Overtime Pay or No Overtime Pay? What Nonprofits Are Doing (And What Should They Do?)

I started writing this article a few weeks ago. At that time, the day nonprofit organizations would need to implement any necessary changes in order to be in compliance with new Fair Labor Standards Act (FLSA) overtime regulations was drawing near. Dec. 1, 2016, was the proverbial D-Day. Now that the day is nearly here, the situation is far less certain than when I began.

I interviewed several nonprofit leaders in my area of Southwest Florida to gain a local perspective on how 501(c)(3) organizations were/are readying themselves for the changes. What has changed since I commenced writing? Two things. First, the election. The President-elect has listed the planned overtime regulations as one of the items he will “undo” in the near future, according to this recent Huffington Post article. The second thing happened last week: A federal judge issued an injunction putting the start of the new regulations on hold.

However, since political maneuvers are often an inelegant dance of thrusts and parries, the situation will likely continue to be a series of moves and counter moves for some time. Organizations may still need to comply—at least in the short run. For that reason, I will continue on and share the reactions I received from local nonprofits about the impending changes.

First, let me give a quick recap of the regulations in question (click here to read the full details from the U.S. Department of Labor). It boils down to this: Any employee, including salaried employees making less than the newly set bottom limit of $47,476 annually, must be paid overtime at one-and-a-half times their normal rate for hours worked over 40 in a week. Hourly employees continue to receive overtime at one-and-a-half times their hourly rate over 40 hours in a week.

Why does that matter? Many companies and nonprofits were getting 45, 50, 60-plus hours of work from salaried employees without providing any additional compensation. Going forward, if those employees make less than $47,476, overtime work without pay will not be an option.

From the minute this change was signed and the implementation date was set, there have been arguments raging in every sector. Some employers say it will devastate their businesses. Most employees are thrilled that they will be compensated for their extra work, or will not have to work the additional hours.

In the nonprofit world, some agencies that are known to employ a tactic I call “compulsory volunteering” are now in panic mode about the regulatory changes. Why? In the article "There is No Such Thing as Compulsory Volunteering," I describe the practice of verbally requiring nonprofit staff from various departments to “volunteer” at fundraising events throughout the year. The staff at these organizations say it is “just known” that employees must volunteer or there will be consequences. This will no longer fly (it didn’t actually “fly” well before, and often resulted in diminished employee morale) if or when the new regulations take effect.

The organizations that I formally asked about how they were/are planning for the change all gave similar answers. The common thread I found is transparency. These nonprofits already tended toward open accountability, and therefore see the change as simply a regulation with which they must comply.

• Community Foundation of Sarasota County’s communications project manager, Murray Devine, reported that the foundation has 24 employees, two of whom are part-time salaried, one part-time hourly and the remaining 21 full time. Devine shared that when it learned about the new overtime regulations, the foundation “reviewed and evaluated all our job descriptions and salary schedules to assure that we are meeting all the requirements. We have always maintained a commitment to guaranteeing that our employees are treated fairly and offered competitive salary. Each year we monitor and budget for overtime, and provide proper training to ensure that employees are recording their time cards accurately.”

The statement that caught my attention in the response from Community Foundation of Sarasota County was each year we monitor and budget for overtime. In my unscientific and non-legal opinion, budgeting is going to be one of the most difficult tasks for many smaller nonprofits. Small 501(c)(3)s often operate in starvation mode, barely covering current expenses and often with little or no reserve accounts. Therefore, budgeting to add in newly required overtime pay will create the need for additional fundraising.

• Adell Erozer, executive director of homeless coalition Turning Points, said, “Honestly, we are not so worried about the overtime since most of our staff are able to complete their work in the 40-hour week. What is making a difference is changing the exempt and non-exempt requirements—that is affecting two of my people that I consider management but don’t earn the required new amount of money to qualify as exempt anymore.”

• Brady O’Neill, compensation and benefits manager for Goodwill Manasota, noted that, “We have ... invested in a new human resources management system (HRMS) that has added a major expense to our organization in order to support accessibility to remote time management and track reporting requirements associated with new compliance. At the end of the day, we now have less dollars available to expand and support our mission that we now have to use for compliance purposes.” Goodwill of Manasota has 637 full-time and and 122 part-time employees.

• Neurochallenge Foundation (three 40-hour full-time employees and one 32-hour full-time employee) and Family Partnership Center (seven full-time and four part-time employees) both reported that they will neither have to move any staff from full time to part time nor make any adjustments to scheduling or budgeting.

• Janene Amick, executive director of Manatee Performing Arts Center, implemented staffing changes several months ago so she would have time to evaluate the effectiveness of the changes and make any additional adjustments before the regulation’s go-live date of Dec. 1.

• Susie Bowie, executive director of Manatee Community Foundation, responded that knowing the changes were coming impacted how the organization structured a new position it recently filled. “We knew our budget would not allow for a salaried position with the coming changes, so we designed (the positon) as hourly from the beginning- 40 hours per week," she said.

These organizations, from Sarasota and Manatee Counties in Florida, appear to be handling planning well for the new overtime regulations. For some other agencies, compliance will require more of a cultural shift, which dictates that employees must be compensated for the hours they work.

The new FLSA overtime regulations may be implemented or repealed in the coming months. I will be curious to see how nonprofits handle the situation if the regulated overtime pay is no longer required. If they have implemented an overtime-pay-for-extra-work model, how do they then undo it without crashing employee morale and inciting the mass exodus of disgruntled employees that could follow? Nonprofit employers that have made necessary changes to be in compliance may want to consider leaving the new system in place even if the regulation that requires it is quelled. The price of turnover could be more costly than the dollar value of the overtime pay.