The New Overtime Ruling and Implementation Considerations for NFPs

With an effective date of December 1, 2016, the new and final overtime ruling issued by the Department of Labor (DOL) leaves organizations with merely a few months to prepare for the impact of this revision to the rules and to develop a plan to address them.

Specifically, the final rule under the Fair Labor Standards Act (FLSA) extends eligibility for overtime to workers not previously subject to overtime rules because of their compensation level. It focuses primarily on updating the salary and compensation levels needed for executive, administrative and professional (EAP) workers to be exempt from time-and-a-half overtime for work beyond a 40-hour workweek.

High-level Changes that Will Result from this Ruling Include:

• The wage threshold increases from $455/week to $913/week (that is, $47,476 per year) under which most workers are eligible for overtime.
• The minimum total annual compensation level for Highly Compensated Employees (HCEs) increases from $100,000 annually to $134,004 annually, calculated based on the annual equivalent of 90 percent of wages for full-time salaried employees nationally.
• Incentive pay, bonuses and commission has been redefined in regard to what applies to satisfy any portion of the standard weekly salary level.
• Looking ahead, the standard salary threshold and highly compensated employee thresholds will be automatically increased every three years beginning January 1, 2020.
• Employers may compute compensation on an hourly, daily, shift or fee basis as long as an exempt employee’s pay includes a guarantee of the minimum compensation level.

Immediate Action for NFPs

It is important for NFP leaders and financial managers to consider how the new regulations could affect their operations.  Here, the American Institute of Certified Public Accountants (AICPA) has outlined the top implementation considerations for not-for-profit organizations moving forward:

• Determine whether employees of your organization are covered under the FSLA on an enterprise or individual basis.  Keep in mind NFPs that generate less than $500,000 in revenue from commercial activities and, thus, are not covered on an enterprise basis, likely still have employees who are covered individually (that is, regardless of the amount of gross volume of sales or business done).
• Perform an internal review of personnel records, job descriptions and worker classification.
• Evaluate your staff capacity and organizational structure. Review employee workloads. If timesheets are not currently being maintained, survey the organization’s staff making sure to consider weekend work or seasonal fluctuations.
• Review terms and conditions of grants and contracts. Recipients of state, federal or local government funding or project-specific grants may be in a position in which they are contractually obligated to maintain services at a predetermined level. The new overtime regulations could result in increased costs not covered under existing grants or cost-reimbursement contracts.
• Prepare “what if” scenarios to estimate budget impacts. One scenario is to pay the additional cost of overtime for those who earn it. Another option could be to increase the pay of employees whose compensation is already close to the new threshold to avoid these new compliance issues and minimize budget surprises. Organizations relying on restricted or limited budgets may need to consider cost containment strategies, which could include hiring additional part-time workers or contractors, recruiting and training volunteers to fill gaps, restructuring positions within the organization to balance workloads, and/or scaling back services.
• Work with the organization’s leadership team to create an implementation plan. Once you have an understanding of the potential cost implications, weigh the options carefully to finalize your implementation plan. Do not forget to consider non-monetary, intangible costs of changes such as effects on organizational culture, employee morale over newly imposed timekeeping requirements and mission alignment. NFPs with June 30 year-ends may have already approved a budget for their 2016-17 year; consider asking your board to adopt an amended budget that reflects changes to the entity’s cost structure, if significant.
• Review and clarify organizational policies and procedures regarding timekeeping, compensation practices, and overtime.

This could potentially be a significant amount of change in a short amount of time for organizations to absorb.

Our professionals are attuned, involved, and experienced directly in your industry.  We are on top of these changing regulations and can provide guidance and organizational strategy for compliance with these regulations.  Contact your Sikich NFP partner for more information on key provisions and implementation recommendations necessary to comply with these regulations.  We can connect you with the appropriate Sikich Human Resources consultant for guidance as well.

The U.S. Department of Labor has also issued the publication “Guidance for Non-Profit Organizations” available at: https://www.dol.gov/whd/overtime/final2016/nonprofit-guidance.pdf