David Heinen North Carolina Center for Nonprofits Start Planning Now What Your Nonprofit Needs to Know About the New Overtime Rules David Heinen North Carolina Center for Nonprofits

Connect Learn Advocate North Carolina Center for Nonprofits Connect Learn Advocate

Important Disclaimers North Carolina Center for Nonprofits Important Disclaimers If you can read this fine print, you are sitting too close to your screen!

Background information: Worker classification North Carolina Center for Nonprofits Background information: Worker classification

Employees vs. independent contractors North Carolina Center for Nonprofits Employees vs. independent contractors

Employees vs. independent contractors North Carolina Center for Nonprofits Employees vs. independent contractors Behavioral control Financial control Relationship of the parties

Economic realities test North Carolina Center for Nonprofits Economic realities test Is the work an integral part of the employer’s business? Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?

Economic realities test North Carolina Center for Nonprofits Economic realities test How does the worker’s relative investment compare to the employer’s investment? Does the work performed require special skill and initiative?

Economic realities test North Carolina Center for Nonprofits Economic realities test Is the relationship between the worker and the employer permanent or indefinite? What is the nature and degree of the employer’s control?

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Minimum wage Overtime pay for non-exempt employees Travel time Compensatory time Equal pay for equal work

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Exemptions for executive, professional, and administrative staff Paid on salary basis Must be paid $455/week ($23,660 per year) Must meet duties test Exemption for highly-compensated employees

New overtime rules under FLSA North Carolina Center for Nonprofits New overtime rules under FLSA

New DOL overtime regulations – timeline North Carolina Center for Nonprofits New DOL overtime regulations – timeline March 13, 2014 July 6, 2015 September 4, 2015 March 14, 2016 May 18, 2016 December 1, 2016

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Nonprofits’ typical feelings about the overtime rules are: Moral support . . . . . . But operational anxiety

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Raise salary threshold from $455 per week ($23,660 per year) to $913 per week ($47,476 per year)

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Raise salary threshold for highly-compensated employees from $100,000 per year to $134,004 per year

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Automatically adjust for inflation Salary thresholds last adjusted in 2004 Will be adjusted every three years in the future So salary threshold will be over $50,000 in 2020

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Effective date: December 1, 2016

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Duties test: Unchanged (More on that in a few minutes)

North Carolina law (and why it matters) North Carolina Center for Nonprofits North Carolina law (and why it matters)

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Basic question – Does FLSA apply? Applies to employment that is for work in interstate commerce Interstate commerce can be met by: Enterprise coverage Individual coverage

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Enterprise coverage Applies to: Annual sales or business of $500,000 or more Hospitals, medical or nursing care for residents, schools and preschools Recent case law suggests that many nonprofit activities don’t meet this test DOL has said that nonprofit activities that aren’t business-like don’t count for the $500,000 threshold

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Individual coverage Applies when an employee is regularly engaged in interstate commerce Interstate commerce is defined broadly Mailing, credit cards, sales, interstate phone calls or email Occasionally doing these activities for an insubstantial amount of time doesn’t count

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act What if neither enterprise nor individual coverage applies? N.C. Wage and Hour Act fills in this gap Incorporates definitions for overtime exemptions from FLSA regulations Limited exceptions for actors and for outdoor theatre production staff

North Carolina Center for Nonprofits Duties tests

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Duties tests are unchanged by overtime rules . . . . . . but be certain that exempt employees meet one of these tests Warning: It appears that the regulations and fact sheets about the duties tests were written by lawyers! Further clarification on how these apply to nonprofit employees would be welcome

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Administrative employees Primary duty is non-manual work Exercise discretion over work Salary of $913/week or more ($47,476 per year)

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Administrative employees – some key quotes: “Directly related to management or general business operations” “Exercise of discretion and independent judgment with respect to matters of significance”

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Executive employees Primary duties are managerial duties of organization Supervision of 2+ FTE Authority to hire/fire Salary of $913/week or more ($47,476 per year)

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Professional employees Primary duty is related to a learned profession or creative profession Salary of $913/week or more ($47,476 per year) With a few important exceptions, including teachers, doctors, and lawyers

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Professional employees – some key quotes: “Learned professional” Advanced knowledge that is predominantly intellectual in character . . . . . . in a field of science or learning . . . customarily acquired by a prolonged course of specialized intellectual instruction

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Professional employees – some key quotes: “Creative professional” Performance of work requiring invention, imagination, originality, or talent In a recognized field of artistic or creative endeavor

Fair Labor Standards Act North Carolina Center for Nonprofits Fair Labor Standards Act Professional employees – some key quotes: “Teacher” Regular classroom teachers Pre-K teachers Some specialized instructors Some academic administrative personnel

Compliance options for nonprofits North Carolina Center for Nonprofits Compliance options for nonprofits

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Potential impact on N.C. nonprofits More employees would be entitled to overtime if they work 40+ hours per week New threshold is above annual average nonprofit wages in 94 of 100 counties in North Carolina Could raise wages or reduce hours for many people served by nonprofits

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Options for nonprofits with affected employees (official DOL recommendations) Raising salaries to remain above thresholds Paying overtime above a salary Consider the fluctuating workweek method Reorganize workloads or adjust schedules Adjust wages so you are paying the same amount after the rule changes

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Answers to some common nonprofit questions If staff will be converted to non-exempt, do they need to be paid on an hourly basis? No, it is permissible to pay salary to non-exempt staff (but you still need to track hours to pay overtime for hours worked over 40 per week)

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Answers to some common nonprofit questions If our nonprofit’s workweek is 35 hours per week, do we need to pay overtime when non-exempt staff work 36+ hours in a week? No, regardless of how you define your work week, you don’t need to pay overtime until workers have exceeded 40 hours in a work week

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Answers to some common nonprofit questions Some of our nonprofits employees work two different jobs with two different rates of pay. How do we calculate overtime? The regular rate of pay for each week is the weighted average of the rate of pay for each position. Overtime is calculated as 1 ½ times that weighted average.

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Answers to some common nonprofit questions Isn’t Congress considering legislation to delay the implementation of the overtime rules? Yes. So how likely is that to be enacted?

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Options for nonprofits with affected employees (NOT the official DOL recommendations) Limiting the number of hours staff can work Considering how you define your work week Expect exempt staff to work more Make lunch breaks unpaid

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Less desirable options that some nonprofits are considering Replacing some full-time workers with part-time staff or contractors Limiting telecommuting Reducing employee benefits Eliminating or reducing some programs and services Eliminating some fundraising events

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations A possible better option for some nonprofits Renegotiation government grants and contracts to pay more to additional labor costs Short-term additional support from private funders Why are you laughing?

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations What you can do (math assignment) Will your exempt employees still be exempt if and when the DOL proposed regulations take effect? How many hours per week are they currently working? Does it make more sense to raise wages or pay time- and-a-half? Or do something else?

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations What you can do (reading and writing assignment) Explain to affected employees the reason for changes in their classification, pay, or work hours. Make necessary changes to your personnel policies. Talk with your funders. Let the Center know what actions you are taking.

New DOL overtime regulations North Carolina Center for Nonprofits New DOL overtime regulations Nonprofits’ typical feelings about the overtime rules are: Moral support . . . . . . But operational anxiety

For more information North Carolina Center for Nonprofits www.ncnonprofits.org 919-790-1555 @ncnonprofits David Heinen Vice President for Public Policy and Advocacy dheinen@ncnonprofits.org @drheinen