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A Nonprofit’s Complete Guide to Understanding the New Overtime Rules

A Nonprofit’s Complete Guide to Understanding the New Overtime Rules

New overtime regulations, enacted under the Fair Labor Standards Act (FLSA) will go into effect on December 1st, 2016, which will affect the nonprofit sector in addition to for-profit businesses. The new regulations update the salary threshold for white collar workers who do not receive overtime pay, from $23,660 per year to $47,476 per year for a full-time worker.

The government is conscious of the impact of this ruling for nonprofit businesses, but still wants to ensure their employees are paid fairly for a full, hard day’s work. According to the United States Department of Labor, “Non-profit work is a complex and important sector in our economy and civil society. The Department recognizes and values the enormous contributions that non-profit organizations make to the country. Many non-profit organizations provide services and programs that benefit vulnerable individuals in a variety of facets of life, including those workers who the Department also works to protect by ensuring that their workplaces are fair, safe, and secure.”

Some Not-for-Profits will not be covered under FLSA. This guide will help your nonprofit determine if your organization or employees are covered under FLSA. It will also help you understand the implications of the ruling on your coverage under the Fair Labor Standards Act (FLSA), and options for paying your employees after December 1st if they are not exempt under FLSA.

Nonprofit Coverage Under the FLSA

The FLSA offers two types of coverage to non-profits:

  • Enterprise Coverage: Businesses or similar entities fall under ‘enterprise coverage’. This applies to organizations with at least $500,000 in annual sales. For nonprofits, this only applies to the sales from business activities, such as a gift shop or services for a fee. It does not include revenue from charitable activities or the contributions, donations, membership fees, or dues that are used for the charitable activities. Exemptions: All annual sales from Named Enterprises (hospitals, schools, government agencies, and businesses that provide medical or nursing care for their residents) are covered by the FLSA regardless of their non-profit status.
  • Individual Coverage: Employees could be entitled to FLSA protections if they engage in interstate commerce (or are involved in production of goods for interstate commerce). Some examples include interstate phone calls, shipping of materials between states, or transporting people or property to another state. “This individual coverage applies even if the employee is not engaging in such activities for a business purpose,” according to the United States Department of Labor. “That employee is protected by the FLSA on an individual basis, even though the nonprofit may not be covered as an enterprise.”

Exemptions for Nonprofits

Although the new regulations for overtime pay create some difficulty for for-profit and nonprofit organizations, alike, nonprofits should take note of some specific exemptions that they may qualify for:

Volunteers. In certain circumstances, nonprofits can continue to use volunteers that are not under the FLSA coverage. These include charitable, religious, humanitarian, civic, or similar public service non-profit organizations. However, individuals cannot volunteer time to a nonprofit by whom they are employed to perform the same type of work.

Hourly Workers. The new overtime rules apply only to salaried employees, so the new threshold won’t impact your hourly workers (they are already entitled to overtime beyond 40 hours worked in a week).

Non-Overtime Workers. Many salaried office employees have a workweek of 40 hours or less, and these employees will not be affected by the new regulations, unless they work more hours.

Highly Compensated Employees. Salaried workers who earn more than $134,004 per year are almost all ineligible for overtime under the new regulations, even if they fail the standard duties test.

Nonprofit workers who don’t do interstate commerce. At nonprofits that don’t meet the Enterprise Coverage threshold ($500,000 or more in annual business activity sales), employees who don’t engage in interstate commerce (interstate phone calls, shipping of materials between states, or transporting people or property to another state for example) in the course of their job duties would not be entitled to overtime.

A Nonprofit’s Options with the New Overtime Rule

For compliance guidance with the new federal overtime rules, check out these important resources. If a nonprofit doesn’t meet the criteria for exemptions, and its employees consistently work more than 40 hours per week, nonprofit employers have a few options on and after December 1st.

  1. Increase salaries. If your workers’ salaries are close to the $47,476 threshold and they meet the duties test, nonprofit employers can raise their salaries to maintain exemption.
  2. Pay overtime. You can continue to pay your salaried employees at the same rate, and pay them overtime for the hours they work beyond 40. This is ideal for workers who normally work 40 hours or less each week, but have occasional or seasonal spikes that require overtime.
  3. Redistribute workload. You can reduce or manage your need for employees to work overtime by redistributing work and balance staffing levels to suit.
  4. Adjust workers’ base pay. Amend the breakdown of an employee’s earnings to allocate regular pay (hourly or salary) plus overtime in cases where the predictable overtime is relatively small.

Why Nonprofits Shouldn’t Worry About the New Regulations

Since the announcement about the new overtime regulations was released in May, there has been quite a bit of media messaging about how the ruling will seriously harm nonprofits, specifically those who provide services to the poor and disadvantaged. However, these claims are generally misplaced and demonstrably false. The new regulations will certainly affect nonprofit businesses and their payroll expenses, however, the regulations aren’t nearly as radical as media outlets are suggesting.

The Fair Labor Standards Act (FLSA) first enacted in 1938 was designed to guarantee an employee minimal level of protection for their wages, and although simple, the rules have worked. At the federal level minimum wage is $7.25 per hour, and in Washington State, it’s $9.47 per hour. After 40 hours worked in a given week, the employee is required to be paid time-and-a-half for any additional working hours that week. This coverage and guarantee doesn’t extend to all employees or employers, however, which has led the Department of Labor to issue this new final rule to update overtime regulations (as supported by President Obama and Secretary Perez).

“This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work,” according to the Department of Licensing.

Nonprofits shouldn’t worry about the new regulations first because they are designed to protect their workers – a key asset of any nonprofit organization and indeed, any business and secondly because the federal government has put key coverage exemptions in place to protect certain aspects of many nonprofits’ business operations, specifically, the $500,000 threshold on sales revenues. If your nonprofit earns less than $500,000 on your business activities alone, and makes the rest of your revenue from contributions from donors, etc., your salaried employees are most likely exempt from overtime.

As the Economic Policy Institute notes, “Most nonprofits, including the charitable organizations providing free meals to the hungry and nonprofits providing addiction or mental health services are not engaged in business, they are providing charitable services and therefore their employees are not typically covered by the FLSA.”

These new regulations are not burdensome for employers of any type, if they are not overworking their employees or paying them negligible salaries. And they will have little impact on nonprofits who provide charitable services by only requiring overtime pay on normal business activities beyond a 40-hour work week. Of course, nonprofits can certainly bring their pay standards up to match the regulations for-profit businesses will have to meet under the law, and it might be beneficial for them to consider doing so.

Need more information? Washington Nonprofits is hosting a two-hour seminar on The New Overtime Rules – What Your Nonprofit Needs to Know, on November 1st, 2016. Click here for details and to register. The seminar will cover the changes of the rules and who they apply to, determining on-duty time for employees to travel or work overnight (i.e. youth camp programs), and preparation guidelines for implementation.

Featured photo source: Pixabay.com

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