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.

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