Most employees of nonprofit organizations are entitled to the minimum wage and overtime protections guaranteed by the Fair Labor Standards Act. Our recently proposed rule updating the overtime regulation for white collar employees does not change this. However, we recognize that the proposal has brought into focus some issues and misconceptions about the FLSA’s decades-long applicability to nonprofits.
As in for-profit organizations, employees at nonprofits may be entitled to the minimum wage and overtime pay protections on an enterprise or an individual basis.
• Enterprise coverage. Generally speaking, a covered enterprise is one with an annual volume of sales made or business done of $500,000 or more per year. Nonprofit charitable organizations are not covered enterprises under the FLSA, however, unless they engage in ordinary commercial activities that result in sales made or business done that meets that threshold. Ordinary commercial activities means operating a business, like a gift shop. Activities such as providing free temporary shelter, free clothing or free food to homeless persons, however, are not considered ordinary commercial activities; rather, they are charitable in nature and enterprise coverage does not apply.
• Individual coverage. Organizations that don’t meet the tests to be covered on an enterprise basis likely still have employees who are covered individually. An employee who engages in interstate commerce is covered by the FLSA. Such activities include making out-of-state phone calls; mailing information or conducting business via the U. S. mail; ordering or receiving goods from an out-of-state supplier; handling credit card transactions; or performing the accounting or bookkeeping for such activities. As we have said previously, however, we will not assert individual coverage for employees who perform this type of work only on occasion, and for an insubstantial amount of time.
To explain this further, take for example a nonprofit animal shelter that provides free veterinary care, adoption services, and shelter for homeless animals. Those are charitable activities. In addition, the shelter provides veterinary care for a fee to customers, which is a commercial activity. If the revenue generated from the organization’s commercial activities is at least $500,000 in a year, the employees engaged in the commercial activities are protected by the FLSA on an enterprise basis. Employees of the organization’s charitable activities are not covered on an enterprise basis since those activities do not have a business purpose. However, an employee who spends a considerable amount of time fundraising on the phone and taking credit card donations from other states would be individually covered.
The following points clarify responsibilities that nonprofit organizations, like for-profits, have under the FLSA.
Fact: Any employee can be paid on a salary basis, but just because someone is paid on a salary basis doesn’t mean they are exempt from overtime pay. White collar salaried employees who do not meet the salary and duties test for exemption are entitled to the guaranteed time-and-one-half their regular rate of pay for all hours worked beyond 40 in a work week. Again, the proposed rule doesn’t change this.
Fact: For workers whose duties do not qualify them for an exemption from overtime and who work more than 40 hours in a week, nonprofit organizations — like all business organizations — have multiple options on how to respond to the rule as proposed should it become final. The organization may:
• Limit the employee’s hours to 40 or fewer each week. In this case, no overtime would be due and the organization could continue to pay the employee his or her current salary.
• Hire an additional worker to perform the extra hours.
• Pay the employee the overtime premium for hours beyond 40 in a week.
• Pay the new salary level to maintain the exemption.
Employers are free to choose these and other options that work best for them and their employees.
Open Comment Period
We encourage you to make your voice heard. Please share your comments, opinions or recommendations about the proposed rule via regulations.gov by Sept. 4, 2015.
Dr. David Weil is the administrator of the Wage and Hour Division.