If you are responsible for nonprofit financial management, it is important to understand the new DOL overtime rules. These rules will be in effect starting December 1, 2016, and will impact both for-profit and nonprofit businesses alike.
What Is the New DOL Overtime Rule?
The new DOL overtime rule resets the threshold for who should be paid overtime and when overtime pay takes effect. The revised Fair Labor Standards Act (FLSA) increases the salary threshold for white-collar workers. The threshold for exempt employees has increased from $455 to $913 per week. That is about $23,660 to $47,476 per year, on average.
The only exemptions from paying overtime are for executive, administrative and professional positions making $47,476 or more per year. The annual salary must meet or exceed $47,476 in order to qualify as exempt from overtime pay.
The threshold for so-called highly compensated employees has also been raised. These employees earn between $100,000 and $134,004 per year and perform non-manual labor. They must supervise two or more employees. These employees are now covered under overtime rules as long as their salary does not exceed the upper threshold limit.
Both the standard salary and HCE annual compensation limits will be updated again in three years.
Why Does this Matter for Nonprofit Financial Management?
The new DOL rules matter a great deal for nonprofit financial management. You may be required to adhere to it if you conduct business transactions exceeding $500,000 per year (excluding membership fees, grants or gifts).
Individuals may be covered under the revised law if they produce goods or services for interstate commerce and make amounts within the threshold limits. An example may be a nonprofit employee who regularly travels to other states for business purposes. You may need to review each situation on a case-by-case basis and make decisions based on the preponderance of activities that adhere to the rules. Err on the side of caution and compliance with the rules if you are unsure in a given situation.
Consider the implications of overtime on your payroll budget. Depending on how many employees are now covered under the revised DOL guidelines, you may now be required to pay overtime for a considerable number of people.
You may wish to revise schedules and limit overtime, depending on your needs. Weigh the pros and cons of hiring new employees or temps against the need for overtime.
There are several options to navigate these new salary rules. The options include:
- Raise salaries: If you have employees who meet the ‘duty qualifications’ and have salaries near the $47,476 threshold, raising their salary would exempt them from the overtime requirement.
- Pay overtime: Organizations should pay overtime salary to workers exceeding the 40-hour work week and who meet the requirements.
- Redistribute workloads: Examine employee duties and hours, and redistribute tasks if necessary to avoid overtime.
- Require overtime approvals: Occasional overtime payment may not be a problem, but you may wish to approve overtime requests to control your budget and employee workloads. Employees may not be aware that you are able to redistribute their workload.
The DOL leaves it up to the discretion of the organization or employer how they wish to address the changes. They neither endorse nor recommend a specific approach, which does give you some flexibility in how you address it within your organization.
Payroll and salaries account for a large portion of any organization’s budget. Nonprofit financial management includes the ability to balance budgets and avoid excess costs. By carefully adhering to the new regulation and understanding its impacts upon your organization, you can maintain a balanced budget that allows you to continue funding your mission.
Financial Advice and Assistance for Nonprofit Organizations
Beck & Company Certified Public Accounts and Business Advisors specializes in nonprofit financial management and issues pertaining to the world of nonprofits. We have extensive experience helping nonprofits of all sizes achieve their mission without sacrificing margin. Contact us for more information.