This post was last updated on March 30th, 2021 at 04:50 pm.
Payroll is one of the most difficult, time consuming, and costly administration tasks churches repeatedly encounter. Churches of all sizes are required to use “fund accounting” as described by the Financial Accounting Standards Board (FASB) guidelines. Fund accounting is a specialized way of accounting designed for nonprofits; if you use this accounting method we recommend you read this informative interview with Nate at The Church Accounting Software Guide.
More often than not, Payroll + Fund Accounting = Confusion
FASB Reporting guidelines add to the difficulty, time, and costs already associated with payroll. For example, churches can use money in the General Fund and the Youth Fund to pay the Senior Pastor and Youth Pastor, respectively. Alternatively, both Pastors may be paid using money from the General Fund. On top of regular income, IRS reporting and taxes vary for items such as housing allowances and vehicle expenses. Paying church staff members can also prove to be tricky; reporting and taxes for hourly or salaried employees follow a completely different set of guidelines altogether. Payroll management also tends to get significantly more complicated for multisite organizations.
Payroll does NOT have to be time-consuming
The initial setup of a payroll system is expected to take some time; however, this task may be considered to be of lesser importance since it is not recurring. Completing the payroll for each pay period, on the other hand, needs to be fast and relatively simple. An effective, easy-to-use church payroll solution will substantially reduce the time needed for you to complete recurring payroll cycles, therefore lowering the overall costs associated with payroll. Evaluate your current payroll system by asking yourself these questions:
- How long does it take me to print employee paychecks?
- Can I pay tax liabilities to government agencies quickly and efficiently with only a few clicks of the mouse?
- Are the liability accounts automatically updated when I cut checks to make these payments?
*Making consistent entries to liability and expense accounts each pay cycle minimizes the likelihood of mistakes.
The Ultimate Cost-Saving Secret:
Systems that charge thousands of dollars for payroll essentially offer the same benefits and features as basic payroll software. Some of the expensive payroll systems do not even comply with fund accounting guidelines. The price of church payroll software is dependent on who enters the tax formulas, so find a package that requires the church to input the tax formulas. If your church leaders are willing to put in a few hours of work at the start, they can save the church hundreds if not thousands of dollars each year in payroll expenses.
Icon Systems has streamlined the recurring task of paying employees by incorporating payroll into the IconCMO fund accounting software system in order to reduce the difficulty, time, and high costs associated with church payroll administration!