It is time for charities to focus on the new overtime rules

Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

The Department of Labor announced on 5/18/16 that new overtime rules will go into effect on December 1, 2016. That is about six months from now.

In one over-summarized sentence, here is the deal: for employees paid less than $47,476 annually, the employer needs to develop a system to track actual hours worked so employees are paid for overtime hours, with very narrow exceptions for charities.

Employees paid over that amount must still meet the previous requirements for job duties and be paid on salary basis to avoid the overtime requirement. The threshold will be revised every three years.

In case you don’t immediately see some implementation issues, then think about your super-dedicated first level supervisors paid less than $48K and ask yourself if you know how many hours they spend outside the office answering emails and how many extra hours they spend in the office beyond what they are scheduled.

There are narrow exceptions in which the rules will not apply for some charities.

It is time for all charities to start looking at the rules to see how this affects their operations. My guess is this will apply to a large portion of charities and will likely have a major impact on the majority of those for whom it applies.

Here are a few of the initial articles I have seen which can get you started on your research:

5/18 – Edith Orenstein at Maryland Association of CPAs – DOL issues final rule raising overtime pay threshold – Brief summary of key provisions of new rules. This would be a great place to start.

For more depth, check out the National Council of Nonprofits article:  Overtime Regulations and the Impact on Nonprofits – Very good overview. Also has links to a variety of official government resources.

In particular check out the Department of Labor’s Overtime Final Rule and the Non-Profit Sector. This discusses the particular implications for charities. To start your research, look at these two paragraphs from that document:

There are two types of coverage: The FLSA may apply to (1) businesses or similar entities (“enterprise coverage”) or (2) individuals (“individual coverage”). Under enterprise coverage, the FLSA applies to businesses with annual sales or business of at least $500,000. For a non-profit, enterprise coverage applies only to the activities performed for a business purpose (such as operating a gift shop or providing veterinary services for a fee)*; it does not apply to the organization’s charitable activities that are not in substantial competition with other businesses. Income from contributions, membership fees, many dues, and donations (cash or non-cash) used for charitable activities are not counted toward the $500,000 threshold.

and

Under individual coverage, employees may be entitled to FLSA protections if they themselves are engaged in interstate commerce or in the production of goods for interstate commerce. For example, an individual is covered if the employee makes or receives interstate telephone calls, ships materials to another state, or transports persons or property to another state. This individual coverage applies even if the employee is not engaging in such activities for a business purpose. For example, if an employee regularly calls an out-of-state store and uses a credit card to purchase food for a nonprofit that provides free meals for the homeless, that employee is protected by the FLSA on an individual basis, even though the non-profit may not be covered as an enterprise. The Department, however, will not assert that an employee who on isolated occasions spends an insubstantial amount of time performing such work is individually covered by the FLSA.

Here is merely one in a flood of articles you will be seeing which discuss the impact on small businesses. I expect these same conversations to occur in small charities.

5/19 – New York Times – Small Businesses Worry About Adjusting for Overtime Rules – Article points out actual hours worked will have to be tracked somehow for everyone making less than the threshold in order to determine if there are any hours that need to be paid.

Another risk: trickle up pay increases.  If you pay one group of people more, the people higher up on the pay scale will expect to see their compensation increase.

Yet one more implication: the practice of using comp time is gone. The informal practice of letting someone take time off today because it will be made up at some other time can’t continue because the extra time later will need to be paid.

Time to start grappling with the rules and the implications.

Also time to start working on a revised budget.

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