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How Will New Overtime Rules Affect Not-for-Profits?

In May, the U.S. Department of Labor (DOL) issued a final rule updating white collar overtime regulations, increasing the exemption thresholds and extending overtime pay protections to over four million workers within the first year. How will the new rules affect not-for-profits?

The final rule raises the salary threshold for exemption from overtime protections, adjusting  it from $455 a week ($23,660 annually) to  $913 a week ($47,476 annually), effective December 1, 2016. Unless exempt, employees covered by the Fair Labor Standards Act (FLSA) must receive pay for work in excess of 40 hours a week at a minimum rate of one and one-half times their regular rate of pay. Neither the FLSA nor the DOL regulations provide a blanket exemption from overtime requirements for nonprofit organizations.

Is the Employee Covered by the FLSA?

In order to be subject to overtime requirements, employees must be “covered” by the FLSA. There are two types of coverage: enterprise and individual. Under enterprise coverage, the FLSA applies to businesses with annual sales of at least $500,000. However, nonprofit charitable organizations are not considered covered enterprises unless they engage in commercial activities that result in a sufficient amount of sales, such as operating a gift shop. Enterprise coverage does not apply to the organization’s charitable activities. Thus, income from contributions, membership fees, dues, and donations (cash or noncash) used for charitable activities are not counted toward the $500,000 threshold.

In addition, certain entities are always covered by the FLSA, regardless of the amount of gross sales. These entities include hospitals, schools and preschools, government agencies, and businesses providing medical or nursing care for residents.

However, many organizations that are not covered by FLSA on an enterprise basis are likely to still have some employees who are covered on an individual basis. Generally, to be covered under the FLSA, the employee’s work activities must in some way be connected to interstate commerce, whether through making out-of-state phone calls or otherwise.

Applying the Overtime Tests

Once it’s determined that the employee is covered by the FLSA — whether on an enterprise or individual basis — the individual will be exempt from the overtime protections only if certain conditions are met. Under individual coverage, to qualify for exemption, an employee generally must be salaried, be paid at least $913 per week, and primarily perform executive, administrative, or professional duties.

Many employees of nonprofit organizations will not be affected by the final rule, including:

  • Hourly workers*
  • Workers with regular workweeks of 40 or fewer hours
  • Salaried workers who do not primarily perform executive, administrative, or professional duties*
  • Highly compensated workers — those who earn more than $134,004 in a year

Many of our not-for-profit clients have questions regarding how the new rules apply to them.  Please contact us to help answer your questions about the new overtime rule.  In addition, CLICK HERE to view a recent Warady & Davis LLP and Paychex webinar on the new Overtime Regulations.

* These employees may be eligible for overtime under other existing rules.


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