Nonprofits and the FLSA
Posted on Wednesday, June 29, 2016 Share
The U.S. Department of Labor’s 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 minimum wage (currently $7.25 per hour), overtime, recordkeeping, and child labor standards.
Employees under the FLSA are defined as those that are “suffered or permitted to work.” There are two ways that an employee can be covered under the FLSA – enterprise coverage or individual coverage.
The FLSA generally covers employees employed by entities with annual gross volume of sales made or business done of at least $500,000. Nonprofit organizations are not covered enterprises under the FLSA unless they engage in ordinary commercial activities. Only activities performed for business purposes are included in the calculation. Charitable, religious, and educational activities or other activities that further the organization’s charitable activities are not included in determining enterprise coverage.
Employees that are not covered under enterprise coverage may be covered by the FLSA under individual coverage. In order to meet the individual coverage, employees must engage in interstate commerce or in the production of goods for interstate commerce, or in any closely-related process or occupation directly essential to such production. Examples include making and receiving interstate phone calls, shipping materials to another state or transporting individuals or property to another state.
It is common for nonprofit organizations to utilize volunteers in carrying out the organization’s work. Volunteers are not considered employees and are not entitled to the protections of the FLSA if they volunteer freely for public service, religious or humanitarian objectives without compensation or expectation of compensation. Also, paid employees of a nonprofit cannot volunteer to provide the same type of services that they are being paid to perform.
Under the FLSA, most interns in the “for profit” private sector are considered employees unless the following circumstances can be met.
1. The internships, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may be actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If all of the above circumstances are met, then there is no employment relationship and the FLSA protections do not exist (i.e. interns do not need to be paid minimum wage). The Wage and Hour Division of the Department of Labor is reviewing the need for additional guidance on internships in the nonprofit sector; however, the Department has noted that unpaid internships with nonprofit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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