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Nonprofit News: New overtime rules for nonprofits, California impact

CalNonprofits shared a perspective about how the new overtime regulations affect nonprofits. This is an important change that our CVNL community needs to be familiar with. We recommend reviewing the new regulations and considering what impact it may have on your organization now, or in the future.

(CalNonprofits News Alert)

New overtime rules for nonprofits — what’s different about California?

Everybody’s talking about the new regulations from the Department of Labor that may change how nonprofits classify employees and whether or not they must be paid overtime. But as usual, California is different. One of the ways we’re different is that we have very distinct labor laws, which means that the new federal overtime rules will play out differently in our great state. In addition, nonprofits have certain types of situations that are specific to nonprofits.

There are bound to be many court cases and the impact of the rules is still being debated, but here’s what we know so far:

The basics: The U.S. Department of Labor (DOL) has announced new regulations that go into effect on December 1, 2016 and apply to employers in all sectors. The aspect receiving the most attention is that in order to qualify as exempt (and thereby not eligible for overtime pay), a worker must have a salary of at least $47,476/year. This is a very big jump from the current federal threshold of $23,660 per year. Or is it?

What’s different in California: Although the federal threshold for exempt status has been $23,660, in California the threshold for exempt status is set as twice minimum wage. So with the current minimum wage of $10/hour, the minimum for exempt status is $41,600/year, and as of January 1, 2017 when the minimum wage goes up to $10.50/hour, the minimum salary for exempt employees will be $43,680/year. So the gap between the old and new thresholds is narrower in California.

For example, a nonprofit worker whose work is exempt (based on analysis of the work) and is currently paid $43,680/year will need to get a raise of $3,820/year. Still a lot, but not as gargantuan a leap as in other states. (Note that the state minimum wage is what’s used for the exempt threshhold — not city or county minimum wages.)

Also, although federal law defines overtime as hours worked beyond 40 hours/week, California requires overtime pay in addition for hours worked beyond 8 hours/day. (Whenever federal and state laws conflict on labor law, the law that favors the employee prevails.)

Additionally, as the California minimum wage continues to rise, the federal standard stays the same, so that by 2019 when the California minimum wage will be $12/hour, the California threshold for exempt status will have overtaken the federal standard (which allows for future increases every three years, but would not be likely to rise much above California levels).

Here are two free webinars you may want to participate in to learn more:

Department of Labor free webinar specifically for nonprofits, June 7th
Independent Sector’s webinar for nonprofits, May 31st

Additional notes:

In addition to the salary threshold, employees must perform “executive, administrative, or professional” duties to have exempt status.The new DOL regulations have not altered the definition of exempt duties. (“Exempt” means exempt from the Fair Labor Standards Act that specifies that employees must be paid at or above federal minimum wage, and be paid at least 1.5 times pay for overtime hours.)

But this is another instance where California law differs from the federal standards. California takes a quantitative approach to defining what it means to be “primarily” engaged in executive, professional or administrative duties by requiring that an employee spend 50% or more time of their time performing exempt duties in any given week to be exempt for that week. Using the federal law’s more qualitative approach, an employee can qualify as exempt while spending only 20% of their time on performing exempt duties.

Nonprofits frequently struggle with job responsibilities that don’t seem to fit into the definitions of exempt duties. Better to review them now than run into problems later.

The “enterprise” aspect of the new DOL regulations is probably more confusing for Californians than for others. The rules state that “non-profit organizations are not covered entities [under FLSA] unless they engage in ordinary commercial activities” such as “operating a business, like a gift shop.” In California this aspect hasn’t been discussed much; we will all need to let one another know when we see how this is playing out.

Nonprofits should look into working with an HR attorney or specialist on the staff positions in question.

CalNonprofits members have free access to the extensive HR library of forms and articles at HR360. There is extensive, good material on the exempt/non-exempt question.

Going forward:

On one hand, many of us in the nonprofit community are glad to see regulations that will help America’s working families; after all, we see the hardships they face every day. At the same time, if your organization is impacted, it’s very difficult to face the additional expenses that might now be added to our budgets.

On the policy side of things, we at CalNonprofits are working on having governments and foundations increase their funding to programs that will be impacted by the new minimum wage levels and these new overtime rules. As we go forward, stay in touch with us on how we can work together towards these goals.

Our thanks to Walter Stella of Miller Law Group for assistance with this article.

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