By Mike Staton , co-founder and managing director, Alerding CPA Group
The U.S. Department of Labor (“DOL”) has issued the new overtime final regulations (“Final Rule”) which impact nonprofits as well as for profits. The new rules will go into effect December 1, and will mean that most employees earning less than $47,476 will be entitled to overtime compensation regardless of their employment classification. Neither the Federal Labor Standards Act (“FLSA”) nor the DOL’s regulations provide an exemption from overtime requirements for nonprofits. However, there are special rules that apply to nonprofits which is where the confusion and details of compliance begin.
Here are some key points and how they apply to nonprofits:
- Effective Date: December 1, 2016 with no phase in period allowed.
- Salary threshold: The Final Rule raises the standard minimum level for salaried, exempt workers to $47,476 per full-time year from the previous threshold of $23,660. White-collar employees must also meet the exemption requirements of the duties tests defined by the FLSA.
- Enterprise rules: As a general matter, nonprofit organizations are NOT covered enterprises unless they meet the threshold test. The FLSA and the Final Rule apply to enterprises with annual sales or business of at least $500,000. For a nonprofit, enterprise coverage applies only to the activities performed for a business purpose (such as operating a gift shop). It does not apply to the organization’s charitable activities that are not in substantial competition with other businesses. Income from contributions, membership fees, many dues, and donations (cash or non-cash) used for charitable activities are not counted toward the $500,000 threshold.
- Individual rules: There are also tests to be made at the individual level. Organizations should review the FLSA guidelines on these rules.
Employers will need to pursue one of several options to comply with these changes. The options include increasing exempt employees’ salaries to the new level, converting them to hourly employees and paying overtime, or one of many other options.
The DOL has published “Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act” for further clarification. You may also contact your Alerding CPA Group professional at 317-569-4181 or visit our website:www.alerdingcpagroup.com.
Michael A. Staton, CPA
Mike is a Certified Public Accountant and is Co-Founder and Managing Director of Alerding CPA Group. Mike has served closely-held businesses for over 30 years and was named the Accounting Advocate of the Year by the U.S. Small Business Administration in 2001.
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