Is Exploiting Workers Key to Your Nonprofit Enterprise Model? The New Overtime Requirements

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don’t think too much / craig Cloutier

 

The United States Department of Labor (USDOL) tweaked the rules for professional and administrative exemptions regarding overtime pay, and many nonprofit leaders are freaking out. I can’t tell if that’s because they are confused or because exploiting workers is key to their business model. So let’s examine exactly what is going on.

Generally speaking, all employees working in interstate commerce or for businesses with $500,000 in annual revenue must be paid overtime when they work more than 40 hours in a week. Congress enacted this rule in the Depression because employers with the upper hand were working their desperate workers as many hours as possible, and the law was designed to incentivize hiring more workers while improving the hours of the existing workers. Congress recognized that certain highly paid professionals, executives, and administrative workers would have greater responsibilities that would require extra hours of duty, but their high salaries would justify the work. But this was the exception, and the idea was for the vast majority of workers to work no more than 40 hours in a week except in rare instances when business necessities required the payment of overtime.

USDOL realized that employers would try to get around the overtime regulations by pretending that rank-and-file workers were salaried executives. To guard against this, they set forth strict primary duty tests, but they also created a minimum salary that was higher than a rank-and-file employee would be paid. That rate went up with inflation for while, but then got stuck at $455 per week, or $23,660 annually. This creates very strange incentives. For example, an assistant manager at a fast food restaurant that spends a lot of time flipping burgers can be categorized as exempt and made to work 70 hours per week for a salary of $550. The Obama administration recognized the problem and increased the salary basis from $455 to $913, which comes out to just under $47,500 on an annual basis.

This just means that workers paid under $47,500 will have to go home after 40 hours in a week, or if there is an emergency and they have to work a little more, they must be paid 50% more for those extra hours.

The reaction from the nonprofit sector has been puzzling. The executive director of Habitat for Humanity for Greater Portland, Maine penned a strident opinion piece in the Portland Press-Herald hours after the new rules were enacted. The former head of the regional chamber of commerce wrote:

The Labor Department’s new overtime rules will so drastically change our current compensation obligations that we may no longer be able to give our workers the benefits, schedules and other incentives that drew them to us in the first place.

But this makes no sense to me. All Habitat has to do is let their salaried employees go home after 40 hours in the week if they can’t pay them $47,500. They can continue to pay them a salary, and they can just adjust slightly in the weeks that emergencies cause them to work overtime.

This is great news for the very people the sector is supposed to help. Those assistant managers at the fast food restaurant will either receive a higher salary, or be able to go home to their families sooner. It also means that they will have more regular schedules because the bosses have an incentive to avoid making those workers stay a little late. The extra time at home and more regular schedule will make childcare much easier to handle. And these workers will have more time to volunteer for organizations like Habitat for Humanity.

I might be naïve, but I think people go into the nonprofit sector because they want to help others, even with the knowledge that they might be on the edge of poverty themselves. And I just can’t conceive of a world where it is fair to make those people work more than 40 hours in a week if they are going to make less than $47,500.

  • Tricia Baker

    Agreed!
    I’m particularly offended when the Mission of the organization targets low-income families, and employees meet guidelines to receive services!
    AND no more importantly than Domestic Violence organizations. We all know by now that one of the hindrances to leaving an abusive relationship is financial, so the organization could be helping to perpetuate the suffering of employees!

  • Liz Moore

    It is naive to suppose nonprofits that protest are not in favor of social justice measures or want to exploit employees. We in Montana requested a threshold relative to area wages rather than a national standard. The regulations are simply more difficult to respond to in a state where the average nonprofit wage is less than $36,000/year. More than two thirds of Montana’s 2,100 income earning nonprofits have budgets of less than $500,000/year. In our most recent wage and benefit survey (2014), the average wage for a nonprofit executive in an organization with a budget of $250,000-$500,000 was $54,820, barely meeting the threshold. Executives running organizations with budgets less than $250,000 year have an average salary of less than $42,000. And while it is tempting to believe the FLSA guidelines eliminate all of those that are less than $500,000 – it’s not necessarily so. It depends on state law and the type/amount of enterprise a nonprofit might be engaged in.

    For nonprofits with budgets greater than $500,000/year, government contracts can make it very difficult to adjust personnel budgets mid-stream.

    These are realities under the anxiety being expressed by nonprofit leaders. I’m disappointed with this wide-brush, non-nuanced perspective that does not seem to include first hand information from those most impacted. We support the changes in principle, but wish they had been enacted in a manner that recognizes the unique economy of each state.

    Liz Moore, Executive Director, Montana Nonprofit Association.

    • Andy

      Liz, the reason I’m painting with a wide brush is because nobody has effectively countered my argument that it is wrong to make people work more than 40 hours in a week except in rare circumstances. It isn’t really debatable from the point of view of the average person.

      • CauseDriven

        Andy who wrote the article: Exploitation as the starting point seems a little harsh. Hard to take you seriously with that as the opening line. But not only is your starting point wrong, so is the conclusion. While I am sure there are NPO shops that “expect” 50-60 hours a week, most NPOs do not “make” people work longer than 40 hours, we work those hours because we are passionate about what we do. We do it out of dedication, and no, not martyrdom or coercion. These rules remove that choice and require our employers to pay us overtime. Those overtime funds or increased salaries remove bread from hungry mouths, or services from low income families. The starting point is that we are just workers or some kind of martyrs, not cause driven leaders willing to do what is needed to serve our communities. It is frankly insulting to the hard work we do. The conclusion is therefore wrong in that you assume we will be happy to be relieved of some burden that does not exist. Lets all just go home before the job is done. Sorry, closing the bread line, my 40 hours are up, sorry the free clinic is closing, the Nurse Practitioner hit 40 hours, sorry no church camp this year the Pastor can’t spend the night this year. You clearly don’t get the mindset of the nonprofit cause driven leader if you think it is just a job. You work for a living, we work for a cause.

        • Andy

          That’s the right line of attack, and of course was the supreme court’s position during the Lochner era. Freedom of contract above all else. But progressives fought and won this fight in 1938, and what you are suggesting would undermine the entire new deal. Of course people who want to work 60 hours still can. You must pay $7.25 for the first 40 and 10 something for the next 20. Is that you much? What the so called leaders are scared of isn’t the budget, it’s workers commoditising their time and using it to bargain for better conditions. Interestingly when I wrote the exploitation sentence I honestly thought the nonprofit leaders were confused. I didn’t write the headline. But now I think this is some kind of conscience twisted effort to suppress wages in an important sector if the economy.

          • CauseDriven

            Yes we are too ignorant, we must be confused. How predictably condescending. You still don’t get it do you? We are not workers in need of protection by some group of high and mighty who know better than we do what is best for us and our causes. We are intelligent hard working activists who do not need your protection. You work for a paycheck, we work for a cause. Just out of curiousity, where do you suppose the money will come from for the overtime? Sure I can go home at 40 but the job is not done. I can hire part timers to work after I leave but where do I get those funds? No, I’ll shut the doors because I have to. Then smart people like you will tell us how we aren’t true charities because we aren’t serving enough people. I guess a guy that gets paid by the minute just can’t fathom how someone would selflessly give their time away for free. Don’t feel sorry for my poor exploited soul, look in the mirror and feel sorry for that guy.

          • Andy

            The thing is that the employees aren’t usually just working because they believe in the cause. They often feel spoken or unspoken pressure to work more if they want to keep their job, and they don’t have many other economic opportunities. In process wages for the entire sector are suppressed furthering economic inequality. If you think the workers really don’t want to make more money for the extra work, then why wouldn’t they turn around and donate the money back to the nonprofit and take a deduction? It would be the exact same thing, and the Supreme Court has specifically said this is permitted under the Fair Labor Standards Act if there is no pressure: “there is nothing in the Act to prevent them from voluntarily returning the amounts to the Foundation.” https://supreme.justia.com/cases/federal/us/471/290/

          • Ryan Mangin

            FINALLY, a solution that makes sense!

    • Andy

      Liz, this might be a controversial position, but if an organization can’t afford to pay their workers adequately, maybe it should find some other way to further its mission. (p.s. I should clarify that I am not the Andy who wrote this article)

  • Andy Holman

    While I certainly agree that nonprofits should be supportive of fair pay for all, it is also important that the exact rules be understood as applied to nonprofits. The $500,00 threshold only applies to nonprofits that receive such funds from enterprise activities. That will exclude many organizations. The same is true for the interstate commerce rule ( for example calling a vendor in a different state) where such activity may constitute an insubstantial amount of time and therefore not be counted. There has definitely been much hue and cry on this issue since being finalized this week but it is vitally important for the sector to understand the proper context of the rules. Employees should not be taken advantage of by nonprofit employers but nonprofits should also not rush to judgement on some aspects that apply more to the for profit sector.

  • Tawny

    Here’s the rub, Andy – “All Habitat has to do is let their salaried employees go home after 40 hours in the week if they can’t afford to pay them $47,500.” Sure, we can “let” them go home but our non-profit corporations remain liable for overtime pay when that dedicated employee we sent home after 40 hours opens their email, works on a report, or decides to go ahead and paint the agency storage shed on Saturday. You said it yourself – many non-profit workers are dedicated to their work – so dedicated that we gladly work more than 40 hours a week at less than equitable salaries. Now we have to literally punish that dedicated worker who, for 5 or 10 years, has routinely done what was needed to serve his/her customers. OR, we find a way to squeeze even more blood out of an increasingly dry and restricted turnip patch of funding partners. When the field is filled with funders who want 98% of their money to go to direct service and only 2% towards administering the service (salaries and fringe benefits, for example), making this change to “poof” pay higher salaries is a pipe dream. Alternatively, we have the option of of not punishing that dedicated employee and turning a blind eye to their extra work beyond 40 hours for which we we can’t pay them, and then get pummeled with massive FLSA violation fines. It’s not that hard to understand, really. Our NPO has been planning around this issue for months and we will comply. We have solid, valuable staff members bewildered and ready to quit, though, because their capacity to serve their customers is going to be greatly reduced. We want fair, adequate salaries. We pay as much as our funding sources enable us to pay. Unfortunately, this salary cap in the new regs puts many small and mid-western NPOs in between the proverbial rock and a hard place.

    • Andy

      “You said it yourself – many non-profit workers are dedicated to their
      work – so dedicated that we gladly work more than 40 hours a week at
      less than equitable salaries. Now we have to literally punish that
      dedicated worker who, for 5 or 10 years, has routinely done what was
      needed to serve his/her customers.”

      What’s stopping them from serving others by volunteering with another nonprofit or simply as a private citizen? Seems to me the only thing holding this hypothetical person back would be organizational commitment, which suggests to me they have they’re priorities out of order. Causes exist with or without organizations.

  • Cloggie

    It is because non-profits are built around “martyr syndrome”, which has only been exacerbated by software that lets us work remotely and smartphones that demand responses to emails at all hours. Also, funders expect us to do more with less in general and I don’t see anyone speaking about that they will understand budgets that are larger to accommodate raises, overtime, or new staff hires. It seems unlikely that they will suddenly have a larger pool to draw on for larger grant requests.

    The non-profit sector (and those who donate to it) has long operated under the assumption that people working here are doing so out of a sense of purpose and therefore can live off of warm, fuzzy feelings while affecting major social change/support. While I (and many others) do not agree with this sentiment, it is at the very heart of this issue. We’re accustomed to getting a pass because we’re “doing good” and now we’re not.

  • Dariel Garner

    I have been repeatedly stunned at the disregard by some non-profits of fundamental labor rights and dignities. It is sad to see that some non-profits are balking at adapting to a wage change that has clearly been necessary for many years . I can only imagine that these same not for profit companies would fight against $15 or higher minimum wage rates, mandated sick leave, family leave, vacations, unionization or any other change that benefits their employees. Seems to me that the charitable heart does begin at home and that some folks might invest more of that heart in caring for their employees..
    Regards fundraising…isn’t this a perfect reason to go to your donor base asking for more…At the same time consider implementing more benefits for your workers….then you can ask for even more…

  • Bobby Watts

    I can’t take the time to read through the many comments, and I suppose this has been said already, but while I agree with the basic argument Andy Schmidt makes, I think he’s missed a point. Nonprofits can continue to pay workers less than $47,500, they just can’t classify them as exempt, and will have to pay them overtime when they work more than 40 hours in a week. This seems a matter of social justice to me.

  • Andy

    I completely agree with this. When nonprofits choose to take on hired staff (and yes, this is a choice) to fulfill their mission, they shouldn’t complain when they’re required to adhere to the same standards as other employers. At the end of the day, a nonprofit job is just that — a job.

  • Emily Flemming

    I am happy to see this article in NPQ, and believe this labor law could provide nonprofits with a platform with which to communicate the destructive outcomes of the Overhead Myth with their donors and funders.

  • Dariel Garner

    I see it more as a management problem, rather than a funder/donor problem. Clearly some funders do not understand system dynamics and if they are not educable then it is always possible to pass on their money rather than create an ethical dilemma for the organization. Would a peace group take a contribution from a war contractor? I bet they would pass. Similarly, a charitable NGO doesn’t have to take money with unworkable strings….some of them choose to do so. And, unfortunately, some of them treat their employees in a manner that would be illegal and/or immoral in the private sector

    • CauseDriven

      You are right, it is a management problem. Managing to fit a gallon of needed services into a cup of resources when educable people do not put their donations where their high and mighty mouth is. I’ll send you a link to my favorite NPO and when you donate I will take you seriously.

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  • Margot Haliday Knight

    I couldn’t agree more. The hue and cry from non-profits is hypocritical nonsense. Executives need to press their boards of directors to understand and support–morally and financially–this most excellent change in the threshold for overtime pay. Woking for a non-profit is real work. Passion for a mission is no substitute for a decent, liveable wage.

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  • Shelby

    I think the notion that if someone has a concern about this, they must be either confused or overly reliant on their employees being martyrs, is pretty shortsighted. While I agree with several of your points, there is a type of nonprofit you are not addressing – I know, because I run one. We have very seasonally based busy and slow times each year. I am very concerned in making sure my employees do not work more than 40 hours a week on average. I am also very concerned that they have work/life balance, knowing that they are paid less than they would be in another sector. So, I have an exempt employee making less than $47,500/year. On average, she does not work more than 40 hours. Sometimes, she does – we do arts programming, and there are just days with performances that are going to last longer than the average work day. I give her a flexible schedule, the ability to work from home, the ability to leave for personal appointments whenever she needs. When she works a long week one week, I tell her to take a day off the next week. It’s all about balance and adjustment. I think it feels to both of us, myself and my employee, that the new requirements will ask that we be much more formal about the hours and the pay – which means overtime pay for her, yes, but also means the organization will be less inclined to provide the flexibility offered before – because we do have to be very careful about budget. I absolutely agree workers should not be exploited, but at the same time there are many nonprofit directors who are working hard not to exploit our workers, and having less flexibility around how we do that can be problematic.