6 Steps for Nonprofits to Prepare for Changes in Overtime Rules

Big Changes Announced Today in Employment Law:
Is Your Nonprofit Ready?

Six steps nonprofits should take to prepare for the upcoming changes in overtime rules.

Today, the Department of Labor (DOL) announced the long-anticipated revisions to overtime rules that will have a significant impact on how nonprofits (and businesses) pay their employees. The rule will primarily affect those workers who are considered “exempt” and are paid a salary of between $23,660 and $47,476 a year. Employers will be faced with a number of complicated employment issues following the changes. Failing to properly pay attention to these changes could open your nonprofit up to significant fines and the risk of litigation by employees.

What is at Issue?

The new rules are promulgated under the Fair Labor Standards Act (FLSA), the federal law that establishes minimum wage, overtime pay, record-keeping and youth employment standards. Under the current FLSA framework, employers are required to classify their workers as either “exempt” or “non-exempt.” A non-exempt employee is typically paid on an hourly basis and is entitled to be paid overtime for all hours worked over 40 hours in a given week. On the other hand, an exempt employee is paid on a salary basis (at least $455/week) and, if he or she can be classified within a recognized exemption, is not entitled to overtime even if he or she works long hours.

There are many misconceptions about whether workers are exempt from overtime. Most notably, many employers believe that payment of salary alone renders the employee exempt. It doesn’t. The employee must also meet one of a number of stated exemptions under the FLSA. The most commonly used exemptions are the “white collar” exemptions – the executive, administrative and professional exemptions. In addition to the salary requirement that the employee be paid at least $455 a week, each exemption contains a “duties” test that an employee must meet to qualify for the exemption. For example, to meet the “executive” exemption, the following conditions must be present: (1) the employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; (2) the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and (3) the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight. Simply supervising others may not be sufficient.

It is the salary requirement which is currently at issue. If the employee in this example meets the above duties, in order to be considered exempt from overtime, she must also be paid a minimum of $455/week. Therefore, even if the employee runs a department, supervises employees, has the requisite control over the employment status of those employees and exercises discretion in her job, if she does not make $455/week, she is entitled to overtime.

Under the new rule, the salary threshold will increase from $455/week ($23,660/year) to $913/week ($47,476/ year). The change raises the salary level for exempt employees to the 40th percentile of weekly earnings (based on wages in the South). The salary threshold will be adjusted every three years to maintain that level.

What does that mean for your nonprofit? If you have supervisors or other exempt workers who make under $47,476 a year, you may have to start them paying more or start paying overtime. And in a field where even many executive directors are paid under $47,476, the impact on the nonprofit community could be significant.

How to Prepare for the Changes

The new rules are likely to bring about changes that will impact your budget, operations and staffing. The changes will go into effect on December 1, 2016, but implementing the changes will require significant and expeditious planning – do not wait to get started. Here are a few steps that you can take:

  1. Take stock of your current policies: When was the last time you updated your job descriptions and employee handbook or conducted an audit of your worker classifications? Do you have adequate timekeeping mechanisms? You may find existing issues that will need to be remedied before addressing the impact of the new rules.
  2. Identify employees who will be impacted and determine your response:
    1. What employees will be affected?
      • Will you raise the salary to maintain the exemption or reclassify them as non-exempt as a result of the new rule?
      • Will you decrease hours to reduce overtime?
      • Will you need to reassign duties?
      • Will you need to hire more workers at lower rates to control overtime?
    2. Consider the impact of the reclassification:
      • On time keeping and payroll processes, software and/or vendors – what changes are needed to implement these changes?
      • Formally salaried employees will need to be trained on keeping their time and will need to be managed to ensure compliance.
    3. How will the changes affect job performance and morale? Employees who have enjoyed a certain level of autonomy as a result of being paid on a salary basis may have to adjust to the constraints associated with being an hourly worker. For example, flexibility in schedules may decrease with the need to budget or control overtime. 
  1. Understand the budget implications: What will the changes mean to your bottom line?The rule also contains a provision that automatically updates the salary minimum every year so the impacts are likely to continue well into the future.
  1. Alert your board: Your board of directors owes a fiduciary duty to the organization and should be involved in the decision-making process.
  1. Educate funders: If there is going to be a significant impact on your bottom line, don’t wait to educate foundations and your major donors about how these changes will impact your nonprofit.
  1. Consult a professional: Employment rules are complex and the potential financial impact of mistakes is high. Putting the resources into managing your workforce the right way is worth the investment.

Justine Thompson Cowan is the owner of Cowan Consulting for Nonprofits, PLLC where she provides legal and strategic counsel to Florida’s nonprofits. You can find out more about Justine by visiting her website at www.cowannonprofits.com.

Nichole M. Mooney is a shareholder with the Dean Mead law firm in Orlando where she provides litigation advice and counseling, with an emphasis on issues affecting employment, for the firm’s for- profit and not-for-profit clients. You can find out more about Nicky and Dean Mead at the firm’s website at www.www.deanmead.com.

If you’re interested in learning more about how to prepare for these changes, please consider joining attorneys, Justine Thompson Cowan and Nichole Mooney, for a one hour webinar on May 25, 2016 at 11:00 a.m. – 12:00 noon.  Please register online using the information provided below.

When: Wednesday, May 25, 2016
11:00 a.m. – noon
Where: Online Program (Webinar)
United States
Cost: $15/members, $25/nonmembers


Please register for this webinar HERE.
Online registration is available until: 5/23/2016