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.