News and analysis
June 08, 2016

Answers to Nonprofits’ Questions About New Federal Overtime Rules

The Department of Labor hosted a webinar Tuesday to explain how new federal regulations expanding overtime benefits will affect nonprofits.

The rules taking effect in December extend overtime pay to full-time, salaried employees who make up to $47,476, more than double the current threshold.

Labor officials also answered charity leaders’ questions about whether the new rules applied to their organizations and what the implications will be. Many of the questions focused on people who work on fundraising and how to handle bonuses.

Here are some highlights:

Q. If the employer pays 100 percent of all premiums for benefits (e.g. health insurance, dental insurance) for all employees, could that be counted toward the salary threshold?

A. The salary level does not include payments for medical, disability, or life insurance, or contributions to retirement plans or other fringe benefits.

Q. Are nonprofits permitted to utilize comp time for salaried staff, instead of paying overtime?

A. No, nonprofits are not permitted to utilize compensatory time for salaried employees instead of paying overtime. Only public agencies, such as state and local governments, are permitted to use compensatory time instead of paying overtime.

Q. Will there be a period of nonenforcement for nonprofits?

A. The effective date is the same for all employers, profit and nonprofit alike (December 1, 2016). However, the Department of Labor has announced a time-limited nonenforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. More information about that nonenforcement policy is available here.

Q. Are teachers working under 501(c)(3) covered under the new overtime act?

A. The salary-level and salary-basis requirements do not apply to bona fide teachers, therefore bona fide teachers will not be affected by the new salary level. A bona fide teacher has a primary duty of teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge, and is employed and engaged in this activity as a teacher in an educational establishment. An "educational establishment" means an elementary or secondary system, an institution of higher education, or other educational institution.

Q. I would like to know if passive income (like investment interest or investment returns) is considered to count toward the $500,000 enterprise threshold. Also, if we hold a special-event auction or raffle once or twice each year, is that income considered to count toward the $500,000 threshold?

A. Income that a nonprofit organization uses in furtherance of charitable activities is not factored into the $500,000 annual dollar-volume threshold to establish enterprise coverage. For further assistance regarding coverage principles under the Fair Labor Standard Act, please contact your nearest Wage and Hourly Division district office, available here.

Q. How does an employer handle an employee who works part time doing business enterprise and part time charitable enterprise? Is overtime only required when an employee passes 40 hours of enterprise work in a week?

A. There are two ways that an individual employee may be covered under the Fair Labor Standards Act and entitled to its protections: individual coverage and enterprise coverage.

A nonprofit organization is not considered a covered enterprise under the FLSA unless it engages in ordinary commercial activities that result in sales made or business done that meets the $500,000 threshold. If an nonprofit meets this threshold, its employees are covered by the FLSA and entitled to overtime for work performed over 40 hours a week regardless of how the employee spends their time.

Even if a nonprofit organization is not covered on an enterprise basis as described above, it may have individual employees who are covered individually and therefore are entitled to the FLSA’s protections. An employee who engages in interstate commerce or in the production of goods for interstate commerce is covered by the FLSA and is entitled to overtime pay for time worked over 40 hours in a week.

Q. We have a special-events position that makes donation requests to sell at our annual basket auction fundraiser. If any of those requests will be made or received from across state lines, she would be individually covered even if we don’t earn $500,000 in sales revenue as an agency? She would be covered because of the individual test?

A. Generally, employees who make phone calls across state lines are individually covered under the Fair Labor Standard Act. For further assistance with coverage principles under the FLSA, please refer to Fact Sheet No. 14 at https://www.dol.gov/whd/regs/compliance/whdfs14.pdf.

Q. Can you determine what a workweek is — Sunday through Saturday, for example — in employee policies or handbooks? Otherwise, working one extra shift would affect the week before and the week after, if it can be seven-consecutive 24-hour periods. Or I am missing something?

A. An employee’s workweek is a fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods. It need not coincide with the calendar week but may begin on any day and at any hour of the day. Once the beginning time of an employee’s workweek is established, it remains fixed regardless of the schedule of hours worked by him. The beginning of the workweek may be changed if the change is intended to be permanent and is not designed to evade overtime requirements.

Q. If we have a new hire who starts midyear, they will not have the opportunity to make $47,476. So, as long as we pay a minimum salary of $913 per week beginning December 1, 2016, we will be in compliance with this person remaining an exempt employee (considering they meet the duties test as well)?

A. Yes, the salary requirement is $913 a week.

Q. If we tell employees once a year what their bonuses will be, can we consider those contributions nondiscretionary and count them toward the income threshold?

A. Nondiscretionary bonuses and incentive payments are forms of compensation promised to employees, for example, to induce them to work more efficiently or to remain with the company. Beginning on December 1, 2016, employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level test ($913 per week, beginning on December 1), provided that such payments are made on a quarterly or more frequent basis.

Send an email to Rebecca Koenig.