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There are many facets of church accounting. Church accountants help manage tithes and offerings, designated funds, expenses, and savings. One of the biggest items on the financial agenda of any church, though, is payroll.
As you hire, pay, and let go of employees, it’s wise to do so in a responsible and efficient manner. Here are seven faith-based payroll best practices to help your church’s employment activity stay on the straight and narrow.
One of the biggest nuances to church payroll is the question of who is working for you in what way. Pastors are the most common payroll factor that can create confusion. Make sure you understand things like your pastors’ dual tax status and housing allowance questions.
In addition, review all of your staff and consider who is a contractor and who is an employee. This has a big impact on how you handle things like payroll, benefits, and tax status and compliance.
Payroll consistency is essential to maintaining clean books as a church. Even if you’re working with contractors, don’t haphazardly issue payments. Get on a schedule for your payroll frequency and designate who is in charge of payroll.
Be detailed, too. Use a reputable church payroll solution and record every important piece of payroll data. Issue W-4s to all employees and keep it on record so that you know how much income tax to withhold. Give all freelancers and contractors a W-9 form to ensure you have the right information on record for them, as well.
Investing in the accuracy of your payroll activities makes it easier to maintain compensation practices that are predictable and easy to report.
Payroll can be confusing at the best of times. For someone who is ill-equipped, it can be completely overwhelming. Consistent training ensures your church payroll staff can maintain consistency and accuracy over time.
Take the time to conduct initial training on your church’s payroll software. Once that’s done, regularly spend time staying up to date on regulations, such as minimum wage laws, overtime rules, and tax withholding.
The IRS has made audits sound scary. In reality, auditing is objectively evaluating your church’s financial statements. When you do this yourself as a best practices measure, it can protect your payroll activities (and help you pass any government audits with ease).
Regularly review how you’re managing your ministry’s payroll. Research recent regulation and compliance developments, consider any additional training that is needed, update policies and procedures, and generally take action to keep your payroll consistent, accurate, and understandable.
If you find payroll is too much for you or your staff to handle, don’t just muscle through. That can make a mess. Instead, seek help. Contact a reputable Christian CPA or church accounting firm.
Outsourcing payroll removes pressure and improves accuracy. It frees your team up to focus on your ministry and, often, ends up saving you time and money in the long run.
If you’re going to bring in a third-party payroll solution, make sure to look for one with a faith-based focus. Christian CPAs are much easier to work with in a ministry setting.
A CPA that understands the church is going to be able to help you tackle nuanced questions, like clergy payroll and nonprofit tax deductions. They’ll know what forms to use as a nonprofit.
They’ll also be better at communication. A Christian CPA will naturally understand church terminology. They’ll be able to grasp the financial implications of faith-based mission statements, and kingdom-minded initiatives.
As churches grow, so do their payroll considerations. Don’t let your church’s payroll get out of hand. Use the tips above to maintain clean, accurate books and a happy, compensated staff that is focused on your God-given vision.
For more information on Church accounting, check out our FREE ebook: Taking Church Accounting Seriously: A Guide to Godly Prioritization of Finances in Church.
If you have any further questions, we’re happy to help answer them. Let’s talk about how to build a healthier financial future for your church!
