Church Administration Questions

Difficult Economic Times

2011-06-17T11:46:00.000-04:00

QUESTION: If there are difficult economic times coming to our nation what should the church consider?

ANSWER: The is a very broad question. However, I think the Church is responsible to pray and prepare...spiritually and practically.

First we pray for Divine intervention; the type of prayer found in 2 Chronicles 7:14. I also think we are responsible for equipping our congregants to be the Church...to be Salt and Light...to be a stable voice of Peace and Hope. I would suggest that church leadership prepare its congregation Biblically for difficult times...without sounding like chicken little or Harold Camping. ie. James 1:2-8, 1 Peter 4:7-11, Revelation 2-3 (Christ to the churches)

Second, I would look at the church's financial situation. We always need to have the same type of cash reserves we teach our congregants is wise. We need to remain generous as a church to others...widows, orphans, missions and even other ministries. God's people are to be obedient tithers and generous givers. Are people prepared to be generous to their neighbors? Is the church prepared to be generous to its community? Finally, we need to work to eliminate any debts.

Designated Donations - Refund or Redirect

2011-04-04T15:21:00.004-04:00

Question: Our church plant has not survived the first couple of years. Unfortunately, it received contributions towards a future facility. What are we legally to do with those funds now?

Answer: This question is disappointing on several levels. It breaks my heart when for any reason a church can no longer continue. It is also sad when an individual believes in and contributes toward a vision (in this case a building) that will not come to pass.

Donations designated for a specific purpose can only be used for that purpose. This church will need to ask each contributor to the fund where they would desire to redirect their amounts.

In a continuing church simply redirecting the donations to another area of ministry is the simplest and often preferred choice. However the funds can be redirected to any other charitable organization.

The donor could also request that the funds be returned. There is no reporting required to the donor or the government for the refund. The donor would not receive a 1099.

Starting a School of Music

2010-11-05T12:09:00.000-04:00

Question: Can a church start a School of Music Ministry offering both individual and group lessons? What legal issues do we have if we use people in our church who have music degrees and allow them to charge for the lessons?

Answer: Yes, our church did this for 5 years.

First, every instructor should have a complete background check performed, especially if they are working with children.

The easiest way to facilitate this vision is for the church to allow its facilities to be used but not hire or direct the instructors. As independant contractors they schedule thier own instruction, collect their own payments, handle their own missed appointments, etc.

We chose a more complex model. We actually preq1ualified the instructors, charged the students $2 more per lesson to administrate the entire instruction experience, collected the payments, mediated disputes, paid the instructors, etc. In this method the instructors are not independant contractors. As employees they must be compensated as such...which means we had to handle payroll, deduct taxes, etc.

Question: What do you see as your greatest role as an administrator?

2010-10-19T10:14:00.000-04:00

Answer: Wow! That is a great question.

There are many aspects to the role of Church Administrator...human resources, risk manager, steward, facility manager, accountant, information manager, etc. The role I think most critical is cup-bearer who is part waterboy and part guardian.

As a waterboy I have the privilege to administrate an organization that delivers living water to thirsty souls every day; living water that eliminates thirst forever. (John 4:14)

As a guardian I have the privilege to protect my senior leader. I don't want my senior leader to ever be surprised by what he is having to "drink" or deal with. This requires character, consistency, confidence, confidentiality, & courage.

Custodial Service or Employed Staff

2010-09-30T13:47:00.000-04:00

Question: Do you use an outside service or your own employees for custodial and janitorial services?

Answer: For 10 years we employed our own janitorial staff. Every 2-3 years I accepted quotes from outside vendors to confirm that this method is the best stewardship decision. Four months ago we changed and went with an outside janitorial service when I had two quotes indicate that we were now paying 20% too much for these services. The transition has been challenging but worth the savings.

Immigration Form I-9

2010-09-16T16:26:00.000-04:00

Question: How fast does the I-9 form need to be completed?

Answer: By law the I-9 form must be completed within 2 business days of the date employment begins. They must also be filed together in one file which is seperate from other employment documents (W-4, applications, resumes, etc.)

Please be cautious. The form I-9 is not an employment form it is an imigration form which falls under the Dept of Homeland Security. Violation of the completion dates, improper documentation or improper filing are federal offenses.

Church Databases

2010-09-03T08:09:00.000-04:00

Question:
Which database is the right one?

Answer:
There is no single correct answer. As with most software choices, selecting the right database platform depends on the needs of the organization making the acquisition. The ultimate determination will be made based on the following factors:
i. Functions and features (check-in, commerce, social network, etc)
ii. Database size and scalability requirements
iii. Hardware Requirements
iv. Operating System
v. Level of support required
vi. User skill level
vii. Available Budget

Medical Emergencies

2010-09-01T08:01:00.001-04:00

Question:
How do we prepare our church to handle medical emergencies?

Answer:
You should prepare in advance by obtaining first aid training for key leaders. You can also recruit medical professionals (Dr, PAs, paramedics, nurses, EMTs, etc.) in your congregation to be available should a medical emergency arise. Every church should have and maintain medical supplies & equipment on site. Finally, communication devices like 2-way radios should be used to alert medical responders if a your church campus is large.

Leading a Church Board

2010-08-30T07:48:00.007-04:00

Question:
How can I lead my church board/council well?

Answer:
There are 3 keys. They are to provide training, lead meetings well and build trust.

Prior to their first meeting, make sure that you give new board members a list of expectation and responsibilities. Additionally, take the time to discuss how meetings are structure and run, as well as, explain the report formats.

To lead meetings well, you should start/end on time, follow an agenda, keep accurate minutes, review all reports, fully discuss key decisions, answer questions and make decisions through formal motions.

Finally you will build trust if you develop personal relationships with each member, operate within budget, explain issues thoroughly, and never allow them to be surprised by information or issues.

Incorporating a Not-for-Profit

2009-08-17T21:52:00.002-04:00

Question:
Our church has been meeting for 3 years. When should we incorporate ourselves?

Answer:
The short answer is you should have incorporated 3 years ago. Please talk to an attorney ASAP and file immediately. It will vary by state but should take about a week and cost around $500. After that you need to file for your not-for-proft status immediately also. This will take about 3-6 months to receive a response back from the IRS.

I can not stress the importance of correcting this situation enough. If you are not incorporated and have your not-for-profit status you are in a very vulnerable spot. First all the contributions you have received are not tax deductible for your congregants. Second those contributions are income to the church and I am not sure who would be respsonsible for paying taxes on them. Third, I am guessing that you are probably not handling payroll properly either by filing the correct payroll returns and year-end documents. Finally, in the event of an audit the tax consequences will be severe but not nearly as bad as the penalties they will tack on.

Cleaning Supplies Vendor

2009-07-15T13:58:00.000-04:00

Question:
Our church just finished construction on much larger sanctuary, and runs to Walmart are no longer going to cut it for cleaning supplies. Do you know a good online source to order cleaning, and paper supplies?

Answer:
Actually I created relationships with the custodial supply vendors in our local area. I have found that the service and personal information they can give about cleaning methods and solutions is definitely worth the pennies we are not saving online.

We just found that the online vendors were not able to provide the assistance or advice we desired. Sometimes we we need someone to physically look at a particular stain and make a recommendation or to assist us when our automatic paper towel dispensers get jammed...etc.

Repairs - Billable vs. Volunteerism

2009-07-13T16:12:00.005-04:00

Question:
Our church had some water damage that was covered by insurance. A church member who is also a contractor is willing to make the repairs which may include some structural changes. Some of the repairs he is “volunteering” to complete and some he will be compensated for. Should I have a contract on file that separates what is volunteer and what will be billed? How should I proceed?

Answer:
yes. You should at least ask for a detailed billing estimate before he begins. That way you will know what he is going to bill you for and what will be volunteerism. Often in these cases they would bill you for parts and/or supplies since they represent actual out-of-pocket expenses and then donate their services. However, it would be wise to know that he can not receive any giving credit for his services.

It might be better for him to allocate any billing to his services and “donate” the parts. He still gets paid but can still receive a charitable giving credit for any donated assets…replacement parts and/or supplies.

2009-07-08T17:37:00.000-04:00

Question: How should we build a long distance relationship with a bank or credit union who is not does not have an office in our local area?

Answer: Excellent question! You want to provide your primary banking relationship with excellent information to build a basis for your working relationship. Churches need to do this long before they need to ask for a loan.

They would have a representative that oversees your region and who regularly travel to your local area. Request an appointment with them when they are scheduled to be in the area next and take them to lunch...and you pay for lunch.

Political Activities and the Church

2009-07-06T15:03:00.000-04:00

Question: What political activities can a church be involved in?

Answer: The accepted understanding is that any involvement in elections for political office is too much. We can not be involved.

However as it relates to legislative issues we are completely free speak to them. As my friend El Clarke, Foursquare Corporate Council, recently said…As a church we are a non-profit not a non-prophet. Let’s not quiet our prophetic voice on legislative matters.

Environmental Impact Study on a Remodel/Refi

2009-07-02T15:30:00.000-04:00

Question: Our bank does not require an environmental impact study on a remodel/refinance project but our denomination does. Can you explain that?

Answer: The denomination is simply complying with EPA and Federal laws. It is not a banking or refinance requirement. This is a construction requirement related to the remodel project. It would be required for asbestos determination and documentation.

Sales Taxes and Fundraisers

2009-06-30T17:16:00.004-04:00

Question: If we are selling fundraiser items do we have to deal w/ sales tax?

Answer: You will not be required to collect sales tax for non-recurring fundraisers. However, depending upon the circumstances you may need to provide them with a statement validating the charitable portion of the purchase, which is the amount that exceeds its fair market value. If you are selling items on an ongoing or recurring basis then you may have to deal with sales tax collection and reporting. This requirement differs by state.

Unrelated Business Income

2009-06-23T11:17:00.000-04:00

Question: What is unrelated business income (UBI) and when is reporting unrelated business income required?
Answer: Unrelated Business Income (UBI) for most organizations is income produced by activity (and subject to unrelated business income tax) that meets all three requirements:
1. It is a trade or business.
2. It is regularly carried on.
3. It is not substantially related to furthering the exempt purpose of the organization.
When UBI exceeds $1,000 in a calendar year, then a reporting requirement is triggered.

Church Operating Another Business

2009-06-22T16:16:00.000-04:00

Question:
How can we as a church start a business that could (1) put congregants to work and (2) create another funding stream to the church?

Answer:
That is a noble and creative idea but it is really outside the purposes of a church’s charter (to propagate the Gospel.) It would also be operating beyond the church’s 501(c)3 charitable designation and not-for-profit status.

Whoever, prayed and heard God's direction on starting a business would really be the person or group to start their own business. It should be completely separate from the church.

Will operating a daycare create problems for my 501(c)3 status?

2009-06-19T11:00:00.000-04:00

Question:
My church is working to have a daycare operating on premises this fall. The daycare will be for-profit. I understand from other churches that they operate daycares under the umbrella of their IRS not-for-profit status. How can I operate our daycare under our not-for-profit status?

Answer:
I will assume that the daycare is church owned. Essentially you do not have to do anything from an IRS perspective. You will not violate your 501(c)3 status. Daycares have long been designated as a ministry of the church. They religiously educate the little ones and assist the families by providing safe care.

Typically the daycare may operate with a positive cash flow but it will not typically be profitable. After paying for salaries, equipment & supplies there may still be a positive cash flow. However, a church would not typically pay itself for mortgage/rent, insurance, utilities, common area maintenance (CAM), etc. If they did they would quickly eat up the remaining positive cash flow and find it at a break-even or loss. Our church has a 170 student preschool & elementary. We operate on a slightly positive cash flow basis, however, we would show a loss if I allocated costs to them for facilities and overhead.

In our denomination, we need to have denominational approval. There are special applications, as well as, annual requirements & reports that must be filed with them. You will also want to fully understand your state & local daycare laws. They will be the ones who present you with the flaming hoops to jump through. According to NC state law if I operate our preschool for no more than 4 hours per day, I do not have to comply with the most stringent state daycare requirements. Do you research.

Can A Churches and Busiensses Share Leases

2009-06-17T16:32:00.000-04:00

Question:
If a church shares facilities/rents with another business is there a problem with that?

Answer:
A church can rent from anyone. If this arrangement is more about running a business to facilitate a ministry then there can be some real complications. To simplify the arrangement, the business needs to be the official owner/leasee of the facilities. Then the church can simply share or sublet from the business. In my denomination (Foursquare) it will still require Board approval.

What is an appropriate salary?

2009-06-11T20:12:00.000-04:00

Question:
I have been a pastor of a church plant for 9 years (in ministry for 25 years) and want to add another staff member. Presently I take home $ 2,700.00 each month which only took effect August 2008 and the church takes care of my health insurance and contributes a small amount for my retirement. Our overall church expenses are $12,000/month and offerings are approx. $19,000/month. What is an appropriate salary for me and for a new associate pastor?

Answer:
I am not aware of a specific salary scale or survey in our denomination (Foursquare). They do suggest that churches keep total personnel costs below 40% of our titheable income. Total personnel costs include salary, housing, taxes, and all other benefits.

Typically pay scales vary more by congregational size, annual budget and/or region of the country. I can recommend two possible resources:
1. Compensation Handbook for Church Staff put out by Church Law & Tax Report (Richard Hammar & James Cobble).
2. The one I prefer is a resource of NACBA (National Association of Church Business Administrators). It is online at www.ministrypay.com. I like that you can drill down to find data for your size church…in your area of the county. If you are willing to participate you can actually save $65 on the survey.

One last thought…At Grace Covenant our preference is to not have the highest paid pastors nor the lowest paid pastors for each position. So we worked on a method that would allow us to come back to the MinistryPay survey every two years and re-populate our salary ranges. It keeps us current without having to rework our rationale each time.

Pride looks like this in me...

2009-06-02T20:18:00.000-04:00

Question:
I attended your church administration continuing education learning track at the ICFG convention. Would you again provide the list of what pride looks like in your life? It was the highlight of the entire conference for me and I wanted to share it with a few other leaders.

Answer: In my personal life arrogance and pride can be seen when I:

Roll my eyes at others.
Dismiss the opinions, ideas or suggestions of others.
Manipulate circumstances & outcomes for my benefit or to agree with my desires
Am ashamed or embarrassed by friends or family…who they are and/or their actions.
Attempt to exercise control by not greeting others who've "slighted" me.
Vigorously defend my "threatened" views.
Need special perks to feel important.
Am judgmental of another individuals' motives.
Make assumptions regarding the motives of others.
Am annoyed by others actions.
Am annoyed by God's grace to others "who don't deserve it."
Am grumbling, complaining, grumpy & discontent.
1st think..."How does this affect me...my position/status/project?"
Am unforgiving.
Dwell on my offenders and their offenses.
Am impatient w/ moms of crying babies on an airplanes.
Force out cars trying to pass me & everyone in a closing/merging lane.
Am upset about:
Bikes in the driveway again.
No clean socks.
Not given a message.
Trash/mail left @ the road.
Others interrupting me now while I am ______________.
Have racist thoughts, attitudes, words & stereotypes.
Work in my own strength vs. God's strength.
Seek the recognition of other people rather than God.
Procrastinate doing Godls instructions...disobedience, delayed obedience, or partial obedience
(I always leave one blank to remind me there is still more pride in my life.)

Construction Timeline

2009-05-21T20:34:00.000-04:00

Question:
Several years ago our building commitee came and looked at your buiding as we were planning out a new worship center and educational building. Since then we have put up our building and God is richly blessing. I am coaching another church with their building program. You had shared with me a time line from the time a committee begins until the building is built. As I recall it was 18 months. Could you share this again?

Answer:
At the fastest pace it still takes a rough 9-12 months to get designs completed and through any zoning approvals. Construction is another 9-12 months depending upon the complexity. The slowest part of construction comes after the building is dried in…it looks mostly done from the outside but most of the work happens on the outside…sounds like our walk with Christ.

New Pastor Compensation Reporting

2008-09-30T07:46:00.000-04:00

Question: We are new pastors and receive no salary. The church is paying housing and utilities, as well as, an auto allowance. Do we need to report anything?

Answer: Yes. Your auto allowance is taxable compensation and should be included on a W-2 as such.

Utilities are a part of what is considered housing. If the church allows you to stay in a church-owned or church-leased domicile and the church pays the utlities this is considered a parsonage and there is nothing to report other than the auto allowance.

If you own or have rented a domicile and the church is paying you the amount of your monthly payment plus your utilities there is still a need to report. The amount is not taxable but the amount of housing goes in box 14 of the W-2. Further more you need an official housing allowance written on paper as documentation and it needs to be approved by your Church Council and entered into the minutes before Dec 31 for the coming year or ASAP if someone starts mid year.

Pastors and Church Travel

2008-09-15T10:41:00.000-04:00

Question: How do you word a policy that allows or requires pastors to take their spouse or members of the congregation when they travel for church business?

Answer: I think you need a policy that has been created and officially approved and included in official church minutes. It should include (1) the requirement for accountability, (2) the effort to assist them in maintaining moral purity, (3) the requirement to not travel alone and (4) the churches responsibility to cover the additional required travel costs.

It can be as simple as...
In an effort to provide accountability for our pastors and to assist them in maintaining moral purity, a motion was made by John Smith, seconded by John doe and agreed by all to require that pastors when traveling away overnight on church business must travel with a Christian companion of the same gender, if their own spouse is not available. As this church policy will certainly lead to additional travel costs the church will also cover the additional costs of the traveling companion.

Musicians as Independent Contractor?

2008-09-05T21:26:00.000-04:00

Question: Can musicians be considered independent contractors since they have to be there on Sunday and use church equipment?

Answer: It depends. If they are considered staff and must request to take a vacation or time off then they probably are an employee. If they are able to take off without compensation at any time then they are contractors. There is a difference in using church equipment and are required to use church equipment. If a musician uses the church piano or drums because transporting and setting up their own each week is not feasible they can still be considered a contractor. Most other musicians do use their own instruments...guitar, bass, horn, etc.

Forgive me for offering an opinion you did not request. If you have not started paying musicians, DON'T start. If you have, stop ASAP. This is slippery slope you will wish in the future you had not started down. This is an area you want people to volunteer in as their ministry...same for worship team singers, choir members, etc. Once you start down this road you will almost never be able go back.

Sales Tax and Suggested Donations

2008-08-28T21:13:00.001-04:00

Question: If you have a suggested donation for coffee, tapes, meals is there tax?

Answer: No...as long as it really is a donation. If this is a routine proceedure and they can actually choose to pay another amount or nothing at all then the amount could truly be considered a donation. If they must pay to receive the item then it is a sale. Charges to attend and event where a meal will be served does not require the collection of sales tax. Other occaisional charges for a meal are not considered sales requiring the collection of sales tax. If the meal sales are routine they probably are considered sales.

Cell Phone - Taxable

2008-08-21T12:14:00.000-04:00

Question: Can all of your cell phone payment be considered compensation since the phone is issued through the church?

Answer: Yes. This would be a very simple way of handling it. You would simply add the full amount to his W-2 at the end of the year. It does not help the employee in any way.

Tax Deductible Donation or Sales

2008-08-14T19:50:00.000-04:00

Question: How does “tax deductible” donation work in regard to selling t-shirt, tapes, books, etc.? Is it a matter of wording…to not have to pay sales tax?

Answer: You have really asked 2 questions. First at the bottom of every contribution statement the IRS requires the wording: "Pursuant to Internal Revenue Code requirements for substantiation of charitable contributions, no goods or services were provided in return for trhe tax deductible contributions." There is no wiggle room in that. There is no ability to give contribution status to the sale of t-shirts, tapes or books. If you price the item it is not charitable giving. I am sure you are now thinking about TV evangelists and their offer to send you something "for a gift of $10 or more." They are not sending our contribution statements for those amounts. If they do the IRS will come after them as we have seen happen to others recently.

Second paying sales tax is not a matter of wording it is a matter of the situation. If you are set up regularly to sell priced items as a source of income then you are required to collect and remit sales tax. If you are simply reselling items (at cost) for the convenience of your congregation then that is not sales it is simply a reimbursement of cost.

Payroll Taxes Filing

2008-08-07T10:30:00.000-04:00

Question: What do you recommend to do taxes? We don’t have an accountant to help us.

Answer: I will assume that since you are a not-for-profit you are referring to payroll taxes. Our church uses Quickbooks which prepares a draft of the taxes for you. Set up is the key to payroll in Quickbooks. You must designate each source of income and each deduction correctly.

Sales Tax - Food or Books

2008-07-31T11:22:00.001-04:00

Question: Do we need to report sales tax for book sales and breakfast sales?

Answer: That depends...for books, if you are simply collecting cost for a book then the answer is "no." If you are selling the book for a profit then the answer is "yes"...if you have an area on site to sell books from then the answer is a definite "YES." For breakfast sales, if you are selling breakfast items that are priced seperately then the answer is "yes"...if you are charging admission to an event and food is served then "no." There is also no contribution credit given for either.

Policies

2008-07-24T11:27:00.000-04:00

Question: What topics do you recommend that we develop a policy to cover?

Answer: There are several. Here are a few areas we use:
1. Employment: Qualifications, Definitions & Evaluations, etc.
2. Work Schedule: Hours, Attendance & Absenteeism, as well as, Imclment Weather Policy, etc.
3. Compensation: Wage/Salary, Pay Periods, Deductions, Advances and/or Loans, etc.
4. Benefits: Eligibility, Retirement, Vacations, Holidays, Sick Leave, Leave of Absence, Medical Insurance, Dental Insurance, Short-term Disability, Workman's Comp (Doesn't Apply to Churches), FMLA, Social Security, Jury Duty, Bereavement, Etc.
5. Employee Termination: Resignation, Discharge, Severance, Unused Vacation, etc.
6. Office Practices: Dress & Appearance Standards, Confidentiality, Misunderstandings & Greivances, Discipline, Public Relations, Children of Employees,Church Attendance, Tithing of Employees, Sexual Misconduct, Sexual Harassment, Expenditures, Staff Meeting,Fires, Threats, etc.

Petty Cash or Accountable Reimbursement Allowance

2008-07-17T11:27:00.000-04:00

Question: Can you explain the difference between a petty cash system and an accountable reimbursement allowance?

Answer:
Technically they are different. Before I start let me say that employees at my church do use the terms synonymously for simplification of wording and ease of reference.

Petty Cash
Businesses often need small amounts of discretionary funds in the form of cash known as petty cash for expenditures where it is not practical to make the disbursement by check. Typical uses are for: (1) local retail purchases, (2) meeting expenses, (3) business meals, (4) local transportation, (5) books, (6) subscriptions, (7) postage, etc.

The most common way of accounting for these expenditures is to use the imprest system, which is a type of accountable reimbursement system. The initial fund would be created by issuing a check for the desired amount. Usually $100 would be sufficient for most small business needs. As expenditures are made, the custodian of the fund will reimburse employees and secure a petty cash voucher in return. At any given time the total of cash on hand plus reimbursed vouchers must equal the original fund. When the fund gets low the custodian submits the vouchers for reimbursement. A check is issued and expensed based on what the funds were used for. Once the check is cashed, the custodian has available cash in the petty cash fund back at the original amount.

Accountable Reimbursement Allowance
Similarly, businesses often need to provide discretionary funds for use/expenditures by their executives where it is not practical to make the disbursement by check. The most typical uses are for meals with clients and entertaining clients.

The most common way of accounting for these expenditures is to use an accountable reimbursement allowance. The executive is designated a monthly or annual allowance for such expenditures. As expenditures are made, the executive pays with cash or credit card and documents on the receipts the purpose and the people in attendance. These receipts are turned in periodically (typically monthly) attached to an expense reimbursement request form. The business then reimburses the executive. Again for ease of discussion employees at my church call this type of expenditure “petty cash” when really it is an accountable reimbursement allowance.

I-9 Forms & US Citizenship

2008-07-10T17:08:00.000-04:00

Question: Are I-9 forms required for everyone or just non-US citizens?

Answer: All U.S. employers are responsible for completion and retention of Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens. On the form, the employer must verify the employment eligibility and identity documents presented by the employee and record the document information on the Form I-9. The list of acceptable documents has been amended in the 2007 version of the Form I-9 and can be found on page 4 of the forms.

The forms must be completed within 3 business days of the date employment begins

1099s & Stipends

2008-06-25T17:02:00.000-04:00

Question: What about stipends and 1099s for workers?

Answer: You can pay individuals stipends for services. These amounts are fixed payments for services which make them taxable. Often stipends are not paid at a market rate for services neither are they simply an honorarium. Again these amounts would require the filing of a 1099.

Cellphones

2008-06-18T17:30:00.000-04:00

Question: I just got a new cellphone contract through the church for 2 years. What do we do?

Answer: You need to know that the personal use of a company owned cell phone is taxable to the individual. There are a few options to handling the taxability. You can:

Simply add the total amount of the monthly cellphone bills for the year to your W-2 as taxable income.
Detail out the cost of personal calls each month and reimburse the church for that portion.
Detail out the cost of personal calls each month that are personal and only that portion is taxable and would be added to your W-2. However, if you have a fixed amount of minutes with the plan then this does not work.
Detail the cost of personal calls for 3 months and average the amounts and then determine an annual amount using the average and add it to your W-2.
Receive a flat allowance (stipend) each month to cover what ever portion might be estimated as personal. This amount is taxable and added to your W-2. This has proven to be the simplest idea.
Carry a personal cellphone also and only use it for personal calls.

Side Note: The IRS has determined that any calls made to your family or home are considered personal and taxable. I agree this does not make sense. If you call your family or home from your desk phone you are not taxed for it. However, if you do it from a company owned cellphone it is considered personal and taxable. It seems that the IRS says you derive a personal benefit from the ability to do that on the cellphone.

Healthcare Costs

2008-06-11T17:11:00.000-04:00

Question: The cost of healthcare is too costly for our church to provide benefits to a full-time employee. Is this illegal?

Answer: Employers are not required by law to provide health benefits to their employees. However, there could be legality problems if you provide healthcare for some full-time employees but not all of them. This would be a violation of ERISA.

However, your State Department of Labor and your State Deparment of Insurance should be consulted if your have large groups. For example, in NC all full-time employees must be treated equally. However, NC insurance laws do provide that if your group exceeds 50 full-time employees then you can create an executive class of employee. That executive class can be provided better benefits than the remaining employees. In NC if a company (or not-for-profit) had 51 full-time employees, it could create an executive class. In a church this could be the executive team or maybe the entire pastoral staff. If in this example there are 10 pastors and 41 other full-time employees and all full-time employees are provided employee only health coverage, the executive class could actually receive better coverage. They could receive employee/spouce coverage or even family coverage. The first requirement is size. Please note that additional consideration should be given to employee morale and stewardship.

Tax Guidelines for Love Offerings and Guest Speakers

2008-06-04T17:03:00.000-04:00

Question: What are the tax guidelines for love offerings for guest speakers and the local church?

Answer: In either case the amounts are taxable income. The local church should have the TIN (Tax Identification Number) for all vendors anc contract laborers. Guest speakers fall into the contact labor category. Typically, at the time you give them a check you can request that they complete the W-9 form. Love offerings collected for an individual that is already employed and compensated by the church are still taxable compensation when they are run through the church accounts and would have to be included as taxable in that individual's W-2 at the end of the year.

Any amounts given directly to that individual and not run through the church accounts are not taxable as income but they are also not deductible to the donor.

W-4 Annual Requirement

2008-05-28T16:26:00.000-04:00

Question: I am a bi-vocational pastor. My secular employer is a national company and does not require me to complete a new W-4 every year. Why does the church have to have a new W-4 for each employee annually?

Answer: IRS documentation is a bit confusing on this subject. The form W-4 instructions actually state that the purpose of the W-4 is to allow your employer to withhold the correct amount of federal income tax. They then state that you should consider filing a new form each year and when your personal or financial situation changes. This would seem to indicate that it is not required but optional.

I would agree with that notion except that the form actually changes slightly each year and it indicates on the form that the employer may have to file the form with the IRS. This seems to have the intent that it should be up-to-date at all times.

In my discussions with tax professionals, they all seem to agree that the form should be completed each year.

Setting a housing allowance

2008-05-15T17:01:00.000-04:00

Question: Our church is increasing our pastor’s compensation. I am not sure how much more he can claim as housing or if we handle it differently related to payroll reporting?

Answer: Typically the Council can set any amount as his compensation. The housing allowance can be amended at any time. It needs to be in writing and the approval needs to be in advance of any change. A minister can request a portion of his compensation be set aside as a housing allowance. He can not request the housing portion greater than the total compensation but can request it all. Any portion unused to cover qualifying housing expenses must be claimed by him as income on his tax return. You must still file a W-2 at the end of the year. If the compensation is low and they claim it all, W-2 boxes 1-4 may be $0, but the housing amount is placed in box 14 with the word “Housing” next to it.

Side Note: I do not recommend that full-time pastors claim all of their compensation as housing. It may raise red flags at the IRS. This is simply my recommendation. It is different for bi-vocational or part-time pastors who can easily use up all their compensation with housing expenses.

On his taxes the housing exclusion must be the lower of:
1. Actual housing cost spent
2. Housing allowance received
3. Fair rental value limitation of his domicile.

Qualifying housing expenses include:
Ø Down payment on a home purchase
Ø Up fitting costs after a home purchase
Ø Mortgage payments including P&I
Ø Property tax and hazard insurance
Ø Refinancing costs
Ø Home improvements or additions
Ø Large home repairs
Ø Appliance replacements
Ø Additional principal payments on the mortgage
Ø New furniture or home furnishings purchases
Ø Utility costs including telephone
Ø Landscaping
Ø Cable TV and security monitoring
Ø Insurance

Fair Rental Value Limitation = Fair Rental Value of Home + Fair Rental Value of Furnishings + Total Utilities (est.)

Fair Rental Value of Home = Home Fair Market Value (not original cost) X 12% (1% per month)
Fair Rental Value of Furnishings = Home Fair Market Value X 20% (industry standard)
Total Utilities = Amount of water, sewer, electric, heating fuel, etc.

What Kind of People for Your Team

2008-05-05T17:57:00.000-04:00

Question: What kind of people do you look for to be involved in the church administrative team and in church council?

Answer: If I could pick my dream team, let’s agree that these would all fit the standards laid out in scripture. They are also tithing partners (members) and are not new to the church. Obviously I want people with some administrative gifting. Gary Smalley calls them Beavers…the DISK profile calls them High Cs. In the beginning, with a small team I want someone with great organizational skills and someone with great management skills. I also think it is great to have someone with just great wisdom and good old common sense. Marketing people are great to help know how to make proposals and deliver results effectively. To offer balancing perspectives, I prefer to have both genders represented, as well as, differing ethnicities and age groups.

Meetings, Procedures & Importance of Church Administration

2008-04-20T18:06:00.000-04:00

Question: Please describe meetings procedures and the importance of church administration.

Answer: Each meeting needs to respect the time of the individuals involved. Most meetings we are involved in need to be no longer than 1-1.5 hour(s). A few exceptions may be Church Council Meetings, an offsite planning or strategy meeting, etc. Remember the quote: “The mind can only absorb what the seat can endure.” A meeting also needs to follow a reasonable agenda prepared in advance. Do not fly by the seat of your pants. It may initially be exciting to some who volunteer with you, but eventually everyone gets fed up with a lack of preparation and direction.

As far as meeting procedures…
1. Open/close every meeting with a simple prayer.
2. State the reason for the meeting and review the agenda.
3. Discuss the subject as needed.
4. Before ending, delegate any follow up items and assign them reason timeframes for completion or review.

Church administration is a ministry gift (Rom. 12:6-8; I Cor. 12:28) to be used by the Body of Christ. It brings efficiency and effectiveness to the other gifts. To not employ it would be like trying to win week in and week out with only an offensive team/strategy and no defense. You may be able to score well but your opponent is also completely free to score on you at will. The stakes are too high to risk that. People’s eternities are hanging in the balance!

Auto Bill-pay

2008-04-15T17:23:00.000-04:00

Question: Do you do any automatic bill-pay with your church accounts/recurring bills? With two signatures required on church accounts, is there was a way to handle that? For instance, our electric bill has 6 different accounts and we have had problems with the monies being applied incorrectly…Could an automatic bill pay option through our bank be another option to writing 6 checks?

Answer: We currently do not have any automatic payments. I think you may already be at the answer. Yes, two signatures are required. If you are willing to pay utilities via an automatic payment, then the two signatures would come at the signing of the agreement (which can be cancelled with some advance notice). This will free you from writing 6 checks, it will insure that the payments are applied correctly by the utility company, and it will allow you to code the payment in house. This is simply an ACH (auto-draft). It is different and separate from the online banking requirements put in place by ICFG last year.

Let me state the obvious. What you lose is flexibility with your payment timing. You will have to monitor cash flow near the monthly utility payment date.

Offering for Members in Need

2008-03-30T17:24:00.000-04:00

Question: How do we treat an offering taken for a member in need? For example a church member is hospitalized a church department decides to take up an offering for them. Are there any tax rules or procedures we should consider when receiving an offering for an individual?

Answer: Amounts collected for a specific individual are not tax deductible. Period. That is determined by the IRS. Giving deductible credit for such gifts will get your non-profit status revoked…for Foursquare churches that means you get the non-profit status revoked for the entire denomination since we are all one entity. Do NOT do this…Do NOT provide charitable credit for amounts directed to an individual.

Offerings can be taken specifically for individuals but without giving the donor charitable (tax-deductible) credit.

Tax deductible offerings can be taken for benevolence situations. Any benevolence amounts paid on behalf of individuals should be paid directly to vendors and it should be done consistently with your church policy for all cases. If announcements are warranted or necessary, they should be described in summary terms without associating names or individuals. An example would be: “The church has become aware of a situation that it would like to help. The dad is in the hospital and we would like to help offset some bills. If you would help please put mark the gift as benevolence.”

Filing Requirements - April 15

2008-03-15T17:21:00.000-04:00

Question: Is there any report I need to file for the church for April 15? I am not an accountant by any means but I can't find any info on what needs to be filed.

Answer: A form 941 Employers Quarterly return is required to report wages and taxes for all employees. There is no other tax to be filed by the church as long as it is incorporated as a 501(c)3.

Previous Filings
If your pastor is compensated you want to make sure that he previously received a W-2 for any wages above his housing allowance. That would require also filing a copy of his W-2 and a summary W-4 to the IRS. If there are any additional employees of the church then they would also need to have received a W-2 or 1099 depending on how they are compensated.

Organization Chart

2008-03-13T18:15:00.000-04:00

Question: If you were making an organizational chart for the church, how would you place people in leadership and the working side (business) of the church; who does it, where, when, how?

Answer: To me there are a few workable models. One is the fractal model used by Wayne Cordero. The other is the one we employ at Grace Covenant. Both include the idea that the Senior Pastor has a few direct reporting individuals who in turn oversee others. The fractal model may have 4-6 pastors or leaders providing oversight over segments of the ministry.

At Grace Covenant, the Senior Pastor has two direct reports who provide oversight to the staff. For us the Executive Pastor provides leadership to all the other associate pastors and guides the operations of the programmatic side of the church. The Administrative Pastor provides leadership for the ministry support staff, accounting department, facilities, school and other business/administrative aspects of the ministry. To do it over again, I could not say that every ministry would have a pastor leading it. The idea of full-time compensated directors leading ministries would probably come into discussion if we were totally reorganizing things.

Benevolence & Financial Assistance Requests

2008-02-15T17:26:00.000-05:00

Question: How do churches treat requests for financial assistance?...from non-members and members? Often they are requesting things such as food, rental assistance, attorney assistance, utility help, eviction prevention assistance.

Answer: At Grace Covenant there are several community resources that we give to each month. When non-members come to us we direct them to those agencies/ministries. They provide centralized screening that prevents individuals from abusing the generosity of churches by going from one and then to another repeatedly.

For members who fill out an application (they must make the request to us) for assistance, we assist them with up to a predetermined limit. Amounts are paid on their behalf. No funds are paid to them directly. A pastor works with all of these matters and a policy lets us be consistent. Exceptions to that must be some higher approval (Sr. Pastor or Council).
o Related to housing, we make no more than one payment. If more is needed to prevent eviction or foreclosure then we do not assist in that way. That sounds harsh but the reality in foreclosure or eviction is that 99% of the time one monthly payment will not solve the problem and then the funds are gone.
o For food we give them gift cards.
o We assist with utility bills.
o We don’t assist with legal bills. Attorneys all do some pro-bono work or have another way to work with their clients.

Who should administrate the church?

2008-02-05T18:14:00.000-05:00

Question: For a small church, should the pastor be the business administrator or should he try to delegate this?

Answer: In my opinion, he/she should delegate these responsibilities asap. Again the pastor represents the offense of the church. I do not want my QB having to run the defense of the church. In most cases it is not a fit in skill and talent. It is definitely not the right allocation of resources/man hours. Find a volunteer that you can oversee and/or train to really handle these burdensome areas. But you must inspect what you expect. Delegation is different than abdication as it relates to responsibilities.

Managing or Leading

2008-02-01T17:53:00.000-05:00

Question: What should a pastor look out for to avoid focusing on managing instead of leading?

Answer: I work on balancing my involvement. I do not want to get too involved or controlling in the details or the choices. That is micro-management…which is management. I want for those I am leading to discuss options and make recommendations not just present me with the information. I want them to explain their thinking. This gives me either teachable moments if I process differently or opportunities to affirm if I agree.

Ask yourself about your involvement based on your actions…Managing says “do this.” Micro-managing says “do it my way.” Leading says “accomplish these results” understanding there are often many methods. Worse than all of these would be “let me just do it” or “I will take over now.”

Administrative Pastor Position

2008-01-15T17:51:00.000-05:00

Question: What is you job description? How is it defined?

Answer: My title is the Administrative Pastor. Previously it was Church Administrator. We changed the title after I was ordained and because my Sr. Pastor wanted to increase the congregation’s awareness that I also function as a pastor.

This position is responsible for supervising the non-pastoral staff and for providing direction and oversight to the business affairs of the church, including the school and bookstore. Activities include but are not limited to financial management, oversight of purchasing, directing facility use and scheduling and maintaining policies, procedures and position descriptions. The position is the “chief financial officer” of the church and acts as head of staff in the absence of both the Senior Pastor and Executive Pastor. Additional excerpts from position description are available upon request.

Prayer Chains - Confidentiality?

2008-01-15T17:27:00.000-05:00

Question: Have you heard of any instances where churches have been accused of breaching confidentiality through their dissemination of information in prayer chains? We disseminate the information electronically to exclusively to prayer chain members but I am wondering to what degree is the church protected by someone submitting their information on a prayer request or praise report card. Does your church "cull" information or filter information from those reports/requests?

Answer: There are two issues (1)HIPAA (Health Insurance Portability & Accountability Act) and (2)confidentiality.
(1) I have attached a related article. In summary HIPAA does not stop a church from continuing its religious practices of prayer.
(2) We have found from experience that some people are willing to discuss every detail and other people don’t want anyone to know their fully human and capable of getting ill. Therefore related to confidentiality, we have instituted the policy that the individual requesting the prayer must be asked if this is confidential or if it can go on the prayer chain. Additionally, on the prayer chain we attempt to filter the information to include only facts relevant to prayer.

Leasing Out Facilities

2008-01-08T18:04:00.000-05:00

Question: We have a church that rents from us weekly. We have taken precautions in terms of insurance, but are there other things we should require?

Answer: There are Facility Use Agreement forms developed by the Foursquare denomination for that purpose. Additionally, we require that they follow all of our other safety rules especially related to childcare. All we need is to see on the evening news…“We have discovered that a child was molested at Grace Covenant Church last evening.” The news reporter won’t think to mention that the group had nothing to do with the church or that they were just using the facilities as a meeting place. It will be our reputation that is ruined.

However, don’t just say “no” either. That is almost too easy. Stewardship of facilities is a balancing act. Don’t forget that to win our communities, we must serve our communities. We can serve them and require that they work with our guidelines.

Housing/Parsonage Allowance Info - IRS

2008-01-06T17:55:00.000-05:00

Question: Do you have a packet or form for Licensed Pastor’s that come on board for housing/parsonage allowance or more importantly any IRS publications you provide relating to this?

Answer: Attached are two forms. First is a basic housing allowance form for use by the church, pastor and Church Council to document the housing allowances. The approval of the allowance is supposed to be before the calendar year, which typically means Council Approval in December.

Second is a Fair Market Rental Valuation analysis. Its explanation and additional worksheets can assist you in setting your housing allowance without exceeding the Fair Market Rental Value.

Third are the following links to the IRS website for areas related to clergy housing allowances.
http://www.irs.gov/faqs/faq4-10.html
http://www.irs.gov/faqs/faq-kw100.html
http://www.irs.gov/taxtopics/tc417.html
http://www.irs.gov/publications/p517/index.html

How do you handle financial aspects in a new church?

2007-12-17T18:00:00.000-05:00

Question: If you were to start pastoring a new church, how would you begin to approach the administrative/financial aspect of church? How do you start? What is your approach?

Answer: Assuming I understand the question, before accepting a new position, which I am first offered…I would ask several questions and wait for the answers. I would ask about the churches financial condition. Is it meeting its obligations? How many times have they missed payments? What is its financial reputation in the community? How much does it owe on its mortgage? What other obligations does it have? Besides paying its extension tithe and giving to missions, where else has the church given $$? Are there any other employees or compensated positions? I would want to know what I am walking into.

I would also investigate church compliance issues. I would want to meet the Church Council. Are they paying their extension tithe to the denomination? When was the last time they submitted their EZRA report and would review the reports for the past 2 years. I would want to know the date of the last church business meeting. I would want to read minutes for the past 2 years from the Church Council and business meetings.

If I misunderstood the original question and it was more about a church start/plant...
First contact your local ARC (denominational office). You will need to obtain a Federal ID. If you are a Foursquare church, do not do this on your own. You must go through the denomination. ICFG has a group of numbers that lead back to its’ master number and its’ non-profit exemption. Fed ID in hand you can set up a bank account which requires two signatures on each check. Next, create a budget for the first year and categorize it into each of 12 months. This will help you see cashflow needs in smaller manageable blocks. Finally, purchase Quickbooks for your accounting. If you are not great at accounting then recruit a key trusted volunteer who is.

Church Administrator vs. Licensed Pastor

2007-12-09T18:08:00.000-05:00

Question: As a church administrator, what value/benefits did you gain from becoming a licensed pastor – practically and spiritually?

Answer: Spiritually, we all benefit from further study. Practically, it was a huge help to go through the denomination’s polity course. Even if an individual chooses not to be licensed the polity course will be very beneficial. It made me aware of policies, governance, procedures and resources.

However, I am not in favor of people gaining their license just so they can claim a housing allowance. My opinion is that type of thinking diminishes how we perceive God’s call on others.

On a side note I do not think that every person holding a license should be called “pastor”. We have been too loose with the title. I think only those serving in a shepherding function should carry that title in the local church. In my case, even being licensed I carried the title of Church Administrator for 4 years. As I approached ordination and as my functions changed, I accepted with some initial reservation the Administrative Pastor title. I currently lead our small groups ministry and shepherd about 50 lay pastors. Additionally, I have for 6 years intentionally accepted the role of shepherding our support staff, which today includes 40 full- and part-time employees.

Faith or Fact in Finances

2007-11-14T18:12:00.000-05:00

Question: How do you lead people to accept a vision of faith in financial matters when they are focused on the facts?...and vice versa?

Answer: Wow! Is it just me or do these questions seem to be getting harder?
1. I think either way (faith or fact), it’s a matter of progressive education. Stewardship is a matter of balance and for me a place of healthy tension. Regardless of what side of the coin they are seeing it from today, each one needs to be open to a balanced perspective. If one is living in the fact camp then there needs to be encouraging conversations of “our” need to balance our fact with faith. Likewise, if one is living strong on faith, we must remember that faith without works is dead. Rather our faith must be able to work in every day situations and God requires action on our part. We should not presume that He will perform a miracle for every situation. That is not consistent with James Chapter 1. In both cases you can not assume that one sermon or one discussion will change things overnight.
2. I think you will also need to lead/encourage each to take small steps toward the other perspective. If one is already in the “fact” camp then Amos Dodge’s sermon from Tuesday morning at the 2006 ICFG convention is a great lesson. If one is already in the “faith” camp then encourage them to accept some realities, plan to live within budgets and when God does the miracle anyway there will be that much more $$ available.

Resources

2007-05-15T18:17:00.000-04:00

Question: We are a church of 250-300, what would be a good CD or DVD teaching on administration? I have learned most things through hard knocks and bruises.

Answer: I am not aware of a specific CD or DVD. However, I can recommend a few places that provide such resources.
Websites Books
www.nacba.net Simply Strategic Stuff – Steven & Morgan
www.churchlawtoday.com Risk Management in Churches – Cobble

If it is any consolation, my most valuable experiences were learned through hard knocks. I just hope to help each of you glean from my hard knocks and learn more valuable lessons from your own.

2007-05-15T17:54:00.000-04:00

Question: During your workshop at convention you talked about the relatively new system that Grace Covenant is using to record tithes and congregants, etc. I can't seem to find my notes on that. Could you give me that information again?

Answer: We are using Fellowship One software. It is a product of Fellowship Technologies. (http://fellowshiptech.com)
The project began because Fellowship Church (Pastor Ed Young) in Dallas Texas could not get from the other existing software what they needed to manage their church of 20,000 people. So programmers inside their church looked at competitors and then decided they would add functionality that the other programs could not and/or were unwilling to.

It is web-based and can be accessed from anywhere you have internet capabilities. We have been using it and have found that their constant upgrades are tremendous. They seem to be adding new functionality almost every month.

How do you communicate changes or events?

2007-05-01T18:10:00.000-04:00

Question: What are the best ways to communicate any changes or events to members? Less that 100 members?...larger church?...immense church?

Answer: We have tried answering this ourselves over the past several years. It is not as simple as a particular method(s). We have found that it depends on two things. 1) the church’s culture and 2) it’s season.

I recommend that you take a poll or questionnaire of your congregation. We did so by passing it out on a Sunday morning and asked them 3 or 4 questions that could be answered quickly and gave them a place for additional comments. From our poll, we discovered that 1) our newsletter was not helpful, 2) our bulletin in its original form was only being read by 10% of the congregation and 3) what the pastor said by way of announcements was effective for only a % of the congregation. This helped us craft a better way of communicating; methods that our congregants were alert to.