New FLSA Overtime Rules: Effect on NFPs
posted Aug 16, 2016 by Sandy Ross, CPA, CFE in the Mission Matters Blog
Are you wondering how the new overtime rules will affect your not-for-profit organization? The Department of Labor has introduced sweeping changes regarding overtime pay rules under the Fair Labor Standards Act (FLSA). Though the rules generally do not apply to entire nonprofit enterprises, individual employees might qualify—which could mean significant changes to your program labor costs.
Effective December 1st, 2016, the final rules update the salary threshold under which nearly all white collar employees are eligible to overtime pay. The final rule raises the salary threshold from $455 per week to $913 per week ($23,600 for a full year worker has changed to $47,476). For more information, read our blog, ‘Just In: DOL Changes FLSA Overtime Rules’.
Effect on NFPs
Though the new rules affect a lot of hospitality workers, the Fair Labor Standards Act (FLSA) and the DOL do not provide an exemption from overtime requirements for not-for-profit organizations, generally speaking, however there are likely nonprofit workers who are eligible for the exemption.
Two types of coverage:
The FLSA offers two types of coverage under the new guidance:
- Enterprise coverage- This covers businesses and similar entities with annual sales or business of at least $500,000. When applying enterprise coverage to a non-profit, organizations can only put the coverage towards activities performed for a business purpose. An example of this would be an organization that operates a gift shop in addition to the primary support services as a nonprofit.
Key Factor: that the $500,000 threshold does not include contributions, membership fees, dues, cash and noncash donations.
- Individual coverage- Under this coverage, employees are entitled to FLSA protections if they are engaged in interstate commerce or in the production of goods for interstate commerce. What’s included in interstate commerce, you might ask? If an employee makes or takes interstate phone calls, transports property or people to a different state, or sends materials to another state, they are considered engaged in interstate commerce.
Note that activities under individual coverage do not have to be designated towards a business purpose (an individual who regularly calls and orders food from an out of state store for your food bank, for instance, would be covered on an individual basis even though your organization would not be covered as a whole).
There are also enterprises known as “named enterprises” who are covered by the FLSA even though their annual business or sales are under $500,000. This includes:
- Schools (including preschools)
- Businesses providing medical care
- Business providing nursing care for residents
- Government agencies
Several options for NFPs
There are a number of choices for employers when complying with the new regulations. For NFPs that gain most or some of their funding from the government or private grants, careful and thorough consideration of the following options is crucial.
- Pay overtime above a salary- You might also consider resuming salary pay for employees who are newly eligible for overtime. You can pay overtime for hours exceeding 40 hours per week. This option is beneficial for those employees who work 40 hours or less in a typical week, but have busy peaks during the year that requires overtime work.
- Raise salaries- Employees who meet the duties test and make close to the new threshold amount; you might consider raising their salaries so that they maintain their exempt status.
- Evaluate and realign employee workloads- You can also closely manage time and or distribute work so that certain employees are not required to work overtime.
This new guidance might affect a good portion of your workers; be sure to adjust internal policies to comply with the regulations. For more information contact us, or refer to the DOL Guide on the issue.