Will the FLSA Overtime Rule Undermine Non-Profits?

FLSA impact on nonprofitsThe publication of the Department of Labor’s final overtime rule on May 18th has stirred up a flurry of questions for businesses seeking to understand what the changes mean and how they must be implemented. The rule changes the minimum salary level for white-collar workers who receive an overtime exemption and implements automatic adjustments to that minimum every three years. The drastic increases coupled with a failure to adjust for regional differences have created monumental concerns for many organizations, including non-profits.

How Does the Rule Apply to Non-Profit Organizations?

Non-profits are not covered by the overtime rule for charitable activities that are provided as a free service. Any activities that involve commercial transactions for the purpose of making a profit (such as a gift shop, thrift store, or food service) and which exceed an annual threshold of $500,000 will qualify the organization for enterprise coverage. Individual coverage applies to employees who engage in interstate commerce (making out-of-state phone calls, purchasing from an out-of-state supplier).

What Financial Impact Could the New Rule Have? 

While non-profits have always been subject to these guidelines, the new overtime rule creates a much greater financial burden by doubling the minimum salary level for employees to qualify for exempt status and by implementing automatic increases every three years. Many non-profits tend to offer lower salaries while also seeking to provide high quality services. Their ability to continue offering the same kinds of services will be impacted as their costs rise.

Tina Sharby, Chief Human Resources Officer at Easter Seals NH, Inc., spoke to Congress about the implications of the new overtime rule. Sharby discussed the potential negative impact of the new guidelines on non-profits in particular, including:

  • Inability to absorb additional costs
  • Negative impact on services
  • Limited opportunities for employees to demonstrate leadership and community involvement by working large events
  • Reduction in flexible work schedules
  • Less funding for community needs as money is directed toward mandatory pay increases
  • Blow to employee morale

Many non-profits can’t pass on wage increases to consumers because Medicare or Medicaid funds the services they offer. Instead, services and care to individuals who need them most will be reduced in order to manage the increased costs to the organization. Benefits such as flexible work hours and opportunities to work large events will be curtailed as employees track hours on a weekly basis. Sharby urged Congress to reconsider the provisions of the rule in order to make it feasible for non-profits and small businesses.

What’s the Solution?

The Society for Human Resources (SHRM), a strong advocate for revising the rule to protect small businesses and non-profits, recognizes the need for increases to the minimum salary. The problem, they argue, is that the increases are too large and too soon. Instead, SHRM recommends that the DOL perform an economic analysis of the rule and its impact on businesses across the spectrum. In addition, they recommend removing the automatic update provision and modifying the minimum salary increase to institute a more gradual change that considers regional cost of living differences.

If the rule stands as written, it will go into effect on December 1, 2016.

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