Nonprofits throughout the country are calculating the impact of the new overtime rules announced in May 2016 by the Department of Labor. The new Fair Labor Standards Act (FLSA) regulations will extend overtime pay to 4.2 million workers, including 76,000 people in Washington State. This small step will help workers earn a living wage and keep their work hours in balance.

Even if a nonprofit is exempt because it has annual revenues (not counting charitable donations) of less than $500,000, their employees are likely to be covered because the rule applies to any employee engaged in interstate commerce. The courts have defined this broadly and anyone doing things like ordering off the internet, calling out of state, or coordinating with national partners is engaged in interstate commerce.

Employees will be eligible for overtime unless their job meets the “duties test” for an exempt position and they are paid a salary of $47,476 a year or $913 per week. This is up from $455 a week or $23,660 a year. The new rules go into effect on December 1, 2016.

Organizations will need to decide whether to:

• Increase salaries for exempt workers
• Move someone out of exempt status and begin to pay time and a half for hours worked beyond 40 hours a week.
• Change programming to reduce staff costs

Even if you are an exempt organization and you believe your employees are exempt from overtime, consider voluntarily complying with FLSA. Many employees work more than 40 hours a week because nonprofits are lean organizations, generally operating with less than 50 employees, and "pile-ups" occur due to program schedules, fundraising events, etc.

Nonprofit employees in community-based organizations are generally paid lower than for-profit employees are paid for equivalent work. The Bureau of Labor Statistics shows that overall nonprofit compensation is higher than for-profit compensation (but lower than government workers pay.) However, a closer look, removing the professional and business services and health care and education subsectors, shows that the remaining nonprofits have average salaries of only $18.31 with total compensation at about $25; lower than overall for-profit salaries at nearly $29 in total compensation.

These differences become more acute for small organizations with budgets under $500,000, which make up the majority of nonprofits in Washington. In particular, those in rural areas, based in communities of color, or serving immigrant and refugee populations are often paying much lower wages and have less ability to adapt to the overtime costs.

Paying overtime in accordance to the FLSA provides pay that is more equitable to employees and contributes to a more equitable society. Complying with FLSA will also protect your organization from accidentally breaking the law if your organization or some employees later become eligible under the overtime laws.

It is important that funders, including the state, county and city governments, respond to this increased cost of doing business and increase grants and reimbursement rates to nonprofits. Because of the low amount of working capital available to nonprofits, a change like this can put organizations or critical programs at risk. Funders should be willing to operate outside of the usual grant processes to expedite getting additional funds to their grantees.

It benefits all of us when nonprofit workers are given better pay and benefits. We are counting on them to accomplish some of the most difficult and most important work a person can do. By working together, nonprofits, philanthropy, and government can turn this regulatory change into a mission accomplishment that strengthens our nonprofits and increases equity.

To help you make the case to your funders for increases in grants and contract rates we have developed a case for support template for you to customize.

(Be sure to check out all of the FLSA information and resources in our "HR Resources" section.)