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The new overtime rules under the Fair Labor Standards Act (FLSA) become effective on December 1, 2016. However, the effect on non-profit organizations may vary depending on the size, nature, and location of the organization.

While non-profit organizations are not expressly exempt from the new overtime rules, certain employees are not covered by the Act and therefore remain exempt from the new overtime requirements. These employees include those individuals who are employed by non-profit organizations with annual revenues less than $500,000 and who do not engage in interstate commerce, such as regularly making out-of-state phone calls, receiving or sending email, ordering goods from out-of-state suppliers, or handling credit card transactions. For non-profit organizations, the $500,000 threshold excludes revenues from activities that are generally associated with the organization’s charitable activities, such as contributions and certain membership dues that are not in substantial competition with other businesses.

However, there are several exceptions to the foregoing that must be considered:

  • Employees of hospitals, schools and preschools, government agencies, and businesses providing medical or nursing care are covered by the FLSA, regardless of their annual revenues or non-profit status.
  • Employees of non-profit organizations receiving federal, state, or local government grants are generally covered by the FLSA.
  • Employees of non-profit organizations in Alaska, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Missouri, New Jersey, New York, North Carolina, and Ohio are generally covered by FLSA regulations by way of state statue, regulation or other administrative ruling.

While some non-profit organizations may have employees who remain exempt from the provisions of the FLSA and new overtime requirements, most will not. For these organizations, it is important to remember certain employees are currently entitled to overtime and should not be affected by the new rule. These employees include:

  • Hourly employees
  • Employees who work 40 or less hours per week
  • Salaried employees who do not perform executive, administrative, or professional duties

Highly compensated employees who earn more than $134,004 a year will also remain exempt from the overtime requirements of the Act. For those executive, administrative, and professional employees who are salaried, but not highly compensated, there are the following options:

  • Current salary levels can be retained with overtime paid after 40 hours
  • Salaries can be increased to a minimum of $913 per week or $47,476 per year to maintain the overtime exemption
  • Hours can be limited to 40 hours per week by reorganizing workloads, adjusting schedules, or spreading the hours worked to additional employees

Given often limited resources and fixed funding levels under existing grants, a unique option for non-profit organizations also includes the potential use of volunteer labor to cover reductions in employee hours. However, in doing so, to remain exempt an employee may not volunteer to provide the same type of services to the organization which they are otherwise employed to provide.

As with other organizations, the new overtime rules for non-profit organizations are complex. As December 1 approaches, it is important to evaluate the status of your employees and identify those who may be affected by the new regulations.

Robert Wujek

Bob Wujek provides audit and tax services to both non-profit organizations and privately held businesses. His non-profit clients include charitable organizations, private educational institutions, trade associations, and common-interest real estate associations. He also represents the firm within the Association Forum of Chicagoland and the American Society of Association Executives.