The Department of Labor recently updated the salary level which is used to determine if time-and-a-half rates apply when an employee works greater than forty hours in a week. Under the old rules, overtime pay rates applied when an employee’s salary was under $453 per week. The new rate requires overtime pay rates to apply when an employee’s salary is less than $913 per week. The new rate will be effective on December 1, 2016. Rules associated with overtime pay fall under the purview of the Fair Labor Standard Act (FLSA). Some nonprofit organizations are not subject to FLSA rules, and therefore are not subject to the new overtime limits. In general, businesses with less than $500,000 in sales are not subject to the FLSA. When determining the $500,000 limit, nonprofit organizations have different rules to follow. When determining the $500,000 limit, non-profits should only include revenue from business type operations such as from the sale of products or fee for service revenue that is not considered charitable in nature. The Department of Labor states that revenues from contributions, membership dues or fees (where there is no substantial benefit to the member) are not to be considered. For example, if a non-profit receives $2.5 million in cash and non-cash donations, and also receives $300,000 from fees from a commercial activity, it will not have met the $500,000 threshold, and is therefore not subject to the overtime rules for salary employees making below $913 per week. However, there are certain non-profits that are not covered by the $500,000 rule. Those non-profits are hospitals, schools and preschools, government agencies, and any nonprofits providing medical and nursing care to residents. Therefore, any organization falling into one of the aforementioned categories will be subject to the overtime rules, even if sales are below $500,000.
To further complicate matters, there are certain circumstances where an organization may be exempt from the rules, but may need to cover a particular individual based on the work the individual performs. Employees that engage in interstate commerce, or produce goods for interstate commerce are required to be given overtime pay if their salary is below $913 per week. The Department of Labor defines interstate commerce very broadly. The following activities are considered interstate commerce: making out-of-state phone calls, receiving/sending interstate mail or electronic communications, ordering or receiving goods from out-of-state, and handling credit card or accounting for transactions that are out-of-state. It is the intention of the Department of Labor that these individuals be covered only if the employee spends a substantial portion of his/her work time on these activities.
Non-profits that are subject to the overtime rules cannot circumvent the rules by having their employees serve as volunteers for activities that are part of their job description. For example, an employee who is the volunteer coordinator may be expected to be present at weekend fundraising activities. The time he or she spends at these events cannot be considered volunteer hours to avoid paying overtime since these activities coincide with the job description for a volunteer coordinator.
As you can see, overtime rules for non-profits can be confusing. If you have any questions or concerns about how the new rules will impact your organization, please contact your Clark Schaefer Hackett representative.