Not all nonprofits are subject to Federal Fair Labor Standards Act (“FLSA”) wage and hour law requirements for paying overtime because the FLSA is limited to organizations meeting certain thresholds. This is generally not the end of the analysis, however, because many nonprofits are usually subject to state wage and hour laws which run parallel to FLSA definitions and exemptions. Failing to properly pay employees can leave the organization, its board and, in many states, its executives, personally exposed for failure to properly pay wages.

The U.S. Department of Labor (“DOL”) guidance at FactSheet #14A: Non-Profit Organizations and the Fair Labor Standards Act (FLSA) explains that an employee of a nonprofit organization can be entitled to protection under the FLSA depending on the activities and source of revenue of the organization (“enterprise coverage”) or the activities of the individual employee (“individual coverage”). Recent contemplated changes in federal FLSA rules may significantly impact an organization’s compliance obligations.

Exempting employees from the overtime rules typically depends on whether the employees meet a duties test and are paid a weekly minimum wage, currently $684/week, regardless of the hours they work. The DOL has issued a proposed rule aimed at increasing the threshold for the amount an employee must be paid to claim an individual is exempt from overtime and minimum wage requirements.

The new proposed standards increase standard salary level from $684 to $1,059 per week ($55,068 annually for a full-year worker) and will automatically adjust every three years. This proposed change carries significant implications for nonprofit employers that may have difficulties meeting the higher monetary threshold for exempt status.

Given the significant increase in the salary threshold, nonprofit employers should begin the process of determining if exempt employees will in fact remain exempt based on their compensation and job duties. Titles alone are never sufficient to claim exempt status. Nonprofit employers may need to reclassify lower-paid workers as non-exempt or budget for increasing their pay to satisfy new salary thresholds. These proposed regulatory changes could significantly impact nonprofits operating on tight budgets.

In addition to evaluating positions and their respective eligibility for exempt status, nonprofit employers need to evaluate imposing other simple rules like prohibiting overtime without approval, restructuring job assignments, or consider modifying time-keeping protocols and associated record-keeping policies as part of ensuring legal compliance.

Over the past several years, the Courts have noted that one in every four federal suits are for wage noncompliance. It only takes one disgruntled former employee to wreak havoc for poor compliance practices. If you need help in analyzing your payroll practices, please feel free to reach out to RKW.

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