Friday, June 17, 2016
New Overtime Rules: The Impact on Nonprofits
Posted by Paul O'Grady
The Fair Labor Standards Act is making big changes to the minimum wage and overtime protection laws, impacting nonprofit organizations nationwide. The U.S. Department of Labor (DOL) recently announced new regulations regarding overtime pay that will significantly change how organizations classify employees. Here are the key provisions to the rule that will soon protect an estimated 4 million workers, including nonprofit employees:
- The Final Rule sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker)
- The total compensation requirement for highly compensated employees (HCE) will be subject to a minimal duties test to the annual equivalent 90th percentile of full-time salaried workers nationally ($134,004).
- The Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
- The effective date for the final rule is December 1, 2016. Future automatic updates to the exempt status thresholds will occur every three years, beginning on January 1, 2020
A Focus on California
The new DOL regulations have a lot of people talking about the impact on their nonprofit organization. If your nonprofit is based in California, the overtime rules will play out differently. A recent article in CalNonprofits.org highlights how the new regulations will affect you. In short, the state threshold for exempt status is set as twice the minimum wage. So with the current state minimum wage of $10 per hour, the state minimum for exempt status is $41,600 per year, and as of January 1, 2017, when the minimum wage goes up to $10.50 per hour, the state minimum salary for exempt employees will be $43,680 per year.
In 2019, when the state minimum wage hits $12, the California exempt threshold will rise above the federal standard. The federal standard will automatically increase starting in 2020, although it’s not likely to rise much above the California amount.
Also to note, federal law currently defines overtime as hours worked beyond 40 hours a week. In California, organizations will now require overtime pay in addition for hours worked beyond 8 hours a day.
Consequences of Noncompliance
Failure to comply with the pay required overtime rules could negatively affect your organization. Your executive, administrative and professional workers will soon be effected by the new rules, so we suggest you start thinking about working with your legal and other advisors to ensure you won’t face penalties down the road. Contact your local Armanino nonprofit expert to learn more about the overtime protection laws and how we can support your compliance efforts.
Paul graduated from University College in Galway, Ireland, in 1989 with a Bachelor’s degree in Economics and Political Science. He joined Armanino in 1995. Paul heads up the nonprofit practice group at the firm and also serves on the firm’s Accounting Standards Technical Committee. Paul is a member of the AICPA and the California Society of CPAs. Paul also has extensive for-profit experience.