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 updated the fixed salary threshold twice in the last 40 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. Today, this amount is below the current poverty line for a worker supporting a family of four, and below 1975 levels in inflation-adjusted terms.
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:
- 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.”
- 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. Examples of activities that may qualify an employee for individual protection include 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 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 FLSA revisions may interact with state employment laws.
In 2016, DOL issued a final rule raising salary thresholds to enable more employees to be eligible for overtime pay. However, a federal judge ruled to block the implementation of the new rules. Independent Sector’s comments on the original proposal urged a phased-in implementation and revising the terms of federal grants and contracts with nonprofit organizations.
In 2019, DOL issued a proposed rule to update the salary level at which employees may be exempt from overtime requirements under the Fair Labor Standards Act. This proposal would boost the standard salary level from $455 per week to $679 per week (equivalent to $35,308 per year). Above this salary level, eligibility for overtime varies based on job duties. The proposal would also update the salary level for “highly compensated employees” but would not index either salary level to inflation and does not contain any adjustments to the duties test.
On May 20, 2019, Independent Sector President and CEO Dan Cardinali sent a letter to DOL on the rule, stating our recommendations, including a phased-in approach and revisions, “seek to balance the goals of ensuring nonprofit sector employees are able to provide adequately for their families and preserving the ability of charitable organizations to continue serving their communities.” Read more.