Impact of Overtime Rules on Nonprofits

By: Kim Hunwardsen1245

Last week the U.S. Labor Department announced overtime final regulations that will go into effect on December 1, 2016.  These rules mean that most employees earning less than $47,500 per year will be entitled to overtime compensation, regardless of whether they are currently classified as executive, administrative, or professional (white-collar) workers. The final rule applies to employers in all sectors, including nonprofit organizations.  A summary of the proposed rules is available here.

In an effort to address longstanding confusion about how the Fair Labor Standards Act (FLSA) and the overtime regulations apply to nonprofit employers and employees, a special overview and guidance for nonprofit organizations document was also released and can be viewed here. Among the key considerations for the nonprofit industry is how annual sales is defined along with specific entities that are subject to the rules regardless of sales volume. A key feature in defining sales is that contribution revenue is not included in the definition.  Hospitals, businesses providing medical and nursing care for residents, schools and preschools and government agencies are subject to the rules regardless of sales volume.  The special guidance provides a number of examples to help clarify the application of the rules.

One of the biggest impacts for nonprofit organizations will be to those organizations that have existing government grants or contracts as they now incur additional costs that were not known at the time of entering into the original contracts.

All organizations have options to consider in order to become compliant with the final rules.  This may include providing pay raises that increase workers’ salaries above the new threshold, reorganizing workloads, adjusting schedules or hiring new employees to manage hours, or paying overtime.

Now is the time to consider the impact of these changes on the organization’s budget and determine what changes will need to be implemented to address the new rules.  The Council of Nonprofits has a great number of resources available here. In addition, please contact your Eide Bailly service provider for additional assistance.

Considering a Change in Auditors?

TimMccutcheonBy: Tim McCutcheon

Many not-for-profit organizations (NFPs) have audit firm rotation polices requiring a change in audit firms—not just audit partners—every few years, most typically every five years. Some call for rotation in as little as every three years. Policies such as these have become the norm only in the past dozen years or so. Why is this, and does it make sense?

The rise of audit partner or audit firm rotation policies, in large part, is attributable to the Sarbanes-Oxley Act of 2002 (SOX, or the Act). Curiously, with the exception of two very narrow provisions of the Act dealing with document destruction and whistleblower policies, the Act does not apply to NFPs unless an NFP is also an issuer of publicly traded securities or has filed as a registrant to issue such securities under the Securities Exchange Act of 1934 or the Securities Act of 1933, respectively. So, if SOX doesn’t apply to NFPs, why have so many adopted its audit partner rotation policy, or going even further, turned the policy into one of audit firm rotation?

The article looks back at the Act, the effects it has had—intended or otherwise—on the relationships between NFPs and their auditors since its passage, and offers considerations for NFPs when evaluating their own policies. Clink here to read the full article.

New McKinsey Report Explains Why Investors Should Expect Lower Returns for the Next 20 Years

By: Tim McCutcheonTimMccutcheon

In a just released report, the McKinsey Global Institute is warning investors they may need to lower their expectations anywhere from approximately 150 to 400 basis points on equities, and 300 to 500 basis points on fixed income investments—and in some cases even lower than that—as the forces that have driven exceptional investment returns over the past 30 years are weakening, and even reversing.

Given the waves of turbulence that have swept through financial markets in recent years, including the 2000 dot-com meltdown and the 2008 financial crisis, it may sound odd to describe the past three decades as a golden age for investors. But the reality is that total returns on equities and bonds in the United States and Western Europe from 1985 to 2014 were significantly higher than the long-term average.

An extraordinary confluence of favorable economic and business fundamentals created those returns. Inflation and interest rates declined sharply from peaks in the late 1970s and 1980s, and strong global economic growth was fueled by positive demographics, productivity gains, and rapid growth in China. Corporate-profit growth was even stronger, reflecting revenue gains in new markets, declining corporate taxes, and advances in automation and global supply chains that helped rein in costs.

The golden era has now ended.

The big decline in interest rates and inflation is reaching its limits, global GDP growth will be lower as populations in the developed world and China age, and the outlook for corporate profits is cloudier. While digitization and disruptive technologies could boost margins for some companies, the big North American and Western European firms that took the largest share of the global profit pool in the past 30 years face new competitive pressures from emerging-market companies, technology giants, and digital platform-enabled smaller rivals. These forces may curtail margins going forward, and could have profound effects on all investors, both individual and institutional. It is therefore critical for investors of all types to start managing their own expectations and the expectations of the people who will be affected by their investment decisions.

Download the full report here: