New Overtime Rules: 3 Questions and 5 Suggestions for Nonprofits

New federal overtime rules take effect Dec. 1, 2016, and compliance with these rules is mandatory for for-profit and nonprofit employers alike. Among other things, the rules mandate that full-time, salaried employees who are paid less than $47,476 per year must now be paid overtime.

This can certainly place financial stress on nonprofits already staring down general funding cuts or those whose fiscal-year budgets already are in place.

Looking at each position within your nonprofit organization and making sure you can answer the questions below may help ease financial stress and assist in a smooth transition to the new rules.

Is my organization and/or staff subject to overtime laws?

According to Department of Labor (DOL) nonprofit guidelines, to meet the enterprise coverage test—meaning employees working for that enterprise are covered by Fair Labor Standards Act (FLSA) protections unless an exemption applies—an entity must have annual revenue of at least $500,000. Regardless of dollar-volume, FLSA applies to hospitals; institutions primarily engaged in the care of older adults and people with disabilities who reside on the premises; schools for children who are mentally or physically disabled or gifted; federal, state and local governments; and preschools, elementary and secondary schools, and institutions of higher education.

Employees at these types of institutions (commonly referred to as “named enterprises”) are entitled to minimum wage and overtime protections unless a specific exemption applies. Even if a nonprofit organization is not covered on an enterprise basis, it may have staff members who are covered individually, and therefore are entitled to FLSA protections.

How do I classify employees correctly?

The DOL has defined basic requirements an organization can use in determining the classification for positions. Begin by conducting a compensation analysis and job-description review for all positions to determine if they fall under the new FLSA exemptions. As you are reviewing job descriptions, analyze the hours each employee works and determine which employees work more than 40 hours. Document your organization’s analysis of each position.


I determined which positions will be affected—now what?

After analyzing each position and the hours each employee works, you can determine impact on your personnel budget and any changes you need to make. Your organization should determine the best possible options for addressing the change. (It could be that you pay employees the same and add the overtime cost to your budget.)

If nonexempt employees work 40 hours or less, you can manage the overtime on an as-needed basis. It is recommended that you create or make changes to an overtime policy, which should include the approval process for working overtime and the consequences for working without approval.

Here are a few suggestions to help plan for changes:

1. If your employees regularly work more than 40 hours, you will need to make plans to prepare for the overtime changes. Look at the current salary for each position. If the salary is close to the new salary, your organization could increase it to meet the threshold and maintain the exemption for that position.
2. If your employee is paid a set salary, your organization could continue to pay the employee a salary, and pay overtime above the salary amount.
3. If you have an employee who regularly works more than 40 hours per week, your organization and the employee can agree to a fixed salary. In this case, the salary would include the overtime compensation.
4. Your organization could review wages and adjust the employee’s regular wage to offset the overtime amount. If your organization is going to adjust wages, be sure that it is done equitably within your organization.
5. During your position description analysis, your organization could determine if tasks could be redistributed or eliminated to offset the number of hours worked.

There is no single right answer. Each nonprofit should consider all options carefully. Changes need to be made fairly and in a way that minimizes impact on staff morale. Document all analyses and discussions you have with employees. This will save time and money if there is ever a complaint filed against your organization.