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Adjusting to New Overtime Rules

UPDATE (11.23.2016): One week before its anticipated implementation, a federal judge blocked the Department of Labor’s (DOL) updated overtime rules that were supposed to take effect on December 1, 2016.

On Tuesday, November 22, U.S. District Judge Amos Mazzant (Eastern District of Texas) issued a preliminary injunction that halts the DOL’s new regulation. This decision means the new overtime rules will not be implemented on Dec. 1.

Read our full statement on this important development. Please follow the National Council of Nonprofits (@NatlCouncilNPs) or 501 Commons on social media (@501Commons) for timely updates.

In May 2016, the U.S. Department of Labor (DOL) announced changes to rules regarding overtime compensation. The new Fair Labor Standards Act (FLSA) regulations will affect many nonprofits.

The new FLSA rules update the salary and compensation levels needed for executive, administrative, and professional workers to be considered “exempt" from overtime. The new regulations will:

  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.

The new rule, which become effective December 1, 2016, also establishes a mechanism for automatically updating the salary and compensation levels every three years.

How your organization can adjust to the new overtime rules

Watch our FLSA webinar | How to decide if an employee meets the duties test | What options do you have to comply? | Are all nonprofits covered under FLSA? | How does the rule impact part-time workers? | Consulting and legal services | Additional resources | Need help?

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.

How to decide if an employee meets the duties test

Workers can only be considered exempt if they are paid a salary that meets the minimum level of $47,476 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.

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.

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.

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 Rules

The DOL created a video explaining the new overtime rules.

Need help?

Contact us for an HR Quick Consult by sending your questions to hrconsults@501commons.org or filling out a Request for Assistance to get help in planning to implement the new rules. 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.