By far, the largest portion of the budget for most churches is payroll. The average church spends 40 - 60% of the budget on wages and benefits. Therefore, the obvious choice to cut back expenses would be to lay off staff members immediately.
But before you do that, you need to be aware of a few things. Maybe you can save their jobs...
Payroll and Unemployment
Churches are exempt from paying unemployment taxes in most states. Although a church can voluntarily participate in a state’s unemployment program, this is extremely rare.
As a result, church employees ARE NOT eligible for unemployment benefits if let go from their job. It’s very important to understand this before handing an employee the pink slip.
In this article from Church Law and Tax, they discuss some ideas for how to handle laying off an employee.
Are Church Employees Eligible for Unemployment Benefits? (Church Law and Tax)
But I strongly suggest that you take a hard look at the new CARES ACT (see below) as an opportunity to keep paying your employees.
CARES Act and Payroll Protection
The CARES Act provides a loan program to cover payroll for the period February 15, 2020 through June 30, 2020.
In addition, if your church follows certain provisions (maintaining all employees over the course of the next year), the loan will be eligible for forgiveness. Essentially, the loan turns into a grant.
This could significantly impact any decisions regarding laying off employees.
This is discussed in more detail in my Government Response blog from a few days ago and in the US Chamber of Commerce link below.
Coronavirus Emergency Loans: Small Business Guide and Checklist (US Chamber of Commerce)
The CARES Act also includes benefits such as:
Delay of payment of employer payroll taxes
Employee retention payroll tax credits
Unemployment reimbursement
Please see the article below from ECFA about how the bill specifically affects churches.
For an extensive list of helpful information about the impact of the stimulus bill on churches, go this ECFA site:
ECFA COVID-19 Resources (ECFA)
On April 2, Church Law and Tax broadcasted a free webinar about the impact of the CARES Act on Churches. You can view it here:
Churches and the CARES Act (Church Law and Tax)
Managing Church Expenses
You must rebudget. There’s no way around it. It is the prudent and responsible thing to do.
If you haven’t gathered your Finance Team/Committee, you should schedule a (video) meeting ASAP.
Plan for a drastic reduction in income. Go through the budget line by line and re-prioritize everything.
Your rebudget process should be like starting from scratch. In my ebook “The Financially Healthy Church”, there is a chapter on classifying each expense as a need vs. want. Here’s an excerpt:
If you have kids, you’ve likely had the discussion of needs versus wants. Kids want every cool, new thing they see on commercials or in the store. They have big eyes and sticky fingers. But, as the parent, it’s your job to determine if you can afford it within your budget.
Just like with a home budget, you must separate the needs and the wants of the church before budgeting. If the budget is tight, needs versus wants is your starting point.
Every church has needs. These are your essential expenses like pastors, support staff, worship space, utilities, insurance, office supplies, etc. If your church has debt, repayment is an essential expense. Without these things, your church would literally not exist.
But the list of wants may surprise you. Believe it or not, highest on the list of wants is missions. Missions budget items include missionary boards, homeless or needy ministries, food banks, and the list goes on.
If you can’t afford to pay the bills, then you simply can’t afford to fund missions. Don’t worry, you can easily add missions back in as soon as the financial house is in order. It’s easy to write a check. And it will be incredibly rewarding when you can afford to do it again.
When on a tight budget with only essentials, you should have a wish list in case giving picks up again. Write them down in priority order with estimated costs. This will help you make better, informed decisions when the money becomes available.
Every little bit counts during financially difficult times:
Make sure all lights are turned off when the building is unoccupied
Make sure the A/C set/programmed for maximum energy efficiency
Make sure there are no leaky faucets
Look for any recurring expenses and subscriptions which can be canceled