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Policy Alert | Fair Labor Standards Act

Changes to FLSA Overtime Rule 

The Final Rule
The Issue
Why does this matter to nonprofits?
What is GCN’s position on the proposed changes?
What is GCN doing right now and what can my organization do?
Explore these resources on the issue

Breaking News 

On November 22, 2016, a federal district court in Texas granted a preliminary injunction that temporarily blocks the U.S. Department of Labor from implementing and enforcing its recently revised regulations on the white collar exemptions to the Fair Labor Standards Act (FLSA) that was set to take effect on December 1. 

Employers should note that this is only a temporary injunction, not a permanent one. The injunction simply prevents the regulations from going into effect on December 1. There will be a decision issued at a later date on the actual merits of the case, so changes in the FLSA salary threshold for exemption may be back. 

What this means for employers: 

Employers that have not made the necessary changes to their compensation plans have more time to plan for the changes in the event the regulations are upheld. Employers that have already made changes to their compensation plans will need to determine if they want to continue with the changes, suspend the changes, or roll back those changes pending any legal developments. These decisions should be made in accordance with any applicable state or local laws. Employers should consult their attorneys to determine what course of action is best for them.

GCN will continue to monitor developments and keep you informed of any changes.

 

The Final Rule 

On May 18, 2016, the long-awaited update to the U.S. Department of Labor’s overtime rules under the Fair Labor Standards Act (FLSA) was released. As expected, there is a substantial increase to the threshold at which eligible employees, regardless of duties, must be paid overtime. GCN will provide resources to the nonprofit community to assist employers with compliance with this rule.

Here are the facts and some resources:

The threshold for paying overtime has been increased from $23,660 to $47,476 per year. This means that most non-exempt organizations will need to pay overtime to employees making less than $47,476 annually for any hours worked in excess of 40 per week. In order to be subject to minimum wage and overtime requirements and thus qualify for the Act’s protections, employees must be “covered” by the FLSA. Coverage under the FLSA is usually achieved in one of two ways: (1) the organization is a covered enterprise; or (2) a particular worker is individually covered. While many nonprofit organizations may not be covered enterprises under the FLSA, most  are likely to have some employees who are covered individually and are therefore entitled to the minimum wage and overtime protections guaranteed by the FLSA. 

In addition to adhering to the increased salary threshold, there are numerous other compliance rules and regulations that nonprofits will need to follow.

The date by which employers need to comply is December 1, 2016.

Read the final rule here.

In response to feedback from the nonprofit community that the rule is confusing, the U.S. Department of Labor has issued these fact sheets:

Additionally, GCN and our allies are preparing various resources for nonprofit employers to learn more about FLSA and the new rules. Here are some immediate ways to get up to speed on what you need to know: 

On-demand webinars:
Is Your Organization in Compliance With the Fair Labor Standards Act?
and
What Would it Mean for Your Organization if the Federal Overtime Threshold Doubles?
Offered by Independent Sector and U.S. Department of Labor, for a national nonprofit audience.

Increased costs and record keeping will affect organizations across most nonprofit activity areas, and GCN will continue to raise the unique concerns of nonprofit employers with policy makers to make this transition sustainable for nonprofit employers. We recognize that this is a substantial change and will require significant adjustment among GCN member organizations. We hope that you find these resources helpful in planning for this transition. If you have further questions, please be in touch with GCN Membership Director Reggie Seay at [email protected].

 

The Issue:

The U.S Department of Labor (DOL) proposed changes to rules that govern overtime compensation under the Fair Labor Standards Act (FLSA). In effect, the proposals would significantly increase the number of employees eligible for overtime pay by increasing the exemption threshold for “white collar” to $50,440 per year. Specifically, the proposed regulations would require employers—including nonprofits and exempt organizations—to pay time-and-a-half wages to salaried employees earning up to $50,440 annually when they work more than 40 hours in a given week. The plan would more than double the current overtime exemption threshold of $23,660, and would ensure future thresholds remain at the 40th percentile of income. Read full background here.

While the proposal will maintain the current carve-out for all teachers, attorneys, doctors, and judges, the Administration asks for public input about whether to alter the current “duties test” that allows employers to waive overtime pay for “executive, administrative, and professional” employees. Public comments are accepted through September 4 here.

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Why does this matter to nonprofits?

  1. Significant Impact. Employees and employers across every industry and sector will be impacted. Most employers covered by the FLSA will need to analyze employee classifications and make other changes, by a likely 2016 effective date which will be established in the final rule. According to DOL, 11 million employees will be impacted. According to preliminary estimates the changes will impact over half of all currently exempt nonprofit employees.

  2. Salary Level Will Increase. To be exempt currently, workers must make more than $455/week ($23,660 annually). The proposed rule sets the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers, which for 2013 was $921 per week, or $47,892 annually. If the 40th percentile approach is adopted, the 2016 level is projected to be $970 a week, or $50,440 annually. This will impact all sectors but it will disproportionately affect the non-profit and service sector industries as well as certain geographic areas of the country.

  3. For the First Time Ever, DOL Proposes to Automatically Raise the Salary Level. The Department is proposing to automatically update the salary level (including for highly compensated employees) on an annual basis, either based on percentiles of earnings for full-time salaried workers or based on changes in inflation.

  4. Changes to Highly Compensated Employees (HCE). The Department is proposing to set the HCE annual compensation level equal to the 90th percentile of earnings for full-time salaried workers ($122,148 annually), or based on changes in inflation. Currently, in order to come within this exemption an employee must earn at least $100,000.

  5. Feedback Sought on Duties Test and Nondiscretionary Bonuses. While no changes have been proposed yet, the regulation acknowledges challenges associated with the duties test and seeks additional examples regarding specific occupations. Similarly, the Department wants to hear from employers about the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement.

  6. State Law Application. Employers in states with wage and hour laws that are more restrictive in their application (for example, California) will need to review their coverage requirements under federal law in light of these proposed changes.

  7. Workplace Flexibility Reduced. Changes will require employers to reclassify a significant number of employees from exempt to non-exempt status, requiring tracking of hours worked, resulting in the loss of workplace flexibility. Change in overtime rules could lead to more suits over such activity as worker emails sent outside work and will require much more strenuous time and record keeping from employers and employees.

  8. Aggressive Timeline. The administration has the power to issue the regulation without congressional approval. Rules are anticipated to take effect in 2016. Many nonprofits will need to make severe and immediate changes to job descriptions and reclassifications, time tracking and reporting, and calculate the impact on their budgets and therefore service provision levels.

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What is GCN’s position on the proposed changes?

The issue is complex. Many nonprofits advocate for worker’s rights, anti-poverty measures and fair wages. Advocates in favor of the proposal suggest that it will result in badly needed raises for many US workers. Concurrently, advocates against the proposal suggest that the new thresholds will result in a loss of jobs, reduction in available work hours, or minimal advancement opportunities.

At the same time, the dramatic rise in the threshold for exemption would cause tremendous stress on a large percentage of the sector and could impact the availability of services to community causes as well as the sustainability of organizations providing those services. Therefore, we have authored the following position statement:

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While GCN appreciates the need to ensure that the regulations governing overtime protections keep pace with the evolving workplace and economy, we are very concerned that the DOL’s proposed rule will further exacerbate an already complicated set of regulations for employers and employees. This is particularly concerning as it is clear that this rule will affect nearly every employer in every industry and sector but will disproportionately affect the nonprofit and service sector industries.

To be clear, GCN supports the need to adjust the salary basis level under the regulations. However, more than doubling the salary threshold will significantly impact our nonprofit employers and employees in Georgia. Moreover, the changes will impact certain geographic areas of the country more than others and as Georgia is a historically lower wage state for service workers, these proposed changes will disproportionately impact our state’s nonprofits.

In addition, the proposed rule did not make changes to the duties test, but asks a series of questions. We remain concerned that changes the Administration may make to the primary duty test will undoubtedly result in highly compensated professional employees losing their exempt status, along with the flexibility, opportunity for career advancement, and autonomy it affords. This means more employees will have to track their time while adhering to rigid schedules, with limited opportunities for workplace flexibility, all of which will have a significant impact on employee morale.
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What is GCN doing right now and what can my organization do?

GCN is currently reviewing the proposal to ascertain the impact that these changes to the overtime exemptions will have on nonprofit workplaces across the state. Concurrently, we are asking for an extension of the comment period. We are asking our members to review the list of ways you can get involved in shaping how this law is applied to nonprofits; read the materials provided to prepare your nonprofit for what lies ahead; and get ready to make your voice heard on behalf of our sector.

  1. GCN and our national policy partners are working to educate DOL staff about the unique challenges posed by the proposed changes to charitable organizations. We are asking that our members provide comments via this survey by next Friday, August 14 so that we have specific examples of the impacts of the regulations to use in our communications with DOL executives.

  2. GCN is also requesting a 60 day extension of the September 4th deadline for public comments via a letter we are submitting to the US Dept. of Labor in conjunction with numerous other national policy partners. An excerpt from that letter:

    “Extending the comment deadline for an additional 60 days would provide the charitable nonprofit community with the opportunity to understand better and to evaluate the likely impact of the proposed rule on our work and the lives of the people we serve so that we may gather fully and articulate properly the diverse range of possible economic and administrative outcomes in our final comments.”

  3. We are asking for our members to submit your own comments on the proposed changes and specifically about whether to alter the “duties test” that allows employers to waive overtime pay for “executive, administrative, and professional” employees. Submit your comments here.

  4. Listen to our webinar explaining these changes and the possible impacts to nonprofits. Listen here.

  5. We are forming a Georgia Coalition of nonprofits that want to lead on this matter for our state. If you are interested in being a part of this leadership task force, please sign up here.

  6. You are the voice of the nonprofit industry in Georgia. We have created a special section on the GCN website dedicated to content and advocacy efforts surrounding the upcoming overtime regulations. Be sure to share your story here!

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Explore these resources:

  • Click here to read the official Notice of Proposed Rulemaking (June 30, 2015)
     
  • Click here to read the full DOL proposed rules and background and to access the full comment process for Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees.

  • Click here to submit electronic comments and reference Regulatory Information Number (RIN) 1235-AA11.

  • Sign your name to the GCN letter to DOL requesting an extension of the rule making period.
    Click here to view the letter.
    Click here to sign onto the letter.

  • Click here to view the listing in the Federal Register (July 6, 2015).

  • Click here for information about exempt classifications.

  • Click here to access the DOL screening tool for FLSA compliance and exemption clarification.

  • Click here to read the President’s Op Ed.

  • Click here to read Statement of SHRM Director of Human Resources submitted to US House Subcommittee on Workforce Portection Hearing, July 23, 2105

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Program Stats:

Listen to our Webinars:

Hear GCN EVP Kathy Keeley discuss four critical areas necessary for successful implementation.

 

Amy M. Palesch, Attorney, Littler Mendelson, P.C., provides detailed guidance on the regulations and practical steps on how nonprofit employers can strategically respond to these changes.

 

Listen to GCN’s Webcast:

Recent changes to the U.S Department of Labor regulations that govern overtime exemptions could have a huge impact on your bottom line, your payroll systems and even to the culture and morale of your employees. Is your organization ready? Hear from GCN EVP Kathy Keeley discuss four critical areas necessary for successful implementation.

 

Overtime Cost Estimator:

Thanks to our friends at Compliance HR, this free, anonymous tool will help you decide how to treat exempt employees currently earning less than $47,476 annually.