If You are a Nonprofit Leader Who Thinks the FLSA Overtime Rules Won’t Impact Your Organization, Think Again!

This is perhaps out of the realm of Denver Shared Spaces normal web content but as advocates for nonprofit entities no matter their size, scope, and impact, we write today with a wake-up call for the sector as a whole. Since President Obama signed into law the overhaul of the rules governing the payment of overtime to salaried employees in 2016, there has been a lot of miscommunication and understatement on the impact these changes will have for nonprofit organizations. The clock is ticking for implementation to begin and we are here to help set the record straight. As of December 1, 2016, the new FLSA rules governing the salary test for exemption will go into effect and nonprofits who are not complying with the new regulations will be subject to fines and organizational audits for non-compliance.

So, who is really going to be impacted?

Speaking with Christina Kelly at Mountain States Employer’s Council earlier this month, Denver Shared Spaces learned that one would be hard pressed to find a nonprofit who will not come under the new FLSA overtime rules. The distinguishing factor of coverage versus non-coverage for nonprofits has to do with whether or not the entity is a covered enterprise under FLSA. Certain nonprofits, such as schools, pre-schools, hospitals, mental health centers and residential care facilities are already considered “named enterprises”. However, those that have earned income via interstate commerce resulting in gross revenues over $500,000 are also subject to enterprise coverage under FLSA, not including any income from charitable activities such as contributions, memberships, in-kind donations.[1] The key point of clarification to the FLSA changes has to do with the distinction between enterprise coverage (related to a smaller proportion of nonprofits) and individual coverage (how the majority of nonprofits will experience these changes). This distinction is key because it provides a better understanding of how paying time and one half over 40 hours per week for salaried employees will lead to increased costs, employee status changes, Federal compliance and regulation, and general morale/HR concerns. According to Mountain States Employers Council, in a survey of 360 organizations across Arizona, Colorado, and Utah, 71% of respondents believed that the FLSA changes will result in an increased cost to their organization.

Even if a nonprofit does not have coverage under the enterprise coverage rule, it still needs to look at individual coverage. Individual coverage includes employees whose job responsibilities put them under the protection of the law because they are “engaged in interstate commerce.” In its presentations catered toward nonprofit organizations, the Department of Labor has given a clear indication that it thinks just about everything employees do these days involves interstate commerce – ranging from sending and receiving emails to counting supplies that come in from out of state. Therefore, a nonprofit employer could easily be responsible for paying overtime for some individual employees, even if the organization is not covered as an “enterprise.” [2]

So, this will likely impact your organization…now what?

First off, consult local, state and Federal-level support services available to understand the implications and implementation of the FLSA changes. If your organization is a member of the Mountain States Employers Council, reach out to a consultant to get proper legal guidance. An organization can also contact the Department of Labor hotline or contact a local attorney for guidance on how different states will regulate protections in conjunction and beyond Federal law. Also, stay connected to pertinent legislation on the issue as there will likely be policy changes from those who oppose the changes.

Secondly, understand the impacts on your organization and how to communicate these changes to staff. Explain why the change is happening and that for many of your employees, they will now be transitioning from an exempt employee status to non-exempt status. The employees are now eligible for overtime pay however, they must track all their hours worked. This can be a challenge on many levels—organizationally, culturally and symbolically. The employee will now have to remember to track hours worked—a new training method will need to be implemented and another task for an already over-burdened employee will be enforced.

Culturally, the nonprofit sector is generally characterized for its hard work and passion surrounding the job. In other words, a lot of nonprofit employees do not stop work just because the clock strikes 5 p.m. For many, it is a 24/7 job but management must limit the time employees work (i.e. laptops not coming home with the employee or having the employee do any work on the weekends beyond 40 hours). If they do work more than 40 hours, they are now owed time and a half, a crippling impact for many nonprofits’ bottom line. Traditionally, work is structured around the mission of the organization and creating impact. Now, time reporting will be a large focal area of the organization to avoid facing a larger liability.

Symbolically, it may be hard for some employees to see themselves as an individual who has to clock-in/clock-out. The need to effectively communicate the reason behind these changes and that they do not indicate a different status related to employee performance or value from the organization’s perspective is vital!

The long-term implications for these changes are that the already strapped-for-cash nonprofit will need to have more funding to endure these increased costs to labor. A nonprofit will need to consider its funding streams and develop a strategy that funds the dreaded “overhead” of a nonprofit in order to offset these increased costs and sustain impact and organizational outcomes. A nonprofit could consider hiring part-time staff to avoid the overtime rules all together and in general needs to consider how to drive lean principles in its services. The survey of nonprofit organizations by Mountain States Employers Council also highlighted some of the trends of nonprofit peers in how they intended to meet these changes. 70% of nonprofits will convert exempt employees to non-exempt. 21% will convert to exempt and will not allow for any overtime. 35% will adjust selected positions to the new salary level. Change is on the horizon, is your organization ready to meet the demands?


[1] National Council on Nonprofits. 2016. Retrieved from: https://www.councilofnonprofits.org/tools-resources/breaking-down-your-nonprofits-obligation-pay-overtime-under-the-new-federal-rules


[2] National Council on Nonprofits. 2016. Retrieved from: https://www.councilofnonprofits.org/tools-resources/breaking-down-your-nonprofits-obligation-pay-overtime-under-the-new-federal-rules