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What Do the New Overtime Regulations Mean for Nonprofits?

The status of the new Fair Labor Standards Act revisions is now in doubt, as a federal judge has issued a temporary injunction, blocking the new law from being implemented on December 1. This law, intended to change the way we treat overtime, would have a major impact on arts entities, particularly nonprofits. Want to learn more? Hear from the Experts at "Temporary Injunction Puts New Overtime Rules on Hold" on December 8.

On Tuesday, May 17, the White House announced the publication of the Department of Labor’s new rule for overtime pay under the Fair Labor Standards Act (FLSA).
The new rule raises the salary threshold at which employees are exempt from overtime pay from $23,660 to $47,476, and requires that threshold to be updated every three years. 
The rule takes effect December 1, 2016. Here are some key things your nonprofit should know. You can find a full breakdown for nonprofits here.
  • Neither the FLSA nor the Department’s regulations provide an exemption from overtime requirements for nonprofit organizations. While some nonprofits may not be covered under the FLSA, it is likely that many employees of nonprofits are entitled to FLSA protections. 
  • In order to be subject to minimum wage and overtime requirements and thus qualify for the Act’s protections, employees must be “covered” by the 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.
  • Enterprise Coverage - As a general matter, nonprofit organizations are not covered enterprises under the FLSA unless they engage in ordinary commercial activities that result in sales made or business transacted that meet the $500,000 threshold. Ordinary commercial activities are activities such as operating a business, like a gift shop. Activities that are charitable in nature, however, are not considered ordinary commercial activities, and do not establish enterprise coverage. 
  • Individual Coverage - Organizations that are not covered on an enterprise basis likely still have some employees who are covered individually and are therefore entitled to the FLSA’s protections. Individual employee coverage is based on the nature of the particular employee’s work activities. An employee who engages in interstate commerce or in the production of goods for interstate commerce is covered by the FLSA. Such activities include:
    • making out-of-state phone calls;
    • receiving/sending interstate mail or electronic communications;
    • ordering or receiving goods from an out-of-state supplier; and
    • handling credit card transactions or performing the accounting or bookkeeping for such activities.
  • Unlike for-profit employers, nonprofit organizations may use volunteer services under certain circumstances. Individuals may volunteer time to religious, charitable, civic, humanitarian, or similar non-profit organizations as a public service and not be covered by the FLSA. They may not, however, volunteer time to their own non-profit employer performing the same type of work for which they are employed.
  • Hourly workers: The new threshold has no impact on the pay of workers paid hourly. Generally, hourly workers are entitled to overtime regardless of how much they make if they work more than 40 hours. 
  • Workers with regular workweeks of 40 or fewer hours: To the extent that many salaried white collar employees at nonprofits have office jobs where they work no more than 40 hours, the changes to the overtime rules will have no effect on their pay.
  • Nonprofit employers have discretion to choose between several options to make sure they are in compliance with the FLSA, including raising salaries, paying overtime above a salary, evaluating and reassigning employee workload, and adjusting employees' base pay and paying overtime. Click here to read a document from the Department of Labor which provides guidance for nonprofits.
  • Independent Sector is also offering two free webinars to help nonprofits prepare for these changes.
  • Organizations are advised to check with legal counsel in order to determine if their employees are covered under these regulations.