Despite fundamental differences in business models, new federal overtime regulations will apply to nonprofit organizations just as they will for other businesses — and they’ll have to be in compliance by Dec. 1.
On Aug. 23, South Mississippi nonprofit owners, directors and human resources staff listened to Department of Labor Community Outreach Resource and Planning Specialist Susan Denham talk about what to expect with the new regulations. She provided the same service at a July event for the Gulf Coast Chamber of Commerce and business owners.
Much of what Denham had to say to nonprofits was the same with a few exceptions.
“The test is the same with the nonprofits,” Denham said. “The key questions you’ll need to look at are, are they engaged in commerce? What is their volume of sales? Are they placing orders, making telephone calls out of state?”
Neither the Fair Labor Standards Act nor the Department of Labor’s regulations provide an exemption from overtime requirements for most nonprofits.
Beginning Dec. 1, salaried white-collar workers will be entitled to overtime pay or significantly higher salaried pay. Notably, the minimum threshold for qualified workers will increase nearly 100 percent from $455 a week ($23,660 a year) to $913 a week ($47,476 a year).
Employees will be classified under “duties requirements” established by the Department of Labor. There are three categories for qualified workers: Executive, administrative and professional. In general, these categories include employees who have a say in important company business, oversee at least two full-time employees or are authorized to hire or fire.
Two exceptions apply for nonprofits: Enterprise coverage and individual coverage.
Nonprofits aren’t covered enterprises unless they engage in what’s called ordinary commercial activities. Examples include business activities like running a gift shop.
Any income that a nonprofit organization uses “in furtherance of charitable activities is not factored into the $500,000 threshold,” according to the department. This can include contributions, membership fees, dues, and monetary and non-monetary donations. The payer cannot receive a benefit of more than token value in return. Employees who volunteer time to religious, charitable, civic, humanitarian or similar nonprofit organizations will not be covered by the new labor act. However, employees cannot volunteer work time to a nonprofit employer.
Charitable activities can include the following:
▪ Providing temporary shelter, clothing or food to homeless people.
▪ Providing sexual assault, domestic violence or other hotline counseling services.
▪ Providing disaster relief provisions.
Even if the employer doesn’t meet the standard for enterprise coverage, an individual employee will be covered by the new rules if they engage in interstate commerce, according to the department. Employees of nonprofits that make less than $500,000 a year from business purpose revenues are entitled to overtime if they engage in “interstate commerce” in the course of their job duties.
This can include business activities such as making out-of-state phone calls, receiving and sending mail or email, ordering goods from out-of-state suppliers and handling credit card transactions. One example of out-of-state suppliers would be ordering supplies from an internet company such as Amazon.com.
Watching the clock
Experts agree the regulations will lead to more stringent time-clock management. One option employers have is to put salaried employees on an hourly rate. However, the employer will have to pay time and a half for any hours over a 40-hour work week.
Kevin O’Brien, executive director of the Ohr-O’Keefe Museum of Art in Biloxi, said he’s concerned about how the regulations will stack up in the nonprofit atmosphere, one where volunteer work is often the norm.
He also noted a common factor among nonprofits: The hours don’t always follow a typical work week. In addition to a regular work week, fundraisers and similar events often take place in the evening or on weekends.
“It’s a different culture,” O’Brien said. “We’re not really into tracking the hours of our employees. In a lot of cases, it’s much more of a volunteer effort. Or this is something the workers simply love to do.”
United Way of South Mississippi CEO Cynthia Minton Walker said her organization is looking at changes they’ll need to make.
“United Way of South MS is like all other non-profits that are learning more about the increase in the threshold of weekly earnings for full-time salaried employees,” Walker wrote in an email. “UWSM also recognized the potential impact of these changes and wanted to bring non-profit leaders together to help insure that we have the knowledge to make sound decisions as we implement this new regulation in 2017.”
Higher organizational overhead could limit future services, Walker said.
“Additional costs have the ability to reduce the services nonprofits are able to offer to our communities. So many of our non-profits have much smaller budgets and are used to doing more for less,” she said.
At least one nonprofit industry will have a grace period to enact the regulations.
Medicaid-funded services for intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds will be exempt until March 17, 2019. These employers will have an additional 28-month grace period.
The National Council of Nonprofits advises:
“Nonprofits with budget years ending on June 30 will need to develop new budgets for the fiscal year beginning in six weeks that take these new changes into account. Nonprofits with budget years ending on December 31 have more time to adjust and plan for 2017.”
“Nonprofits with government grants and contracts will now be put in the position of having to comply with new federal requirements that impose new costs not known when those grants and contracts were signed. Unlike businesses that can raise prices, or governments that can raise taxes or curtail public services, nonprofits with government grants and contracts may find themselves contractually bound to maintain services at increased costs that may not be expressly covered by existing written agreements.”