Does Your Nonprofit Understand the New Overtime Rules?

Overtime Rule for History Nonprofit Organizations

As the December 1st enforcement deadline looms for the Overtime updates, is your non-profit scrambling to even understand, much less implement the changes required for you and your employees? Although there are no substitutes for a lawyer and it’s always best to speak to an attorney or accountant for specifics on your organization, you should at least understand the adjustments. This will help to ease your mind or to help you prepare this fall!

So what is the FLSA?

The Fair Labor Standards Act is federal law passed in 1938 designed to protect the rights of workers by setting the 40-hour work week, establishing minimum wage federally, and establishing “time and a half” overtime for work beyond 40 hours. FLSA also kept children under 18 from performing more dangerous work and children under 16 from working during school hours. The law was a critical piece of New Deal legislation to ensure workers in the United States were being treated fairly and safely.

What is the “Overtime Final Rule” and what changed in the Overtime Laws?

Overtime Final Rule and FSLA for nonprofitsThe Overtime Final Rule is the set of regulations affecting the FLSA that decide who is and is not exempt from overtime pay. These are updated periodically and include salary levels that dictate whether or not your employees are entitled to overtime pay if they are salaried.

Here’s the part to remember…salaried employees are the ones being referred to in this legislation. If your hourly employees work more than 40 hours in a week, you need to be paying them overtime. In the non-profit world, however, many of us find the concept of 40 hours to be something of a laughable and inconceivable concept…especially around fundraising and events!

The overtime rules state jobs such as nurses will receive overtime and lawyers and teachers will not. It also establishes what the salary threshold is for a salaried employee to work under the “white collar exemption,” meaning overtime is not paid. To simmer it down- in the past if your employee was salaried at or above $455 per week ($23,660 per year) they could work overtime without additional compensation. After 12 years without an update, the Department of Labor updated these rules in May with a new salary threshold of $913 per week ($47,476 per year), nearly twice the previous amount. To fit under the white collar exemption, the employee must:

be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);

be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and

primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).

*Department of Labor, May 2016.

But as a non-profit, aren’t we exempt?

Yes, and no. The Department of Labor sets up two types of coverage for nonprofit exemptions under these overtime rules—one for the organization (called Enterprise Coverage) and one for specific individuals working for the organization. Let’s take a look at the two.

Enterprise Coverage

Enterprise coverage is just as it sounds, coverage of the organization as a whole. The exemption here applies to groups with annual sales of under $500,000. What does that mean? If your nonprofit makes less than $500,000 in sales (non-membership and non-donated revenue) you could be exempt from the new overtime rules more so than if you made more than the half million-dollar mark. More specifically, the DOL refers to examples of non-charitable activities that make up the $500,000 as gift shop sales, operating a veterinary clinic that charges fees, etc.

Again…donations and memberships are not part of the $500,000 threshold.

In addition to the $500,000 threshold for deciding organizational exemption, note several enterprise categories are listed individually, including hospitals, nursing homes, schools and preschools (with exception of teachers), and government agencies. These groups do not fall into the exemption regardless of income and must pay overtime.

Individual Coverage

Okay, so we’ve established that some of your non-profits may be exempt because of the budget threshold…but it’s not the end of discussion quite yet. Even though your organization might be exempt, certain employees might not. Let’s take a look at the rules for this section.

According to the Department of Labor, individuals (even in exempt organizations) must be paid overtime if they are involved in commerce over state lines. You may be assuming that’s a non-issue, however according to the DOL:

Examples of employees who are involved in interstate commerce include those who: produce goods (such as a worker assembling components in a factory or a secretary typing letters in an office) that will be sent out of state, regularly make telephone calls to persons located in other States, handle records of interstate transactions, travel to other States on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the State.

*Department of Labor, May 2016.

Do your membership mailings go nationwide? Does your CFO or Finance Coordinator pay bills that are sent to other states? Do you accept credit cards? Order items online? All of these are considered interstate commerce and thus employees performing these functions are eligible for overtime under the Individual Coverage portion of the rules. In a nutshell, at a minimum your CEO/ED and CFO/Finance staff, if paid under $913 a week, would fit the guidelines of individual coverage for overtime, even if your organization is exempt from these rules under the Enterprise Coverage threshold, because there’s a good chance they are all involved in interstate commerce.

What do we do?

Now you’ve established which employees have been salaried and previously not been paid overtime, you can figure out what needs to change from here. The frightening problem for non-profits with many low to mid-range salaries is mildly obvious, primarily because without a massive amount of new fundraising or complete reorganization, it would appear overtime is now paid to all salaried employees above that level. There are two ways of thinking a non-profit can use, however to go about this.

Make the most of it!

The first is discussing this with your donors and board. Use this as a fundraising tool! Now is the time to dust off your mission statement and stories of all the great things you do to discuss how you need financial support to meet the ever changing regulations and to ensure, even in a nonprofit, that your employees are taken care of. You may find this opens the door to fundraising opportunities beyond just the funds needed to cover the differences in overtime. An open discussion with a donor over why your organization is worth it might lead to a new funding stream for other programs as well!

The second line of thinking is to mitigate the financial impact it will have right now. This can be done in several ways to help streamline who is exempt under individual coverage. It’s been established that your CFO and CEO are going to be either exempt from receiving overtime due to being over $913 a week in salary or must be paid if they are under that level due to their interstate commerce duties. That being said, a shift in duties, even while planning how to raise the necessary funds to shift them back, might be in order to ensure less of your staff hits the “over 40-hour mark.” Various options for mitigating the financial impact of these changes on your current year’s budget should be discussed with your board treasurer, CFO, and an attorney familiar with Human Resource law. It is better to ask now than risk a DOL audit in the future.

In Conclusion

The financial impact on the nonprofit sector has yet to be seen with these overtime changes, but hopefully, this article helped give you a rough idea of what’s ahead and how to plan. Contact an expert on your board or in your area for more information on how this will affect your nonprofit and see the nonprofit brochure from the Department of Labor at https://www.dol.gov/sites/default/files/overtime-nonprofit.pdf