The Issue

In 1938, President Franklin D. Roosevelt signed the Fair Labor Standards Act (FLSA), which created overtime pay and led to the 40-hour work week. A key goal of this legislation was to ensure workers are paid fairly for their time.

Overtime rules ensure that workers who are paid hourly wages or who earn salaries below a certain threshold are entitled to time-and-a-half pay for time worked beyond 40 hours in a given week. To be exempt from overtime pay, employees must meet certain tests regarding their job duties and earn a salary above a threshold. Workers above the wage threshold who perform executive, administrative, or professional duties (including academic and creative) do not qualify for overtime compensation — also known as the “white collar exemption” under the “duties test.”

Historically, the salary threshold has been a fixed amount that does not change with inflation. The Department of Labor previously updated the fixed salary threshold three times in the last 50 years:

• In 1975 the Department of Labor set the threshold below which workers were entitled to overtime pay at $250 per week.
• In 2004 that threshold was set at $455 per week, or $23,660 annually.
• In 2019, the threshold was set at $684 per week, or $35,568 annually, effective in 2020.

2024 Final Rule

On April 23, 2024, the Biden-Harris Administration published a final rule raising the salary threshold that must be met for employees to be classified as exempt from overtime requirements from $35,568 to $43,888 on July 1, 2024, and to $58,656 on January 1, 2025. The 2025 threshold will reflect the 35th percentile of earnings for full-time workers in the lowest-wage Census Region, currently the South.

The rule also increases the salary level for “highly compensated employees” — who can be classified as exempt from overtime with a less rigorous duties test — to $132,964 per year on July 1, 2024, and to $151,164 per year on January 1, 2025. This corresponds with the 85th percentile of earnings nationally.

Finally, the rule also bumps these thresholds up on July 1, 2027, and every three years thereafter, using a formula based on the data available at the time of the update.

Independent Sector’s comments on the overtime rulemaking support an increase from the earlier threshold of $35,568 while acknowledging the difficulty this will pose for many nonprofit organizations and the people they serve. IS strongly supports a phased-in implementation, adjustments to federal grants to reflect cost increases, and additional guidance about the application of FLSA to nonprofits.

Eligibility

The Fair Labor Standards Act covers a large proportion of the nonprofit workforce. Nonprofit organizations or their individual employees must comply with FLSA rules if they meet one of two standards:

1. Enterprise Coverage – Employees who work for nonprofits that have “business” revenue of at least $500,000 are protected under FLSA. This calculation excludes “charitable, religious, educational, or similar activities of organizations operated on a non-profit basis where such activities are not in substantial competition with other businesses.”
2. Individual Coverage  — For nonprofits that do not meet the threshold for enterprise coverage, their employees may be protected by the FLSA if their work regularly involves commerce between states. This is generally interpreted very broadly, including sending mail to persons located in other states or receiving donations from other states.

It can be difficult to assess whether a specific activity qualifies as business revenue or interstate commerce under FLSA.  Restrictions also exist regarding whether activities can be classified as volunteerism or whether they are subject to FLSA rules. The Department of Labor (DOL) released guidance to help nonprofit employers determine how to comply with the law, but more clarity on these issues is needed.

In addition to these federal criteria, some state laws set higher thresholds or indicate that any changes to federal rules apply to almost all employers in that state. Nonprofits should consult legal counsel within their states to clarify how any FLSA revisions may interact with state employment laws.

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