The Debate over Reforming Overtime Regulations

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Overtime

Image Credit: You are overtime, Mark Hillary

July 13, 2015; National Council of Nonprofits

The new reforms proposed by the U.S. Department of Labor concerning overtime are meant to address issues for all employers—but nonprofits have to remember that they too are affected, and they ought to be prepared to weigh in or adjust. The new proposed DOL regulations expand overtime protections by doubling the minimum salary of white collar workers before they would be considered exempt from being paid time-and-a-half wages for working in excess of 40 hours, raising the minimum from $23,660 (or $455 a week) to $50,400 ($970 a week).

This would be a significant modification of the regulations under the Fair Labor Standards Act. While mandating overtime wages for many workers, the statute gave the Secretary of Labor the authority to define what levels of compensation would be covered by the overtime requirement and what levels would be exempt. Exempt employees are generally performing executive, administrative, or professional duties, paid according to a predetermined salary rather than on an hourly basis, and paid more than the minimum amount specified in regulations. (States do have the ability to set the exemption salary level higher than the federal FLSA level.)

It’s not hard to guess that the current exempt salary level is low, actually below the current federal poverty level for a family of four. When the current exempt compensation level was set, it was higher than the federal poverty rate. The Council of Nonprofits notes that since that time (2004), the established federal poverty income level has increased 25 percent, but the proposed Labor regulation on exempt salary levels would more than double the existing standard. Why choose $50,400? DOL explains that that is the 40th percentile of weekly earnings for full-time salaried workers, and “a percentile serves as a better proxy for distinguishing between overtime-eligible and exempt white collar workers as it is rooted in the relative distribution of earnings which are linked to the type of work undertaken by salaried workers.”

(Another provision in the proposed DOL regulations raises the standard for “highly compensated employees,” but for the purpose of this newswire, we are focusing on the “low” threshold level, because many nonprofits are relatively low-wage employers, and the proposed regulation would move a significant part of their workforce into the overtime-eligible category.)

The National Council is eager for nonprofits to weigh in on how the proposed change in overtime thresholds would affect them:

“In reviewing the proposed regulations, the National Council of Nonprofits encourages all nonprofits to conduct a mission-based analysis of the proposed regulations. That means answering questions about how the proposed increase in the minimum salary levels would affect operations, resources, and staffing, as well as what impact the draft regulations would have on persons relying on the services and the mission of the nonprofit.”

The question is a little like the debate in the nonprofit sector about efforts to raise the minimum wage or otherwise establish a living wage. The Council asks nonprofits to consider the following:

“What effect—positive or negative—would the proposals have on your organization’s ability to advance its mission? Variables could include the need to raise more money, serve fewer people, or not being able to perform under government grants or contracts, among many others.

“What effect—positive or negative—would the proposals have on the individuals and communities your organization serves? For example, would higher compensation, if realized, reduce the number of individuals seeking services from the organization, and thus cut the workload of the organization or enable you to pursue other mission objectives?”

In addition, the Council suggests that nonprofits might be interested in asking DOL to delay or phase in the new regulations, or to “exempt [nonprofits with existing government grants and contracts] from the implementation of any new rules until the time that government pays the higher amounts for the higher salary rate.”

The proposed regulations shouldn’t make nonprofits think that the sky is falling. Although nonprofit employers are not exempt from the FLSA per se, those with volume of sales or revenues below $500,000 annually would not be covered by the regulation, and, moreover, according to the DOL, “In determining coverage, only [nonprofits’] activities performed for a business purpose are considered and not charitable, religious, educational, or similar activities of organizations operated on a nonprofit basis where such activities are not in substantial competition with other businesses.” Given that some nonprofits such as hospitals and universities may “compete” with other businesses—and even small nonprofits such as those in the housing and community development arena, for example, might easily top that $500,000 revenue threshold—the interpretation of this may be subject to some debate.

Nonprofits are concerned, as evidenced by some of the 937 comments we have seen posted already on the regulations, which we quote below.

  • We seriously are opposed to the changes you are planning to make in the overtime pay structure. We run a summer camp for kids and the exemption would potentially put us out of business. Please don’t make the change or give us an exemption for Seasonal Amusement or Recreational Establishments.
  • Due to the nature of our substance abuse prevention/education work in schools and the community, I will have to cut staff to meet this requirement. I will also have to pay all of my substance abuse treatment providers overtime as well. I will have to cut staff and services to the fastest growing area of the country. We have experienced a 70 percent increase in requests for treatment services and have a current wait time of three weeks to enter our treatment program. This change will double or triple the wait time for people with addiction in our area to enter affordable treatment. Will there be exceptions given to non-profits related to this requirement? Is the federal government willing to increase grant funds to programs like ours to meet the needs in our area so that all services can be provided in a timely manner and staff can be paid for overtime worked?
  • As an employee of a 501(c)(3) for more than twenty-five years, I can see a slippery slope being embarked upon by raising this threshold. Not only could this put ministries, churches, and other non-profits out of business or jeopardize the jobs of many workers, but, even our small business owners (mom and pop businesses, which are the backbone of America.) will have their livelihood jeopardized.
  • We are a small not-for-profit organization with five employees. This change is too drastic and will have immediate impact on how effective we are at serving our population. We currently pay our part-timers at least $20/hr. and salaried employee at least $35,000, very livable wages for this part of the country. I believe that change is necessary to the overtime and exemption rule, but a more measure and incremental change (tying to an index) would be more realistic and reasonable. With the rule changes as they stand, we will have to eliminate some positions and not be as effective in serving our population.
  • Very simple. As a manager of a non-profit organization, this proposed rule would make it very clear in deciding whether it would be financially possible to find a way to stay in business. The answer is no.
  • While I understand the intent of the proposed increase in wage testing, I have very serious concerns about the effects of the increase on non-profits. I am the Executive Director of an Agency on Aging in Nebraska. Area Agencies on Aging across the Nation have faced the challenge of the Older Americans Act funding decreasing while the population of seniors has increased. Due to budget limitations we currently have waiting lists for senior services to help elderly remain in their homes, and we have been limited in the services we can provide through Senior Centers. Any increase in funds that have to go to salaries will cause a decrease in funds available to assist the elderly, which will result in causing them additional hardships.
  • As the Human Resource Director of a small non-profit agency, the increase of the salary level test will severely impact almost the entirety of our Case Management staff. We set our compensation based on recognized salary survey information in our area and the proposed increase of the salary test will severely hamper the roles of our case managers who meet the other administrative tests of independent judgment and must, out of necessity often spend more than 40 hours working either at home or on site. I strongly recommend against the salary level test being raised to such an extreme, and essentially will result in fewer services being effectively delivered to the population we serve, not to mention the deep financial impact that it will have on our agency to try to fund overtime at that level.
  • Speaking on behalf of a not-for-profit agency, this proposed increase will result in the loss of at least two jobs. If we had excess capacity to raise minimum salaries, we would do that. Sadly, our Federal funding has declined, resulting in our downsizing staff. 10 years ago, we had 25 employees. Today, we have 10 employees. If this change goes into effect, we will lose at least 2 more employees. Please reconsider the drastic increase and the unintended consequences.
  • As the executive director of a nonprofit organization, in which all of my six management level employees currently make between $24,000 and $32,000 per year, I have great concern over the current proposal to change the threshold for exempt employees from $23,660 to $50,440 per year. The budgetary consequences to my organization, as well as to the majority of nonprofits, would be catastrophic. While I am strongly in favor of providing a living wage to all employees, this extreme mandate would create a desperate situation for employers, especially nonprofits. I can see a scenario in which employee salaries would be reduced so that we could afford to pay them overtime, and then they’d be forced to work overtime just to meet their current standard of living. Another option would be to reduce salaries and hire additional minimum wage workers to complete all the work. Still another option would be to cut services we offer.
  • I am the executive director of a mid-sized nonprofit organization. We employ from 25-30 workers and have a budget of approximately $1.4M. I have reviewed the proposed changes to the definition of exempt employees and am quite concerned. While I agree that the current earnings threshold for exempt workers is too low, the proposed change is too high, more than doubling the current threshold. There are several reasons I believe this increase is unreasonable and would be ineffective: 1) There are many professionals in roles that fit the criteria for exemption who make less than $50K. For example, in our organization we have several employees who would be impacted by this change. Their current salaries are in line with salaries for their positions in our sector. Their job descriptions and their actual duties place them squarely within the definition of “exempt” but this change would make them hourly employees. 2) This change will not necessarily improve earnings for these employees. Many organizations—certainly ours—cannot afford to pay overtime, so our employees who would lose their exempt status would not earn any additional income except under extreme circumstances. 3) Limiting professionals’ hours interferes with their ability to do their jobs. Professional positions requiring the management of many employees, volunteers, and key functions of an organizations sometimes require more than 40 hours a week to complete. Employees who are responsible, committed, and accountable (the kind of employees we want on our payroll) find it frustrating and defeating to not be able to complete their job responsibilities. 4) It will be seen/felt as an insult to many currently exempt employees who would lose their status. As noted before, these are professionals with a great deal of responsibility, and that is how they see themselves. Having to clock in and out and not being able to work the number of hours they feel are needed to complete their work would be crippling and insulting to some. It would feel like a demotion. I have experienced this at a previous employer when several of us exempt employees became nonexempt. You’d think people would celebrate it, but that is not at all how the change was experienced. I believe we would not only have more trouble attracting new staff to our leadership positions but would risk losing some of the great people we have now. 

Comments will remain open until September 4th. The debate is going to continue, but from a brief review of one third of the posted comments, there was not one positive comment from a nonprofit. We would love to know how NPQ Newswire readers feel about this proposed regulation.—Rick Cohen