overtime / Sam Greenhalgh

May 20, 2016; Times-Tribune (Scranton, PA)

Last week, the U.S. Department of Labor released new rules that increased the white-collar overtime threshold from $455 to $913 per week (or from $23,660 to $47,476 on an annual basis). The announcement of the updated rules implementing the federal Fair Labor Standards Act ended a lengthy process that began in 2014 when President Obama requested the regulations be reviewed to ensure they were consistent with his goal of ensuring workers were paid a fair wage for a hard day’s work.

For the millions of employees who may now see larger paychecks, the new rule is welcome news. But for their employers, these new rules will require some difficult decisions. While setting a new standard that will affect an estimated 4.2 million current employees, the rules provide several ways organizations can respond, not all of which result in increased pay for their employees.

Organizations can comply with the new rules, implement the administrative systems necessary to track hours for currently salaried employees, and pay the additional cost of overtime for those who earn it. Happier and better-paid employees, perhaps, but an added cost to be funded. Or they can reduce the employee’s salary so that any overtime earned will not result in an increase in the employee’s total earnings. Or they can forbid overtime for these employees and hire additional part-time workers to pick up the slack. The last two options do keep costs contained, but their workforce may be unhappy and less productive.

From the moment the new rule was put forward for public comment in 2015, the nonprofit community has seen them as asking them to make a difficult choice, balancing their mission of helping those in need with the realities of operating. The National Council of Nonprofits encouraged “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” to evaluate the benefits of the changes being proposed.

Among the more than 270,000 comments the DOL received to the proposed rule were many voices speaking for the nonprofit community, and they seemed to see only the negative impact on their operations; mission seemed to take a backseat to the difficulty of meeting a higher standard. Rick Cohen’s “brief review of one third of the posted comments found there was not one positive comment from a nonprofit.” The comments he saw predicted dire outcomes, staff reductions, service cuts, and even agency closings. No one seemed to see the increased pay for those earning low salaries as an important benefit to be supported.

Now that the changes are going to take effect, segments of the nonprofit community continues to protest loudly. Jesse Ergott, president of NeighborWorks in Northeastern Pennsylvania, described the problem to the Times-Tribune:

<blockquote> Nonprofits operate on limited, heavily restricted budgets and pump as much of their resources into their missions as possible. Project-specific grants often require assurance there will be adequate staff to complete the task at hand—although many grants can’t be used to make payroll.

U.S. PIRG issued an even more self-centered statement that is covered in today’s feature.

In a more practical vein, the National Council of Nonprofits sees particular dangers in these new rules for organizations with government contracts.

Nonprofits with government grants and contracts at any level of government (local, state, tribal, or federal) will now be put in the position of having to comply with new federal requirements that impose new costs not known when those grants and contracts were signed. Unlike businesses that can raise prices, or governments that can raise taxes or curtail public services, nonprofits with government grants and contracts may find themselves contractually bound to maintain services at increased costs that may not be expressly covered by existing written agreements.

But Human Services Council of New York approached the issue in a more positive manner, issuing a statement that refreshingly started with an acknowledgement of the issue of wage justice:

It remains to be seen how New York State will implement the new rule, which takes effect December 1st, 2016. The rule may make thousands more nonprofit workers eligible for overtime pay—an expansion that is long overdue. This expansion will not only improve the quality of life for thousands of frontline workers by ensuring that they are fairly compensated for all of the hours that they work, but it will also spur economic growth by enabling them to work their way towards financial security. HSC commends DOL for recognizing the importance of respecting workers’ time and paying them fairly for their labor.

HSC used the moment to advocate for higher grant levels rather than protest the new overtime measure.

Accordingly, HSC urges DOL to consider the impact of its rule on nonprofit human services organizations and work with other federal agencies that outsource to nonprofits to (1) increase grant awards to cover this cost of expanded overtime eligibility and (2) reduce the burdens created by existing mandates to reduce the need for overtime work in the first place. We stand ready to assist DOL in implementing these recommendations.

Reacting to negative responses to the new rule from those representing the nonprofit community last week, Andy Schmidt, writing in NPQ, suggested that if exploiting your lowest paid workers is absolutely key to your enterprise model it may be that that model needs some rethinking. This could be a breakthrough moment for the sector if we try to make it that—or we could stay stuck in a past which necessitates that a good portion of the sector’s employees exist in poverty.—Martin Levine and Ruth McCambridge