By Brent Lacy

This is one of the most uncomfortable conversations in small church ministry.

The church needs a pastor. The pastor needs to eat. The budget is tight. Nobody wants to be the person who puts a dollar amount on a calling.

But underpaying your pastor isn’t humility. It’s a slow-motion crisis. Financial stress is one of the leading causes of pastoral burnout and ministry exit. When a church fails to compensate its pastor fairly, it’s not saving money. It’s borrowing against the future.

Why This Conversation Is Hard

Most church boards avoid the compensation conversation because they don’t know what’s fair, they’re afraid of what they can’t afford, or they feel awkward putting a price on ministry.

All three are understandable. None of them are good reasons to avoid it.

Fair compensation isn’t a business decision. It’s a biblical obligation. The question isn’t whether to compensate your pastor fairly. It’s how to do it wisely given your church’s resources.

What Compensation Should Include

Most small churches only think about the salary. That’s a mistake. A complete compensation package has several components.

Base Salary

For a bi-vocational pastor in a church under 100 in attendance, a reasonable base salary in 2026 is $8,000 to $20,000 per year, depending on hours expected and church budget. The key question isn’t “what can we afford?” It’s “what is fair for the hours and responsibilities we’re asking for?”

Housing Allowance (IRS Section 107)

This is the most valuable tax benefit available to ordained ministers. A housing allowance is a portion of the pastor’s compensation designated in advance by the church board for housing expenses. That amount is excluded from federal income tax.

For it to qualify, the allowance must be designated in writing before it’s paid, used for actual housing expenses, and it can’t exceed the fair rental value of the home plus utilities.

Mileage Reimbursement

Bi-vocational pastors drive a lot. Hospital visits, home visits, denominational meetings. The 2026 IRS standard mileage rate is 70 cents per mile. Track miles and reimburse them. It’s not taxable income to the pastor.

Continuing Education

Budget $500 to $1,000 per year for books, conferences, and training. A pastor who stops learning stops growing. This is an investment in your church’s future.

Health Insurance

If your church can’t afford to provide health insurance directly, look into a Health Reimbursement Arrangement. An HRA lets the church reimburse the pastor for individual health insurance premiums tax-free.

A Sample Compensation Framework

What Your Church Can Afford

A healthy church should spend 40 to 50 percent of its budget on pastoral compensation. If your total annual budget is $60,000, that means $24,000 to $30,000 for pastoral compensation, including all the components above.

If your budget can’t support fair compensation, that’s important information. It may mean the church needs to grow its giving before calling a pastor, or the pastor’s hours need to be adjusted to match what the church can pay.

The Annual Compensation Review

Set a date every year, ideally in October or November, to review the pastor’s compensation. Consider cost of living increases, changes in responsibilities, church budget growth, and feedback from the pastor.

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