You are here:

Paying Overtime to Non-exempt Staff

Update on Overtime Rules

The Fair Labor Standards Act (FLSA) overtime rule is a federal rule that applies to most nonporfits. In 2016 the Department of Labor (DOL) issued new rules for overtime pay.  These rules were challenged in court  and an injunction is currently in place that blocks implementation of the new wage levels and eligibility provisions of the 2016 rules.  If the courts rule that the 2016 rules should stand they could be reinstated with a requirement that they be implemented immediately.  Please follow the National Council of Nonprofits (@NatlCouncilNPs) and 501 Commons on social media (@501Commons) for timely updates.

While the court case has been going on, the Trump Administration's DOL published a Request for Information (RFI), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees. The RFI solicited feedback on questions related to the salary level test, the duties test, inclusion of non-discretionary bonuses and incentive payment, and automatic updating of the salary level tests. During the 60-day comment period that ended on September 25, 2017 over 140,500 comments were made to the RFI.
It is anticipated that the DOL will be proposing changes that would lower the pay thresholds so that employees could be exempt at a salary level lower than the $47,476 standard in the 2016 rules. There may be other changes introduced to the rules. Read our blog statement on the effort to overturn the overtime rules.

Your Current Obligations to Pay Overtime

While the rules are up in the air due to the court challenge, all organizations are required to determine if an employee is eligible for overtime based on the duties test and current salary levels. The Department of Labor Employment Law Guide-Minimum Wage and Overtime Pay provides an overview of these laws.  Also visit Overtime Laws in the States to learn about the current rules in your state.

How to decide if an employee meets the duties test

Workers can only be considered exempt if they are paid a salary above the required minimum level  and they are engaged in duties of an executive, administrative or professional employee.  (Professional includes creative and learned  professional categories. There are some rules for computer professionals as well.)

You need to evaluate the duties of each employee you think should be exempt from overtime. For more information refer to Classifying Employees Correctly or reach out to us at hrconsults@501commons.org for help in evaluating your job positions.

Are all nonprofits covered under FLSA?

Coverage under the FLSA is usually achieved in one of two ways: (1) the organization is a covered enterprise; or (2) a particular worker is individually covered by FLSA. The DOL does exempt some small businesses and nonprofits from FLSA, but you need to be careful in making this determination because the overtime rules may not apply to your organization but they may still apply to your employees.

Let's deal with application of FLSA to your organization (enterprise coverage) first.

FLSA applies to businesses if they have annual revenues of at least $500,000. For nonprofits, the DOL excluded some types of revenue that are charitable in nature and for services that are normally provided free of charge. Examples the department uses include the following:
  • Providing temporary shelter;
  • Providing clothing or food to homeless persons;
  • Providing sexual assault, domestic violence, or other hotline counseling services; and
  • Providing disaster relief provisions.
When a nonprofit is engaged in activities that are similar to businesses, like a gift shop, bookstore, or internet sales, revenue from these enterprises is counted toward the $500,000 in revenue.

Now, determining if FLSA applies to your staff.

While many non-profit organizations may not be covered enterprises under the FLSA, most non-profits are likely to have employees who are covered individually and are therefore entitled to overtime. This is because the rules say that any employee engaged in interstate commerce is covered by FLSA. And it is pretty hard to be in the workforce and not engage in interstate commerce! The courts have defined this very broadly to included things like ordering from an out of state company, processing credit cards, making out of state calls, and sending and getting mail.

Please refer to Guidance for Non-Profit Organizations on Paying Overtime Under the Fair Labor Standards Act for more details or seek legal advice.

Need HR help?

Visit the Consultant Listings for recommended HR consultants and law firms in Northwest. Organizations anywhere can also contact 501 Commons  for an HR Quick Consult by sending your questions to hrconsults@501commons.org or filling out a Request for Assistance to get help. A 501 Commons’ HR consultant will respond promptly.

Note that it may be important to seek legal counsel on this issue. Low budget organizations can contact Wayfind for assistance.

Resources related to the 2016 rule

Since we do not know if or when provisions of the 2016 rule might be implemented, we are keeping the resources 501 Commons and others created available below.

The 2016 FLSA rules (currently block by a court injunction) updated the salary and compensation levels needed for executive, administrative, and professional workers to be considered “exempt" from overtime. Provisions of the new regulation include:

  1. Set the minimum salary level for full-time salaried workers to be exempt to $913 per week or $47,476 annually for a full-time worker. (Employees still have to meet the duties test addressed below.)
  2. Increase the salary level for someone to be considered an exempt "highly compensated employee" to $134,004. Employees paid at least this amount are exempt from overtime if they regularly perform at least one of the exempt duties DOL defines for executive, administrative, or professional employees.
  3. Additionally, the final rule allows employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new standard salary level.

Note:  Reports indicate that the Department of Labor will issue new rules that lower the thresholds so that employees could be exempt at a salary level lower than $47,476. There may be other changes to the rules at that time.

Watch this webinar hosted by Nancy Kasmar at Compensation Connections LLC (a partner of our Statewide Nonprofit Resource Directory) discussing these new regulations in further detail. You can download the slides from the presentation.

What options do you have to comply?

How does the rule impact part-time workers? | Consulting and legal services | Additional resources | Need help?

What options do you have to comply?

If you have an employee who meets the exempt duties test and is paid a salary but is not currently paid $47,476 annually, you can:

  1. Increase their salary to at least the minimum level of $47,476 annually
  2. Keep them at their current salary (you do not have to make them hourly employees) but pay them overtime (time and a half) for any work they do beyond 40 hours a week.

If you are going to incur a lot of overtime costs, you may want to add staff to reduce your costs. You have to pay employees overtime when they work more than 40 hours a week even if you have told them not to work overtime.

Employees can still work flexible hours so an employee could, for example, work 40 hours in 4 days, or have a different start and end time every day, but any hours over 40 are paid as overtime.

You cannot use compensatory time for salaried employees instead of paying overtime. Only public agencies, such as state and local governments, are permitted to use compensatory time.

See Part III of the DOL special guidance for nonprofits for more information.

Watch this video to learn how Friends of the Children has adjusted for these new regulations.

How does the rule impact part-time workers?

The salary threshold is the same for all exempt employees, whether they are part-time or full-time.  You cannot prorate the salary for part-time employees. Any employee that meets the duties test and is paid a salary must earn a minimum of $913 per week or they must be paid overtime.
For seasonal or occasional workers there are additional considerations.  Employers do not have to pay a salary for employees who do not work at all in a workweek but you would want to avoid exempt employees working only a few hours as you would need to pay them their full weekly salary. Exempt status is determined on a week-by-week basis so a seasonal employees who receives a salary and meets the duties test can be paid a minimum of $913 per week and be considered exempt.
Note that there are special rules when a job requires an employee to sleep in the work place, such as camps and residential programs. You can read about these provisions on the Department of Labor website.

Consulting and Legal Resources

We want to give our appreciation to Nancy Kasmar at Compensation Connections LLC for providing in-person and webinar-based information at 501 Commons sponsored events. Compensation Connections can assist you with compensation systems and compliance with FLSA rules.
501 Commons can help you with employee classification decisions, staff communication and updating personnel policy.
Many organizations will need legal consultation to make sure they are compliant with the new rules. Kelby Fletcher and Aviva Kamm at Stokes Lawrence have provided a review and advice on the information and materials on this site and would be a good resource for you. Other options for legal services are Carter Law Group and Foster Pepper PLLC. Low-budget organizations can contact Wayfind for pro bono legal services.

Additional Resources

Click to download a helpful checklist that can help your nonprofit’s administrative team start planning for changes to the FLSA laws. You can also download an infographic that illustrates this process.

Download this workbook that can help you determine which employees are eligible for overtime pay.

Refer to this list of Frequently Asked Questions from our FLSA webinar.

Department of Labor website on overtime rules. The Department of Labor (DOL) also published a special overview and guidance for nonprofit organizations.

National Council of Nonprofit: Overtime Rule