New FLSA Law

Jason Mau’s article: Federal Government Changes Overtime Rules, published in last month’s CenterView, described the new Federal overtime rule taking effect December 1, 2016. This month, Karen Baerlocher, SPHR, SHRM-SCP, will offer answers to frequently asked Human Resources questions regarding the rule changes and offer information to assist your organization with this transition. ​

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How do I know if my organization and/or staff are subject to Overtime laws?

There are two ways that an individual employee may be covered under the Fair Labor Standards Act (FLSA) and entitled to its protections: individual coverage and enterprise coverage.
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According to the Department of Labor, (DOL) nonprofit guidelines state:

To meet the enterprise coverage test, meaning employees working for that enterprise are covered by the FLSA’s protections unless an exemption applies, an entity must have annual revenues, that is, volume of sales made or business done, of at least $500,000… Regardless of the dollar volume of business, the FLSA applies to hospitals; institutions primarily engaged in the care of older adults and people with disabilities who reside on the premises; schools for children who are mentally or physically disabled or gifted; federal, state, and local governments; and preschools, elementary and secondary schools, and institutions of higher education. Accordingly, employees at these types of institutions (commonly referred to as “named enterprises”) are entitled to minimum wage and overtime protections unless a specific exemption applies.

Even if a nonprofit organization is not covered on an enterprise basis as described above, it may have staff members who are covered individually and therefore are entitled to the FLSA's protections. DOL nonprofit guidelines state:

Individual employee coverage is based on the nature of the particular employee’s work activities. An employee who engages in interstate commerce or in the production of goods for interstate commerce is covered by the FLSA. Employees whose work involve or relates to the movement of persons or things across state lines are also considered engaged in interstate commerce. The Department, however, will not assert that an employee, who on isolated occasions spends an insubstantial amount of time performing such work, is individually covered by the FLSA.

Examples of interstate commerce that could be done in more than infrequently include, but are not limited to;
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• Making/receiving phone calls to/from out-of-state donors, members or vendors
• Receiving and sending interstate email or electronic correspondence
• Ordering or receiving goods or services from out of state vendors
• Handling credit card transactions or performing the accounting or bookkeeping of credit card activities.
  
  

For more information on this, please refer to this link to a flow chart created by former judge Mary McClatchey, president of WorkSmart partners.

How do I classify my employees correctly?

The DOL has defined basic requirements an organization can use in determining the classification for positions. As an organization, you should start by conducting a compensation analysis and job description review of all positions to determine if they fall under the new FLSA exemptions. As you are reviewing the job descriptions, analyze the hours worked by each employee and determine the employees that are working over forty hours. This information will help you in determining if the position is one that requires an employee to work more than 40 hours.  Document your organization’s analysis of each position to have available if your organization’s decisions are challenged. 
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Table 1 shows the DOL basic requirements for claiming a white collar exemption und the new FLSA guidelines.

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Salary Basis Test
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Standard
​Salary Level Test



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​Standard Duties Test

EXECUTIVE

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​Employee must be paid on a salary basis

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​$913 per week
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($47,476 per year for a full-year worker)



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The employee’s “primary
duty” must be managing
the enterprise, or
managing a customarily
recognized department or
subdivision of the
enterprise (and managing 2
full- time employees as
well).

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​Additional information 
​Wage and Hour Division Executive Fact Sheet

ADMINISTRATIVE

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Employee must be paid on a salary basis

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$913 per week

($47,476 per year for a full-year worker)

Special salary level
​for certain academic 
administrative personnel

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The employee’s “primary
duty” must include the
exercise of discretion and
independent judgment
with respect to matters of
​significance.



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​Additional information 
Wage and Hour Division Administrative Fact Sheet

PROFESSIONAL

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Employee must be paid on a salary basis

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​$913 per week

($47,476 per year for a full-year worker)

Salary level test does not apply to doctors, lawyers, or teachers

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The employee’s “primary
duty” must be to 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.
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Additional information 
Wage and Hour Division Professional Fact Sheet

Table 1 - DOL Requirements for Claiming a White Collar Exemption and the Standard Duties Test

NOTE: During your review of employee position descriptions, it is a good practice to also review your independent contractors, volunteers, and intern position descriptions.  IRS guidelines can help you determine the status of each worker type, and assist you in determining if your positions are classified correctly.
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Once you have updated all the position descriptions, it is recommended you add the FLSA status to the position description.

I have determine which positions will be affected by the changes, now what should I do?

After analyzing each position and the hours worked by each employee, you can determine the impacts on you personnel budget and any changes you need to make.  Your organization should determine the best possible options for addressing the change.  It could be that you just pay your employees the same and just add the overtime cost to your budget.  Below are a few suggestions to help you plan for the changes:
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• If your non-exempt employees work forty hours or less, you can manage the overtime on an as needed basis. It is recommended that you make changes to or create an overtime policy. The policy should include the approval process for working overtime and the consequences for working without approval.  (You still need to pay the overtime, even if it is not approved.)
• If your employees regularly work over forty hours, you will need to make plans to prepare for the overtime changes. Look at the current salary for each position.
  • If the salary is close to the new salary, your organization could increase the salary to meet the threshold and maintain the exemption for that position.
  • If your employee is paid a fixed salary, your organization could continue to pay employees a salary, and pay overtime above the salary amount.
  • If you have an employee that regularly works a schedule over 40 hours, your organization and the employee can agree to a fixed salary. In this case the salary would include the overtime compensation.  However, the employee’s salary must be adjusted if there is more or fewer hours worked. The employee is still paid on actual hours worked.
  • Your organization could review wages and adjust the employee’s regular wage to offset the overtime amount. If your organization is going to adjust wages, be sure that it is done equitably within your organization.
  • During your position description analysis, your organization could determine if tasks could be redistributed or eliminated to offset the number of hours worked.  Or, look into the cost of hiring a part-time employee to adjust the workload.
    
    

There is no one right way to address the new overtime standards.  Each organization is unique and needs to consider all options carefully. The changes need to be made fairly and in a way that minimizes the impact on staff morale. Document all analysis and discussions you have with employees. This will save you time and money if there is ever a complaint filed against your organization.

Also, remember that the Final Overtime Rule was put into place to ensure that employees are paid a decent wage and compensated for the work they are doing in all organizations. As you are making decisions for your organization consider the great work your staff does every day to promote your mission and the positive impacts on our communities.

How do I calculate overtime?

Nonexempt employees that are covered under the FLSA standards must be paid overtime pay at no less than one and one-half times the employee’s regular rate of pay for hours worked in excess of 40 in a workweek. DOL defines hours worked as:

In general, hours worked includes all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work, from the beginning of the first principal activity of the work day to the end of the last principal work activity of the workday. Also included is any additional time the employee is allowed to work.  This includes the time an employee is at a mandatory after-hours function for your organization, and any time spent working from home.

What is considered a workweek?

The DOL defines a workweek as, “A period of 168 hours during 7 consecutive 24-hour periods. It may begin on any day of the week and at any hour of the day established by the employer.” As the employer, you can define the beginning and end of your week. The hours an employee works during each workweek is subject to overtime if over 40 hours.

Can my staff volunteer their hours for special events?

It is not recommended to have employee’s volunteer hours for the organization. According to the DOL, “Employees may not volunteer to provide the same type of service to the non-profit organization that they are otherwise typically employed to provide.” If there is any expectation that employees attend an after-hours work event to provide support and registration, the employee should be paid overtime.

​A volunteer works without the expectation of compensation. If you have an employee that asks to volunteer for an event or activity and is not doing any of the same type of work, the manager has not set an expectation that all employees attend the event, and there is no expectation of compensation from the employee, based on all these conditions an individual could likely be a bona fide volunteer and not be subject to overtime. 

Does my organization need to purchase a timecard system to track staff hours?

No. Overtime-eligible workers are not required to punch a time clock, you must keep an accurate record of the number of daily hours worked, not the specific start and end times so staff can be sure that they get paid the wages that they earn. Find the system that works within your organization, and that is compliant with FLSA requirement, and educate your staff on the new system.

What policies should our organization update for the changes?

Your organization should review the employee handbook and any other procedure manual for policies and procedures regarding the approval for overtime.  You should also include an email and phone usage policy for employees that regularly work from home checking email and taking phone calls.

Should I tell our staff about these changes?

Communication is key in rolling out these changes. Your changes and communication needs to be non-discriminatory.  Don’t target staff members and don’t let people think they are a target. Before working on a job description analysis, tell your staff what you are doing and why.  Don’t let employee fears overtake the morale of your organization.  There may be fear of demotions, pay cuts, layoffs and anxiety about losing exempt status. Consider creating an FAQ for sending out information. There may be a lot of questions, so communicate, communicate, communicate!

Remember compliance with these changes is not optional.  December 1, 2016 is the effective date, so plan ahead to review your job descriptions and update your budget.   If you plan ahead, your organization could avoid costly consequences for non-compliance and misclassifications of employees.
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If you have more questions, contact your local employment law attorney or an HR professional for assistance.  The Idaho Nonprofit Center can help direct you who to contact for more information.