DOL Overtime Changes

Posted on Wednesday, September 21, 2016

The U.S. Department of Labor’s (DOL) Wage and Hour Division is responsible for administering and enforcing laws that establish minimally acceptable standards for wages and working conditions.  The Fair Labor Standards Act (FLSA) affects most private and public employment.  The FLSA sets the minimum wages, overtime, recordkeeping, and child labor standards. 

Nonprofit employees may be covered under the FLSA under enterprise coverage or under individual coverage.  Some nonprofit employees may not be covered at all under FLSA.  See our previous blog, Nonprofits and the FLSA, for more information to determine whether your employees are covered.

The FLSA requires covered employees to receive overtime pay for hours worked in excess of 40 hours in a work week at a rate of no less than time and one-half their regular rates of pay.  Some employees are exempt from the overtime pay provisions of the FLSA.  Executive, administrative, and professional employees (including teachers and academic administrative personnel in elementary and secondary schools) are considered “white collar” employees normally exempt from the overtime pay provisions. 

There are three tests in determining whether a white collar employee is exempt from being paid overtime.  All three tests must be met in order for the white collar exemption to apply.

1.      How the employee is paid (salary basis test)

2.      How much the employee earns (salary level test)

3.      Types of job duties primarily performed by the employee (duties test)

Currently white collar employees earning more than $455 per week ($23,660 per year) (salary level test) are generally exempt from being paid overtime if they perform certain duties.  Beginning December 1, 2016, the salary level increases to $913 per week ($47,476 per year) under the DOL’s Final Rule.  In addition, this salary level will automatically be updated every three years, with the first update to take place in 2020. 

Although there are no changes to the duties test in determining who is exempt from overtime when the Final Rule goes into effect December 1, 2016, here’s a reminder of the white collar exemptions available.

Professional Exemption.  Employees under the professional exemption include learned professionals, creative professionals, teachers and employees practicing law or medicine.  In order to be exempt, professional employees must:

1.      Be paid on a salary or fee basis. (Salary basis test)

2.      Earn $913 per week ($47,476 per year).  This salary level does not apply to doctors, lawyers or teachers. (Salary level test)

3.      Primarily perform work that either requires advanced knowledge in a field of science or learning or that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. (Duties test)

Administrative Exemption.  In order to be exempt under the administrative exemption, employees must:

1.      Be paid on a salary or fee basis. (Salary basis test)

2.      Earn $913 per week ($47,476 per year).  There is a special salary level for certain academic administrative personnel. (Salary level test)

3.      Primarily perform office or non-manual work directly related to the management or general business operations of the employer and include the exercise of discretion and independent judgement with respect to matters of significance. (Duties test)

Executive Exemption.  In order to be exempt under the executive exemption, employees must:

1.      Be paid on a salary basis. (Salary basis test)

2.      Earn $913 per week ($47,476 per year).  There is a special salary level for certain academic administrative personnel. (Salary level test)

3.      Primarily perform the duty of managing the organization, or managing a customarily recognized department or subdivision of the organization (and managing 2 full-time employees).  In addition, the employee must have the authority to hire and fire employees, or the employee’s suggestions and recommendations as to the hiring and firing, advancement, promotion or any other change of status of other employees must be given particular weight. (Duties test)

In order to comply with the new rule, nonprofit organizations have several options.

1.      Increase salaries of employees who meet the duties test.

2.      Reduce current hours of employees working over 40 hours per week.

3.      Adjust earnings between regular and overtime wages.

4.      Pay current salaries and pay overtime for hours in excess of 40 hours per week.

Most nonprofit organizations utilize the work of volunteers.  The Final Rule has no effect on rules governing volunteers; however, your organization should be careful in allocating employee responsibilities to volunteers to reduce the number of hours an employee works.  See our previous blog Nonprofits and the FLSA, for more information rules governing volunteers.

Although the Final Rule does not go into effect until December 1, 2016, your organization should be reviewing its employees’ salaries and hours now to determine if any changes need to be made.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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