Church Accounts | Why Are Minister Expense Allowances so Difficult?
Welcome to the next post in our series on church accounts - focusing on Minister's Expense Allowances.
We should note that these allowances have a number of different names amongst different churches, for example:
* Minister's Expense Allowance (MEA)
* Non-cash Benefits (NCB)
* Pastor's expense
* Fringe Benefits
* Tax-free components
* Other Allowances and Benefits (Housing, Accomodation, Motor, Books, Phone, etc)
Regardless of the name given, in each case we are recognising that tax law provides a concession to religious workers in terms of their income tax obligations. This whole area of church bookkeeping can often be an area of confusion, uncertainty and frustration.
Why? Here's our take on the key pain points. (Note, for ease of reference we'll refer to these allowances as MEA)
1. MEA is common in churches, but less common in businesses
Often the volunteers or staff who are looking after MEA may have some familiarity with business payroll, or their own payroll as an employee. But for businesses of the same size as churches it is very rare to have a payroll structure that is anywhere near as complex as MEA arrangements. This means that we are often dealing with new territory and a steep learning curve in trying to understand how it all works. And not only how it all works, but how to administer MEA in a practical and achievable way.
2. There are a multitude of ways to structure MEA
Tax law does not specify exactly how MEA is to be structured within the internal accounts and processes of a church. This is left up to the denomination or individual parish to come up with something accurate and practical.
There are way too many options to detail here, but some of the variables to be considered are:
* How much salary can be put into MEA?
* What other MEA components will we have?
* Are we going to run a separate bank account (or even multiple bank accounts) to administer MEA?
* Will MEA be shown on the employee payslip or not?
* Will MEA be paid up front, or paid retrospectively when claimed?
* How will MEA be shown on the church balance sheet?
* Will components of MEA be treated separately, or lumped together?
What we've observed is that because of all these variables, churches can, over time, end up with an MEA structure that is overly complex and a burden to the team to administer and understand.
3. Uncertainty as to what MEA can be used for
Another area that can be confusing.
Again, tax law does not give specifics of the form in which MEA can come to the employee, so it's often denominational and local policy that applies. Once the policy is understood, all is fine. But this can be foreign territory for new staff and office-holders, and very different to previous employment experiences.
4. Working out how GST fits into all this
As if we haven't raised enough difficulties already, let's throw GST into the mix.
GST in churches can be complex anyway, and MEA is no exception. They key questions that need to be answered are:
- Which parts of MEA (if any) will be eligible to have GST credits claimed?
- How do we process this in our accounting software to ensure these credits are claimed on the BAS?
- How do we ensure that MEA accrual and bank balances are correctly adjusted to reflect GST transactions?
In the business world these types of complexities will generally be handled by a specialised staff member or a contracted BAS Agent. So, when our church team is trying understand and account for these details, frustration is understandable.
5. Getting useful reports to the team
Assuming we can get the structures under control, staff can still be in the dark as to the status of their MEA. Most staff do not have access to the church's accounting system. So, unless there are timely reports coming through to them, they may not have a good gauge on the status of their MEA.
Information that's going to be useful to staff is:
- How much of their MEA have they used in the last period?
- How much MEA is still available to be used?
In a sense, the reporting will simply be a reflection of the data integrity in the rest of the system. If the system is structured and administered well, the reports will be meaningful and useful.
6. Achieving predictable and reliable workflows
There's a very practical and personal element to MEA - that is getting actual payments flowing through to the bank accounts of our ministry staff.
Elements that are important for an MEA workflow include:
- Simple, standardised documentation processes
- Clear approval process
- Regular payment process
If any of these elements are missing, delays or unnecessary mistakes are almost inevitable.
Well, that's probably enough MEA issues for now, let's not get too disheartened!
The good news is, help is available:
- most denominations have great guidelines and support to help you administer your church's MEA
- there may be experienced administrators, bookkeepers, payroll clerks or accountants within your church who can assist
- there are experienced, professional services (like us!) who specialise in church payroll and MEA
We hope this has been a beneficial read for you, and we're here to help with any questions you may have.
In our next article we are going to tackle a question you may be familiar with ... "Um, how much can we spend?"
Until then, thank you and goodbye!