Proposed Overtime Rule Threatens Nonprofits’ Survival

By Allen Smith, J.D. Feb 3, 2016
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The Department of Labor’s (DOL) proposed overtime rule could force some nonprofits to close, which could end much-needed services to vulnerable populations, such as the abused or people with intellectual disabilities, nonprofit officials say.

The proposed rule more than doubles the exempt employees’ salary threshold. Nonprofits may not be able to absorb this leap, according to Elizabeth Hays, SHRM-SCP, director of human resources for MHY Family Services in Mars, Pa., which offers help to troubled and abused youth. Speaking at a U.S. Chamber of Commerce symposium about the proposed rule on Feb. 1, Hays said that if the DOL doesn’t assess the realistic impact its proposal will have on all employers, “nonprofits may be writing their final chapters.”

‘Staggering Hike’

Hays called the proposed increase to the exempt salary threshold from $23,660 to $50,440 a year (from $455 a week to $970 a week) a “staggering hike.” And the proposed annual increase of the salary threshold is another blow, she said.

More than half of MHY’s employees are exempt, Hays noted, and raising their salaries above the new threshold would cost $750,000, or 9 percent of the nonprofit’s operating budget.


FLSA Overtime Rule Compliance

For more overtime compliance news, tips and tools, check out the SHRM resources provided below:

· FLSA Overtime Rule Resources Guide
· Compliance Checklist · Infographic
MHY Family Services has assistant directors, therapists and program managers who have bachelor’s or master’s degrees, she noted. They are skilled, educated professionals whose clients have suffered trauma, neglect and abuse. Most of these exempt employees work more than 40 hours a week and sometimes have 10- to 12-hour days.

Clients have the same practitioner for continuity of care, she noted, and this continuity would be undermined if the nonprofit had to hire part-time workers to fill in for employees reclassified as nonexempt and with overtime caps.

The nonprofit may have to reduce its client base to pay for salaries raised above the new exempt salary threshold or additional overtime. Employee benefits may need to be reduced, resulting in higher turnover.

Plus, if MHY must reclassify some of its workers as nonexempt, Hays said, there will be less workplace flexibility. Currently, exempt employees can leave early on calmer days to make up for longer workdays, she said. That type of flexibility may not be feasible if employees are hourly.

Also speaking at the symposium, Charles Hooker III, president and chief executive officer of Keystone Human Services International, based in Harrisburg, Pa., said 400 of its 3,200 employees would have to be reclassified as nonexempt if the proposed rule is finalized.

Keystone provides direct support to people with intellectual disabilities, autism andmental health difficulties. Its services are primarily funded by Medicaid.

The nonprofit faced financial difficulties last year. The state government of Pennsylvania was operating without a budget for six months, and Keystone had to open a line of credit to continue operations.

Right now Hooker doesn’t see how Keystone will be able to comply with the proposed rule’s “unfunded mandate,” but he said the organization is in “a struggle to figure it out.”

DOL Letter ‘A Little Bit Disingenuous’

Tammy McCutchen, an attorney with Littler in Washington, D.C., and former administrator of the DOL’s Wage and Hour Division, spoke at the symposium as well, calling current Administrator David Weil’s August 2015 blog post on the proposed rule’s application to nonprofits “a little bit disingenuous.” It tries to salve the concerns of nonprofits by focusing too much on enterprise coverage, she said.

“Employees at nonprofits may be entitled to the minimum wage and overtime pay protections on an enterprise or an individual basis,” Weil noted in the blog post. “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 [Fair Labor Standards Act (FLSA)], however, unless they engage in ordinary commercial activities that result in sales made or business done that meets that threshold.”

That said, “organizations that don’t meet the tests to be covered on an enterprise basis likely still have employees who are engaged individually,” Weil observed. “An employee who engaged in interstate commerce is covered by the FLSA.”

Trying to make a case that your nonprofit organization is not covered by the FLSA would be “a loser” of an argument, McCutchen asserted. As the blog post points out, interstate commerce includes making telephone calls, sending e-mails or writing letters to someone in another state, and ordering or receiving goods from an out-of-state vendor. How many employees do not use goods from an out-of-state vendor? Do employees ever use Amazon.com? If so, she said, “You’re probably engaged in interstate commerce.”. Also, credit card transactions count as interstate commerce. “DOL is not known for narrowly construing the concept of ‘interstate,’” she remarked.

McCutchen emphasized that it will be “a very rare employee” who is not engaged in some sort of interstate commerce and therefore not entitled to overtime or minimum wage under the FLSA.

Take a janitor at a small nonprofit who doesn’t use a phone, e-mail or snail mail. If his cleaning products come from another state, he is covered by the FLSA, McCutchen said.

“So don’t be fooled by the DOL blog,” she said. “Your employees are covered under the FLSA.”

Lowered Salary Threshold?

McCutchen predicted that the DOL would not provide a lower salary threshold for nonprofits in the final rule, saying there is no statutory support for that. But she thought the DOL might lower the exempt salary threshold level from the proposed $50,440 by $5,000 or $10,000. That’s not enough for McCutchen, who said that the proposal should be lowered to $35,000 a year.

Marc Freedman, executive director of labor law policy for the U.S. Chamber of Commerce, concluded the symposium by calling on attendees to contact their Democratic representatives and raise the concern that nonprofits may have to shut down if the proposed rule is finalized. The DOL already has heard from businesses; maybe it will listen to Democratic members of Congress, he said.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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