The New Overtime Rule and Its Impact on Nonprofits

June 23, 2016

overtime work“It is highly misleading to suggest that most nonprofits will not need to worry about the revised [overtime] rule. Nonprofit tax status has no bearing on whether an employer is required to pay its employees overtime,” states Michael Eastman, an attorney with NT Lakis in Washington, D.C. Eastman also is counsel to the Society for Human Resource Management (SHRM).

SHRM reports, “Nonprofit organizations that think the overtime rule doesn’t apply to them need to think twice, and may have to either redouble their fundraising efforts or brace for possible cuts in the services they provide. Despite the fact that these businesses engage in charitable activities, which would  exempt them from overtime pay requirements as enterprises, individual employees may still be eligible for overtime pay.”

The Department of Labor released a fact sheet to further clarify when nonprofits are impacted by the Fair Labor Standards Act (FLSA). Under the FLSA there are two types of coverage: enterprise coverage (which is limited for nonprofits) or individual coverage.

Enterprise coverage applies to businesses with annual sales of at least $500,000. For a nonprofit, this applies only to the organization’s activities performed for a business purpose beyond their mission function, such as merchandise sales or other unrelated business income. Income from contributions and membership fees  are not counted toward the $500,000 threshold.

Individual coverage applies to employees engaged in interstate commerce activities. This includes employees that make out-of-state phone calls, receive out-of-state emails or mail, purchase or receive goods from an out-of-state vendor, or handle credit card transactions including the accounting and bookkeeping to record the transactions.

The main impact of the FLSA is the increase in the exempt threshold. The overtime rule increases the exempt salary level from $455 a week ($23,660 a year) to $913 a week ($47,476 a year) which many nonprofits cannot afford that jump in pay or the sudden addition of overtime. SHRM points out the main concern is that the offset will be a reduction in services that a nonprofit can provide.

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