The Lowdown on New Overtime Pay Requirements for Nonprofits

The Department of Labor recently released an update to overtime pay requirements that has created a bit of a stir in the nonprofit sector. The new rule, which takes effect on December 1, 2016, expands the pool of employees who qualify for overtime pay. However, covered nonprofits have several options available to comply with the rule.

As a starting point, employees of nonprofit organizations are generally covered by the same overtime and minimum wage provisions of the Fair Labor Standards Act (“FLSA”) that apply to for-profits’ employees. Further, there are certain exceptions under FLSA that can remove employees from the purview of those provisions (commonly called white collar exceptions) that apply both to nonprofits and for-profits. In order to be covered, an employee either has to work at an organization that constitutes a covered enterprise, or be covered individually by virtue of interstate job activity.

  • Enterprise coverage: an organization is not a covered enterprise unless it engages in ordinary commercial activities that result in sales made or business done that equals or exceeds $500,000. Ordinary commercial activities would include an activity like a gift shop, but not activities that are charitable in nature like providing clothing or food to homeless persons. It is important to note that certain organizations are covered regardless of the dollar volume of business, such as hospitals and schools.
  • Individual coverage: individual employees of organizations that are not covered enterprises may still be covered by the FLSA if their job duties require them to engage in interstate commerce on a substantial level. This would include employees who regularly make out-of-state phone calls, send or receive out-of-state emails, or handle credit card transactions or related bookkeeping.

The overtime rule change doesn’t shift the overall regime of applicability discussed above. What the rule does is to update the salary level above which certain “white collar” workers may be exempt from overtime pay coverage. The rule moves the level from $23,660 annually to $47,476 annually—which means that more employees will be covered.

Nonprofit organizations have several options to comply with the new rule:

  • Review positions within the new threshold and confirm that overtime hours are not required (meaning employees typically work only 40 hours or less so no overtime will have to be paid, though the employees will now be overtime-protected in the event they work more than 40 hours in a week).
  • Raise salaries in excess of new threshold, to prevent application of the new overtime rule.
  • Pay overtime rates above a salary for covered employees.
  • Reorganize workloads, adjust schedules or spread work hours in order to minimize the applicability of the new overtime threshold.
  • Adjust wages and reallocate earning between regular salary and overtime so that the overall amount paid does not change (so long as the minimum wage requirements aren’t violated, and there isn’t continual adjusting of wages each workweek).

See Department of Labor Guidance for Nonprofits for more explanation and helpful examples.

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