation.  I believe most would agree that the ministerial Letter of Understanding is the foundation for the ministerial relationship.  Other policies of the board do not supersede the Letter.  Nonetheless, where other personnel policies do not contradict the letter they can be understood to amplify it.

Salaried employees are those whose rate of pay is determined on an annual basis.  It may be broken into monthly or weekly increments for payment purposes, but it is established as an annual amount.  Such employees do not have an hourly rate and are usually not asked to keep track of specific hours worked.  The implication of a salaried job in a church is that the responsibilities are less routine, are more likely to have programmatic or professional work objectives, and less likely to be supervised as to specific tasks.  Salaried employees are more likely to be required to interact with members (such as attending committee meetings) to fulfill the requirements of the job.  They are more likely to work at home, perhaps regularly, although they may also have regularly scheduled “office hours” in the church.

The danger for those in salaried positions, particularly when they are part-time, is that the congregation may ask more of them than can be accomplished in the hours paid for.  Even though salaried employees are not keeping track of specific hours worked, “full time” suggests that the job usually can be accomplished in about 40 hours each week; one-half time means the responsibilities should be manageable in about 20 hours a week.

A heuristic guide for thinking about how much time salaried employees might work is to think of a workweek as consisting of “units” of time, not hours.  A “unit” is a morning, an afternoon, an evening.  A standard church workweek consists of 12 units, which for most of us would be analogous to a 40 hour week with an additional expectation of putting in a couple of evenings or a Saturday morning to do our job to the professional standards we maintain.  Similarly, a quarter-time person should work three units most weeks – a full day plus an evening meeting perhaps, or Sunday morning.

Regular Hourly employees are paid by the hour and have an established work schedule.  There may be flexibility in the schedule, but it is primarily set around particular hours.  Regular hourly employees work on site, as a rule.  The work performed is more likely to be routine or consist of repetitive tasks.  It is less likely to involve in depth interaction with members of the congregation or attending committee meetings.  As a rule of thumb, all employees paid for 500 hours/year or more are in either the salaried or regular hourly category.  It is possible for a regular hourly employee to work less than quarter-time.  It is unlikely that salaried responsibilities would require less than quarter-time.

            Casual or Intermittent employees are paid on an hourly basis but have no routine schedule.  If there is a routine time for performing the duties, there is frequently a pool of people who share the work, although one of them might be the leader.  They usually agree among themselves on a work schedule, at the convenience of the members of the group.  Thus, any individual employee may work very sporadically or only occasionally.  A common example of such employees in my own experience is the small group who prepare coffee on Sunday mornings.  The congregation wants coffee every Sunday at coffee hour, and someone to clean up; but, they are not concerned with who is there in particular.  There may be other examples that come to mind from your experience.

Finally, some employment relationships are contractual.  There is no clear demarcation between contractual and wage employment; it is a matter varying with the preponderance of the evidence.  There are a number of IRS guidelines to determine whether a particular employee can be considered contractual.  The default is that one is not a contractor unless it can be clearly established.  A contract employee, for example, usually works on their own schedule and frequently from their own place of business, is given broad direction but not directly supervised, provides their own tools and materials, probably has other customers, and probably has a professional designation or business license.

These guidelines in determining whether someone is contractual are frequently ignored by churches, and place churches in jeopardy with the IRS.

Relating Compensation to Employment Type

Clearly, those who are on a salary, and not keeping track of individual hours, do not get overtime pay.  Just as clearly however, they get paid holidays and paid vacations which we will cover in greater detail later.

Regular hourly employees get overtime pay or compensatory time when they work more than forty hours in a week, sometimes they are paid overtime for any hours beyond the standard schedule.  Overtime pay is higher than the standard hourly rate, frequently time-and-a-half.  The employer has more discretion in setting the hours to fit the workload with hourly employees however, and when the workload is light the hours can be cut back resulting in savings.  Such employees frequently do not get paid holiday and paid vacation time although an employer is not precluded from offering them.

Congregations sometimes employ someone on a “salaried” basis to avoid paying overtime, paying one-quarter time salary, and expecting routinely 12 – 15 hours each week.  The duties evolve to a situation in which the expectations of the job cannot possibly be met in the time being paid for.  Or, the congregation “gives” the salaried individual two months of unpaid vacation in the summer.

These are both too common examples of niggardly practices by churches in my opinion.  If a workload dissipates in the summer months, the employee is not needed.  The congregation saves money by reducing the paid hours.  The employee is hourly, and should be receiving overtime while working the rest of the year.  If the congregation understands a particular set of duties as requiring a salaried employee, the congregation should also agree to a paid vacation plan.  If the paid vacation is to be two months long, fine.  That is a choice.  If the compensation is not increased in the annual budget, it will give the congregation a realistic assessment (from the employee’s perspective) of what the true monthly salary is on a year around basis.

Casual and Intermittent employees do not get overtime, nor paid vacations, nor holidays.  By the nature of the employment with its sometimes occasional work patterns varying greatly from one person to the next (think of the coffee crew) it seems tortuous, pretentious, and silly when churches struggle to establish levels of vacation or holiday pay for intermittent and casual employees, to me at least.  Further, unlike salaried or regular hourly employees there is usually one fixed hourly rate which all casual and intermittent employees in a particular job get, and it is unaffected by longevity or merit increases.

Holidays

Every congregation should clearly specify holidays which it will pay for employees who qualify.  Usually there are eight or ten paid holidays during the year, but it is up to you to specify which will be recognized.  Because of the irregular nature of the church workweek, it can be confusing as to how to apply the holiday benefit.  Let’s start by understanding that nearly every regular holiday falls one per week.  If employees birthdays are a recognized holiday it is quite possible to have two holidays in a week, but that is an easily handled exception.  If there is a week with a holiday, every qualifying staff member should get one-fifth of their normal hours as holiday pay during that week.  Thus, whether or not the holiday falls on a normal workday for a particular employee, s/he gets some holiday pay.

Suppose, for example, a regular hourly employee works half-time, normally Sunday morning plus at least all day on Thursday and Friday.  If a holiday falls on Tuesday this employee should not be denied recognition of it.  Rather, the employee gets one-fifth of the normal 20 hours, or four hours, of holiday time during that week.  The person might agree to not come in until noon on Thursday of that week.  Or, the person might work the normal schedule and get four hours of extra paid time that week.  Similarly, if a holiday falls on Friday that individual should not get their workweek reduced by a full day.  The workweek can be rearranged so that they do not come to the office on Friday; but, they still work 16 hours during the week, reducing the normal workweek by four hours for the holiday.

Annual Leave and Sick Leave

Let’s begin by distinguishing the mechanics of these types of leave.  Annual leave is planned for ahead of time jointly by the employee and the employer in such a way as to be least disruptive to the work flow.  And, employees, in general, use annual leave for several days at a time; they return to work invigorated and happy.  Ideally we would like all leave taken to be annual leave if it met those conditions.

Annual leave is good for employees and good for the organization.  We want employees to use it.  We should make an effort, then, to not create incentives for saving it.  We should see that annual leave gets used regularly and the balance is near zero occasionally.

Sick leave is usually disruptive.  When it is needed there is no way around it.  An employee will call in one morning and explain they face a medical issue and will not be at work as expected.  Tough.  Sick leave will be granted immediately without further thought.  We want employees to have sick leave available as a benefit.  We would rather that they never have to use it.  We want the incentive to be that employees would not want to use sick leave unless it is necessary.  We want them try to save sick leave for the future.

Organizations which tell employees that their annual leave balance will be cashed out when they terminate but their sick leave balance will be lost seem to have it backwards.  They ask employees, in effect, to always call in sick when they feel like taking a day off, but get the annual leave balance as high as possible rather than take a vacation.  These incentives are not good for the organization and not good for the employee.

My own preference is to create a single leave plan called “personal leave”.  It is always available either for sick leave or annual leave purposes.  At the end of each fiscal year any remaining personal leave balance not used that year is divided on some basis between a “permanent account” and a “temporary account”.[2]  The temporary account balance must be used in the following year or it will be lost, never cashed out.  The permanent account balance can build up until the employee terminates, or it can be used – it is always available.

The permanent account will be cashed out at the current wage rate when the employee terminates however.  This creates a huge incentive for the employee to build up a long term emergency leave account to have in the event of a major illness.  But, any use of leave which is not arranged at least one week ahead of time is always charged first to the permanent account balance if there is one.  Thus, to the maximum extent possible the employee incentive is to plan leave and get it approved well ahead of time so that it is not charged to the permanent account. 

Benefits and Retirement

The most common benefits, other than leave policies, are various types of insurance and a pension or retirement plan.  Sometimes only those who are full time employees get benefits (except qualified retirement plans in the U.S. usually must include those who are half-time or more).  Usually however, any benefits available to full time staff are also available to other salaried or regular hourly employees who are half-time or more.

Sometimes an employer can simply provide access to a group insurance plan; it is a benefit to offer even if the employer doesn’t contribute toward the cost.  Dental, vision, life, and long term disability insurance plans are common examples which will be made available but frequently paid for entirely by the employees in the church setting.

Health insurance is far and away the highest cost benefit for U.S. employers — if they pay for it entirely, which fewer and fewer do.  Further, it is probably the most used benefit in its frequency of need.  Rather than going into a diatribe on the health system in this country and how we pay for it, let’s simply agree that it is prohibitively expensive for the people we hire in churches to get health care without insurance or other assistance.  So the church must help.

The cost of health insurance for the employer can be equal for every employee – fixed at, say, 80% of the premium.  More likely the cost will vary with the time worked.  One example would be for the church to offer to pay the same percentage as time worked in a normal week, perhaps up to a maximum of 90%.  Thus, the church would pay half the premium for half-time staff and so on.

The more a church does to support employees in obtaining health insurance and other benefits the more devoted the employees will be to the success of the church programs.  There are a small number of well-known retail companies which go to great lengths to assure that workers have health insurance.  Other retail employers are equally notorious for being ungenerous both with wages and benefits.  You know which stores are which.  Is the difference in attitude and atmosphere readily apparent when you walk in?  Congregations, as employers, should also assess whether the extra cost of good benefits can translate into better staff.

Compensation

Historically churches have paid notoriously low salaries.  Saying so means we have a compensation standard, of course, by which we make this judgment.  Most church leaders would agree that the staff are not getting wealthy, and are probably not paid as much as they could be elsewhere.  But, this is only a feeling for most of us –- articulated occasionally and rarely documented.  This huge proportion of our budget is largely unexamined and unexplained.

Review the existing staff position descriptions.  Every job starts with a job title, and then is amplified with statements of responsibilities and expectations.  A good job description will also indicate what the employee should bring to the job in the way of knowledge, experience, skills and abilities.  Denominational resources are available to assist the personnel committee – refer to them.  You do not have to follow their suggestions, but even a curmudgeonly lay person should look at the suggestions of church professionals to see whether they might be helpful.

Part of the job description involves a determination whether the job will be compensated on an hourly or salary basis.  And of course, every complete job description has an associated pay range — an identified entry level and top pay level.  Again, there are suggested salary ranges available from denominational sources.[3]  If you are not comfortable with the suggestions, do not understand them, or think you can do better — do your own salary survey and make your own decision about what a staff person’s job entails and what you will pay for that job.  If your decisions comply with the employment philosophy you have articulated, and if you can hire the type of people your congregation deserves, your established salary and benefits structure exemplifies your own good decisions.

The congregation still needs to determine how much to pay within the established pay range.  It is not enough to simply pick any number in the range and say, in effect, “We’re OK.  We’re in there.”   We need to make it clear to the staff, the board, and the congregation why it is that one person is barely in their range while another is 30% of the way through it.  And, we need to revisit the pay level for each employee every year.  This can be done as part of the annual budget preparation process.  In doing so however it is important that a consistent set of criteria and issues are brought to the task every year.  The following discussion builds a protocol for doing so.

One common factor in generating progress through the pay range is longevity.  Some argue against longevity in setting a pay level.  They say, “Why should we increase pay simply because someone is keeping their seat warm?”  This strikes me as a cynical attitude toward your staff.  Sure, a small minority of people do not grow with the job.  Most church employees work hard to improve their performance however.  Longevity increases recognize improvement which is not noticeable in the standard employee evaluation process.[4]  An employee gains responsibility and authority over time and is more effective working within the unique culture of a congregation.  We recognize this increasing capability with longevity increases.

As an example, let’s establish the bottom of each range as the “base pay”.  Then, create eight equal steps to cover the range.  I suggest that the number of steps should be determined so that every raise from the base level is about 3% – 5%.  More steps leads to pay adjustments that are too miniscule to be noticed by the employee when they occur.

These longevity increases should go on for a number of years.  It seems to me that the effect of longevity on improved performance diminishes after seven to ten years.  So, the longevity steps should only be available in that time frame too.  Further, I suggest that longevity alone take anyone only 65% – 80% through their range.  The higher end of the range is attained only through other formally assigned factors discussed below.  As an example, consider the following scale:

First Year                          base

First Anniversary               1st step

Second Anniversary          2nd step

Third Anniversary              3rd step

Fifth  Anniversary              4th step

Seventh Anniversary         5th step

Ninth Anniversary              6th step (limit for longevity/experience)

This means the usual practice is for everyone to start at the bottom and after nine years everyone gets paid at a rate 75% of the way through the eight step range for their job.

It is important to understand that it is not written in stone that everyone must start out at the bottom of the pay range however.  A person with twenty years experience building a career in other congregations would no doubt bristle at the suggestion that he or she must start at the bottom in accepting a position with your congregation, just as though you were bringing on someone with no experience at all.  When we hire a minister or a religious education director, for example, we might agree to give recognition to previous experience because it is worth something.  We could negotiate in the hiring process for someone with four years of excellent previous experience to start as though they have three years with our congregation.  Our standard practice in doing so might be for the new person to thereafter simply follow the rest of the pattern, two years later going from third step to fourth step based on longevity.

A good pay system will also recognize the extra training and education that one of our staff has pursued.  It is sometimes significant enough to be rewarded.  Suppose our youth minister completes a Master’s degree in adolescent psychology.  This is directly relevant to her current job and career choice.  It establishes additional professional credentials.  We should probably deal with it in the compensation arena or face possibly losing this key person.  In a good work environment, the church and the employee will agree at the outset whether or not there will be additional pay upon completion of a given education or training experience.

Finally, we need a system to establish work goals, and evaluate how they are accomplished.  A good pay system has built in capacity to reward superior performance.  We might have annual superior performance increments as high as two steps of the range.  This does not mean that one of our staff could necessarily exceed the top of the range – that too is a matter for thoughtful consideration in the employment philosophy and implementation policies.  I counsel churches to not exceed their published ranges in such cases; rather understand that there is more than one route to the top.

The entire discussion to this point has been about how to establish a particular amount that we should pay a particular employee within their range.  Suppose that, as so many churches find, when the personnel committee completes all the initial work of defining jobs, setting pay ranges, and giving weights to the three factors above they find great discrepancies between what is happening now and what the compensation protocol suggests.  Suppose further that the discrepancies range from very small for some positions to very large, but in total will cost more than we can possibly accomplish immediately.

What is required is that the congregation (not just the board) needs to decide upon a multi-year goal which will take it to employment practices compatible with the adopted employment philosophy.  The job of the personnel committee is then to determine how to approach annual increments to attain the goal.  Should every staff person receive something every year?  Should we concentrate most heavily initially on those who are furthest behind?  Should we start with just salary adjustments, or just the health insurance coverage?  Each congregation must come to its own resolution.

I have summarized this chapter’s main thoughts in spreadsheet format for three positions in the church, a minister and a part-time office administrator.  You might want to develop similar documentation as part of your budget process to capture the historical record of decisions for each staff person.  (See Appendix 11)


[1] I am not an attorney.  What I say in this chapter reflects only my own simple understandings.  If you think you need to consult an attorney on personnel issues, you probably should.

[2] For example, the employer might allow each employee to transfer unused hours up to the number of hours in the employee’s normal weekly schedule to the permanent account.  Any remaining hours go into the temporary account.

[3] Or, look at the Compensation Handbook for Church Staff.  This is a multi-denominational salary and compensation survey which is updated annually.  Find it at http://store.churchlawtodaystore.com

[4] In truth, most churches do not have an employee evaluation process that can be trusted.  So, recognizing longevity is a good proxy for the evaluative process we fail at.  I am not arguing the point as “either/or”.  Both are useful.

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