The compensation conversation is one of the most avoided conversations in small church ministry. The pastor knows they are underpaid. The board knows the pastor is underpaid. Nobody wants to have the conversation because nobody knows what to do about it.

This article is for both sides of that conversation. For the pastor who needs to understand their financial situation clearly and advocate for themselves appropriately. And for the board that wants to do right by their pastor but does not know how.

First: Get Clear on the Numbers

Most bi-vocational pastors do not have a clear picture of what they are actually receiving from the church and what it costs them to serve. Before any conversation about compensation, both the pastor and the board need to understand the full picture.

What the church provides should include not just the cash salary but the housing allowance (if any), any benefits, reimbursements for ministry expenses, and the value of any non-cash benefits like a parsonage or a vehicle allowance.

What it costs the pastor to serve should include the time cost (hours per week times a reasonable hourly rate), any out-of-pocket ministry expenses not reimbursed, and the opportunity cost of time not spent on the day job or with family.

When both sides see these numbers clearly, the conversation becomes more honest and more productive.

The Housing Allowance: The Most Underused Tool in Small Church Compensation

The housing allowance is one of the most significant financial benefits available to ministers, and it is dramatically underused in small churches. A properly designated housing allowance allows a minister to exclude a portion of their compensation from federal income tax, potentially saving thousands of dollars per year.

The allowance must be designated by the church board in advance of the year in which it is paid. It cannot be designated retroactively. The amount excluded is limited to the lesser of the designated amount, actual housing expenses, or the fair rental value of the home furnished.

For a complete guide to housing allowances, self-employment tax, and bi-vocational pastor compensation, see the Bi-Vocational Ministry Legal, Tax and Compensation Guide.

When the Church Genuinely Cannot Pay More

Sometimes the honest answer is that the church cannot afford to pay the pastor more right now. This is not a failure of generosity, it is a financial reality. When this is the case, there are still things the board can do:

Maximize non-cash benefits. A housing allowance, a ministry expense account, continuing education funding, and paid time off cost the church relatively little but can significantly improve the pastor’s financial situation.

Commit to a review schedule. Tell the pastor that compensation will be reviewed annually and that increases will happen as the church’s financial situation allows. Put this in writing. A pastor who knows the board is committed to improving their compensation over time is in a very different position than one who feels permanently stuck.

Be honest about the timeline. If the church’s finances are genuinely constrained, tell the pastor what would need to change for compensation to increase. More giving? A certain attendance threshold? A specific financial milestone? Clarity is better than vague promises.

Express appreciation specifically and publicly. This does not cost money. A board that regularly and specifically expresses gratitude for the pastor’s service, in board meetings, from the pulpit, in writing, is providing something that money cannot buy.

The Conversation the Pastor Needs to Have

If you are a bi-vocational pastor who is underpaid and the board has not initiated a compensation conversation, you may need to initiate it yourself. This is uncomfortable. Do it anyway.

Come to the conversation with data, not emotion. Know what comparable positions pay. Know what your housing allowance situation is. Know what your ministry expenses are. Present the information calmly and factually.

Frame the conversation around the church’s health, not just your personal need. A pastor who is financially stressed is a pastor who is distracted. A pastor who feels valued is a pastor who stays. Both of these are in the church’s interest.

Related Resources

• Bi-Vocational Ministry Hub
• Legal, Tax and Compensation Guide
• Legal and Tax Resources
• Church Finances and Stewardship