The new employee overtime rules are now official and will take effect starting December 1, 2016. In addition to all non-exempt workers, exempt workers earning less than $913/week ($47,476/year) will be entitled to overtime pay beginning December 1.
You may have heard the great news that nonprofits don’t have to pay overtime unless they earn more than $500,000 annually from non-charitable commercial activities… and then you found out that certain employees engaged in a very broadly defined version of “interstate commerce” are entitled to overtime pay. Employees are engaged in interstate commerce if, in the course of their job duties, they regularly make out-of-state phone calls, order goods/services from vendors in a different state, email anyone out-of-state, handle credit card transactions, perform the accounting for those transactions or engage in any other activity where they interact with someone or something in another state. It’s almost impossible for an employee not to engage in interstate commerce, which means nonprofits must consider how they will implement the new overtime rules.
Employers can increase salaries over the new threshold, decrease salaries to minimize the impact of overtime, prohibit overtime hours without prior approval, shift more of the workload to higher-paid employees or just pay overtime when needed. As with any nonprofit financial decision, it’s important to strike a balance between money and mission when choosing the right option for your organization. Consider the message a nonprofit is sending when it supports free job training programs and education for low-income families, but opposes paying overtime to its own employees. Maybe your organization is considering the option of not allowing employees to work overtime – how does that impact your ability to serve the community? If you don’t know, start tracking overtime hours now to determine how much overtime is reasonable to get the job done well. It will also help you budget for how much the additional hours would cost the organization in wages and payroll taxes. Paying occasional overtime may be cheaper than increasing salaries if there isn’t much overtime required.
Once you’ve chosen a plan, consider the fairness of the plan from an employee perspective. How likely is it that an employee entitled to overtime will actually earn more than an employee making just over the new overtime threshold? Is that fair? Are employees across the organization being treated equitably or have certain departments developed their own rules? If the nature of your organization already provides for extra duty pay or some other compensation when hours required exceeds what was reasonably anticipated, you may want to revise the policy to apply only when overtime pay doesn’t apply.
Whichever option you choose, be sure you’ve considered the ramifications from the perspective of budgetary constraints, employee satisfaction and alignment with your mission.
