November 20, 2019
 
New Rule Means More Nonprofit Employees to Get Overtime Pay

November 1, 2019 — Starting Jan. 1, a new federal overtime rule will take effect which mandates that nonprofits, as well as other employers, must pay time-and-a-half for workers who make up to $684 per week, or $35,568 a year, after working 40 hours in any work week.

As a result of the adjustment, the new level is 50% higher than the current level that was last updated in 2004.

The new level is only half as much as the increase (to $955/week; $47,476/year) approved by the Obama administration in 2016, but that was blocked by a federal court.

According to the National Council of Nonprofits, the new rule also:
  • Raises the salary minimum for highly compensated employees from $100,000 a year to $107,432 annually, of which $684 must be paid weekly on a salary or fee basis. The new minimum is set at the annualized value of the 80th percentile of weekly earnings of full-time salaried workers. This is lower than the 90th percentile methodology initially proposed earlier this year.

  • Permits employers to treat nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis to satisfy up to 10% of the standard salary level. The Obama Administration had also adopted this change.
The new rule does not alter the existing duties tests for executive, administrative, or professional employees.

The U.S. Department of Labor (DOL)estimates that about seven percent of nonprofit and government employees nationally will be affected by the higher salary threshold (compared to five percent of for-profit employees).

“To the extent that employers respond to this rule by restricting employee work hours, this rulemaking could negatively affect the quality of public services provided by local governments and nonprofits,” DOL noted.

Under the Fair Labor Standards Act (FSLA), employees are entitled to wages at or above the federal minimum wage and must be paid time-and-a-half overtime for work after 40 hours in any work week. Persons who are properly classified as executive, administrative, or professional employees are considered “exempt employees.” All others are “non-exempt” and must be paid at least the minimum wage and overtime after 40 hours worked in a week. According to the DOL, FLSA generally applies to employees employed by businesses with annual gross volume of sales made or business done of at least $500,000. Nonprofit charitable organizations are not covered enterprises under the FLSA unless they engage in ordinary commercial activities that result in sales made or business done, such as operating a gift shop or providing veterinary services for a fee.

For example, a nonprofit animal shelter provides free veterinary care, adoption services, and shelter for homeless animals (charitable activities). In addition, the shelter provides veterinary care for a fee to customers (commercial activities). If the revenue generated from the organization’s commercial activities is at least $500,000 in a year, the employees engaged in the commercial activities are protected by the FLSA on an enterprise basis. Employees of the organization’s charitable activities are not covered on an enterprise basis since those activities do not have a business purpose.

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