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Paying Overtime to Non-exempt Staff

Overtime Rule Changes as of January 1, 2020

Rule changes have recently been enacted at the state and federal levels. Please follow the National Council of Nonprofits (@NatlCouncilNPs) policy updates, those from Washington Nonprofits or the nonprofit association in your state and 501 Commons on social media (@501Commons) for timely updates as these laws may be subject to additional modifications in the future.

You can find an overview of this information in two recorded webinars

The New Overtime Rules: Updating Your HR Practices from Washington Nonprofits on Vimeo.

The original Powerpoint presentation can be accessed here (to review at your own pace).

 

The New Overtime Rules: A Legal Perspective from Washington Nonprofits on Vimeo.

Please see The New Overtime Rules for more information (Washington Nonprofits).

Washington State Overtime Pay  -  New rules in 2020

If you have exempt managers who do client services or programmatic work or make a salary of less than $75,000 a year, your organization is required to pay them overtime compensation.

Washington State’s Department of Labor and Industries made final rule changes to the Executive, Administrative, and Professional (“EAP”) exemptions from the Minimum Wage Act. The proposed rules have two major impacts:

  • The salary range at which a position would be exempt from overtime pay is increased. The new ranges are $37,440 - $74,880 per year. The top range is three times the minimum wage, which means nonprofits will pay overtime to many managers. People working over 40 hours/week who are paid up to $34.10 per hour are to receive overtime pay.
  • The Department changed duty criteria for exempting an employee from overtime. Under the new rules for service industries, for a manager to be exempt from overtime, the person would need to spend at least 60% of their time on management functions. This means many program managers who are also involved in direct service or program activities would not be classified as managers.

Be sure to analyze the impact of the changes on your annual budget.

Federal Rule Changes as of December 2019

The Fair Labor Standards Act (FLSA) overtime rule is a federal rule that applies to most nonprofits. See Regular Rate under the Fair Labor Standards Act for more information.

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 a PDF of the infographic shared above.

Nonprofits must understand and comply with existing federal Fair Labor Standards Act regulations (and state wage and hour laws which may be more generous that the federal rules) governing overtime compensation.

Your Current Obligations to Pay Overtime

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.)

If your organization does not have a clear process for determining exempt and non-exempt employees, read "How to decide if an employee meets the duties test" and contact 501 Commons for assistance in making this determination.  Or contact hrconsults@501commons.org for a Quick Consult ($25 per 15 minutes). The small cost of a consultation is small price to pay to avoid an employment practice lawsuit!

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 include 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 Nonprofit 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 Communities Rise for assistance.

Resources related to the 2016 proposed federal rule

The 2016 FLSA rules 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:

  • 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.)
  • 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.
  • 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.

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:

  • Increase their salary to at least the minimum level of $47,476 annually
  • 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 must 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 four 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 employee 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 workplace, such as camps and residential programs. You can read about these provisions on the Department of Labor website.

Consulting and Legal Resources

We are grateful 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 Communities Rise 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