Fair Labor Standards Act (FLSA)
Changes to Federal Overtime Rules Effective December 1, 2016
On May 18, 2016 the Department of Labor (DOL) announced its changes to the Fair Labor Standards Act (FLSA) “white collar” overtime exemption rules. The final rule strengthens protection for workers by increasing the standard salary level for qualification for overtime exemption from $455 per week ($23,660 per year) to $913 per week ($47,476 per year).
21 states are appealing the FLSA changes, and pushing for an injunction.
Stay tuned for updates on the status of these regulations.
Key Provisions of the Final Rule*
1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, which is $913 per week or $47,476 annually for a full-year worker;
2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is $134,004; and
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Coverage Under the FLSA
In order to be subject to minimum wage and overtime requirements employees must be “covered” by the FLSA. This is achieved in one of two ways:
- the organization is a covered enterprise; or
- a particular worker is individually covered.
Does our church qualify as an Enterprise?
Nonprofits, such as churches and church-related organizations, are not specifically exempted from the FLSA. However, the Department of Labor (DOL) has acknowledged that enterprise coverage does not apply to a private, non-profit enterprise where the religious or educational activities are not in substantial competition with other businesses, unless it is operated in conjunction with a hospital, a residential care facility, a school or a commercial enterprise operated for a business purpose.
Like all other employers, nonprofits would be covered by the FLSA if they meet the enterprise coverage test. To meet the enterprise coverage test, an entity must have annual revenues from commercial activity of at least $500,000 or it must operate a hospital, preschool, school, or older adult or disability care facility. Activities that are charitable in nature and income used in furtherance of charitable activities (e.g., donations) do not count towards reaching the $500,000 threshold. Thus, in order to determine whether a church is a covered enterprise, the following must be considered:
- The church:
- is engaged in commerce or in the production of goods for commerce; AND
- grosses an amount greater than $500,000 annually OR
- The church operates a hospital or school (including a preschool), or some other “named enterprise” (assuming the school, preschool, etc. is not a separate employer)
Individual Coverage under FLSA
Individual Coverage Organizations that are not covered on an enterprise basis may still have some employees who are covered individually. Individual employee coverage is based on the nature of the particular employee’s work activities. An employee who engages in interstate commerce or in the production of goods for interstate commerce is covered by the FLSA.
A church is covered if an employee engages in any interstate or foreign commerce, including selling or packaging goods made in another state, or even regularly sending mail, making telephone calls or other communication, or travelling to other states.
Are church preschools exempt?
PLEASE NOTE: church preschools, public or private, for-profit or non-profit, are covered enterprises under the FLSA without regard to the annual dollar volume of business. The FLSA does not define what the DOL considers a preschool. However, based upon items published by the DOL it considers a daycare to be a preschool that is covered by the FLSA. If you operate a preschool, the DOL has confirmed that teachers in preschools may qualify for exemption from minimum wage and overtime pay if they are classified as professionals, an exemption recognized under the FLSA. A teacher is exempt if their primary duty is teaching, tutoring, instructing or lecturing in an educational establishment.
Exempt or non-exempt?
- Churches should carefully review the employment classification of all staff to ensure employees are properly classified as exempt or non-exempt
- Churches should review each job description to make sure position duties and responsibilities are accurately described.
- Churches should review budgetary plans to ensure that funding is in place for overtime expected to be due to any non-exempt employees.
- Appropriate time records should be kept for all non-exempt employees and payment should be made for hours worked in accordance with the FLSA. Expected hours to be worked and pay rates may need to be evaluated to ensure required tracking can be done and corresponding payment can be made.
What about Clergy?
Though there is no specific exemption for clergy included in the FLSA, some courts have held that the FLSA does not apply to clergy employees. Specific attention should be given to the applicability of these rules to lay employees of the church. Ministers who perform ministerial functions in your organization are likely not covered by the FLSA.
A few notes . . .
It is important to remember that job titles never determine exempt status under the FLSA. Additionally, receiving a particular salary, alone, does not determine whether an employee is exempt from overtime and minimum wage protections. It is important to be aware of the responsibilities and tasks that the employee performs to ensure the job is appropriately classified as exempt or non-exempt.
It is likely that exempt classifications will be more closely scrutinized once the Final Rule becomes effective on December 1, 2016, and it is critical that employers analyze the potential coverage, review those positions classified as exempt, and ensure that the exemption is not being improperly applied.
There are resources available to churches to assist in understanding the new rules and application of the rules in local scenarios. Some of these resources are as follows:
Access to a computer program through GCFA that will allow churches to enter information about an employee on-line and receive a suggestion of the correct employee classification. This service is available at a cost of $60 per evaluation done through the program. Email Shared Services@GCFA.org
- A Frequently Asked Questions website from the DOL listing almost 50 questions about the changes and the applicability of those changes to employers.
- A Fact Sheet from the DOL giving details of the impact of the new rules on nonprofit organizations like churches.
- Nationwide Injunction on “minimum salary test” amount – Updates from the GCFA Shares Services Team, Dec 09, 2016.