Filed under: Not-for-Profits

January 1, 2020

Initially enacted in 1938, the Fair Labor Standards Act (FLSA) requires employers to provide their employees with a minimum wage and overtime pay. Unless certain exemptions are met, employees are eligible for overtime pay for any hour worked over 40 in a workweek. The overtime pay rate must not be less than one and one-half times the employee’s regular working rate. Under the FLSA, an employee qualifies as exempt from the payment of overtime if they meet a “minimum salary threshold” test and perform certain specified executive, administrative, or professional duties.

On September 24, 2019, the Department of Labor (DOL) announced its final rules updating the salary threshold for the “white collar” exemptions. The new rule increases the exempt minimum salary threshold to $684 per week ($35,568/year) and goes into effect on January 1, 2020. The previous threshold was $455 per week ($23,660/year). The DOL estimates the rule change will allow an additional 1.2 million workers to become eligible for overtime pay under the FLSA.

Does the FLSA Apply to Not-For-Profits?

There is no specific exemption for not-for-profit organizations (NFPs) under the FLSA; however, in limited cases, some organizations and workers may not be covered. The FLSA rules generally only apply to enterprises with sales or revenues greater than $500,000 or to individual workers who engage in interstate commerce.

Enterprise coverage applies to revenues obtained from business-like activities such as tuition, medical fees, gift shop sales, and ticket sales. It does not apply to charitable activities such as collecting donations, membership dues, and the proceeds from special events. Individual coverage extends to workers who engage in interstate commerce, which could include traveling out of state, interstate email and phone calls, handling mail, supplies and inventory, and recordkeeping responsibilities. In today’s global economy, it may be difficult for any NFP to be exempt from the FLSA as it relates to interstate commerce.

The DOL has issued Fact Sheet #14 and Fact Sheet #14a which further explain these requirements.

Rise and Fall of the 2016 FLSA Rule Changes

Do you feel like you have been down this road before? In 2016 under the Obama administration, the DOL doubled the minimum salary threshold to $47,476 per year. At the time, many organizations scrambled to review employee exempt vs. non-exempt classifications and implemented any required changes. In some cases, this resulted in reclassifying salaried employees to hourly employees. In November 2016, just a few days before the law was to take effect, a federal judge blocked the increases. Most organizations did not reclassify employees back to a salaried exempt position. While the new rules raise the salary thresholds again, they are significantly lower than the 2016 regulations, and therefore the change is not anticipated to receive the same legal challenges.

Key Takeaways from Final Overtime Rules

  • The minimum salary threshold will be $684 a week, $35,568 per year.
  • There is no automatic exemption for not-for-profits.
  • There are no changes to the “duties test,” which require an employee’s job duties to primarily involve executive, administrative, or professional responsibilities as defined by the regulations.
  • The new rules also raise the total annual compensation requirement for “highly compensated” employees from $100,000 to $107,432 per year. This is a special rule that exempts “highly compensated” employees who perform office or non-manual work from overtime pay under a less stringent job duties test.
  • Employers may use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10 percent of the standard salary .
  • Expect thresholds to be updated on a more regular basis going forward.
  • Effective January 1, 2020.

The crucial next step is for employers to analyze the status of employees who earn below the new minimum salary threshold previously classified as exempt. Employers will need to either raise salaries for ​exempt employees or reclassify these employees as non-exempt and eligible for overtime.

If you have questions on how the FLSA may affect your company and employees, contact a Clark Nuber professional.

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This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.