New DOL Regulations on Overtime Pay

On May 18, the U.S. Labor Department (DOL) announced overtime final regulations that will mean that most employees earning less than $47,476 per year will be entitled to overtime compensation, regardless of whether they are currently classified as executive, administrative, or professional (white-collar) workers. The new overtime rules take effect on December 1, 2016. Here are key details about the new rule and how it will apply to nonprofits:

  • Salary level threshold: The new regulations will raise the standard minimum level for salaried, exempt workers from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). The new level is pegged to the 40th percentile of weekly earnings for full-time salaried workers from the lowest wage Census Region in the country (currently the South). The final rule also raises the compensation level for highly compensated employees (subject to less-detailed duties tests) from its previous amount of $100,000 to $134,004 annually. That rate was established to match the 90th percentile of annual earnings of full-time salaried workers nationally. Note that the salary threshold doesn’t apply to teachers, lawyers, and doctors who are exempt as professional employees.
  • Duties test: It is important to remember that white-collar employees can be exempt from the overtime requirements of the Fair Labor Standards Act (FLSA) only if their jobs meet all three tests for executive, administrative, or professional employees. In addition to receiving a salary at or above the new thresholds, each exempted employee must also exercise the job duties of those categories and be paid on a salaried basis. The final DOL regulations make no changes to the duties test.
  • Automatic increases: The final rule establishes a mechanism for automatically updating the salary and compensation levels every three years, with the first update to take place in 2020.
  • Does this regulation apply to all North Carolina nonprofits?
    • North Carolina is one of 10 states that incorporates by reference the then-current FLSA regulations into the state wage and hour law. This means that, barring action from the N.C. General Assembly this summer, the changes to the federal rules will automatically apply to virtually all North Carolina nonprofits and their employees. In other states, the new overtime rules will only apply to nonprofits that are subject to “enterprise coverage” (generally, nonprofits with $500,000 or more in annual commercial sales) and to other nonprofit employees who are subject to “individual coverage,” meaning that their job duties include transactions in interstate commerce (such as handling credit card transactions or regularly making out-of-state phone calls). On Wednesday, the DOL issued special guidance for nonprofits with some examples of how “enterprise coverage” and “individual coverage” applies to nonprofits and their employees.
    • On Wednesday, DOL also announced that it will not enforce the higher salary thresholds until March 17, 2019 for providers of Medicaid funded services for individuals with intellectual disabilities in residential homes and facilities with 15 or fewer beds. This means that a few nonprofits will have an additional 28-month grace period before having to pay overtime for affected employees.

Employers have various options to comply with these changes in overtime rules, ranging from increasing exempt employees’ salaries to the new level, converting them to hourly employees and paying overtime, or making other changes to benefits or operations. Nonprofits with budget years ending on June 30 will need to develop new budgets for the fiscal year beginning in six weeks that take these new changes into account. Nonprofits with budget years ending on December 31 have more time to adjust and plan for 2017.