by Renee Mielnicki, Esquire
If you are a regular follower of our blog, you may have already read our previous articles about the Department of Labor’s new overtime rule: The New Requirements for Overtime Exemptions are Out and How Employers Should Prepare for the New Overtime Rules. As with every rule, there are always exceptions and exceptions to the exceptions. The new rule can work a bit different if you are a non-profit or state or local government employer. Our past blogs touched on these exceptions, but here I want to dig in a little deeper for these types of employers.
Non-profit employers have a few things to consider. The first would be to analyze if the new rule even applies to your organization. The Fair Labor Standards Act (FLSA) can apply to a non-profit corporation in one of two ways. The first is through enterprise coverage where all employees of the organization will be subject to the FLSA. Enterprise coverage will occur if the organization has annual revenues (i.e. volume of sales made or business done) of at least $500,000. Generally, non-profit organizations are not covered entities unless their ordinary commercial activities (i.e. business activities like selling a product) are $500,000 or more annually. If any of the organization’s activities are charitable in nature (such as a homeless shelter for people or animals), they do not count towards the $500,000 threshold and will not establish enterprise coverage. This analysis can get a bit tricky if the non-profit is engaging in both commercial and charitable activities. However, the DOL will only consider revenue-producing activities when assessing enterprise coverage.
Luckily, the DOL has published Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act. In the guidance, the following example is given of a non-profit entity engaging in charitable activities and the application of enterprise coverage:
“A non-profit animal shelter provides free veterinary care, animal adoption services and shelter for homeless animals. Even if the shelter takes in over $500,000 in donations in a given year, because the shelter engages only in charitable activities that do not have a business purpose, employees of the animal shelter are not covered on an enterprise basis.”
Of course there are other examples and variations on fact patterns that can arise in a non-profit entity and the above is only one illustration. Additional examples can be found within the DOL guidance.
If a non-profit is not covered by the FLSA through enterprise coverage, its individual employees may still be covered. To establish individual coverage, the employee must engage in interstate commerce (i.e. the production of goods for interstate commerce). In addition, individual employees whose work involves or somehow relates to the movement of persons or things across state lines are also engaging in interstate commerce and covered individually. “Interstate commerce” sounds pretty fancy and not likely to regularly occur within a non-profit entity. But, believe it or not, it’s a pretty low threshold to meet and can occur very easily. Interstate commerce activities include making out of state phone calls, receiving or sending interstate mail or email, ordering goods from an out of state supplier and handling credit card transactions or performing accounting or bookkeeping for such transactions.
The DOL does provide some helpful clarification as far as individual coverage within its guidance. In particular, it states:
“The Department, however, will not assert that an employee, who on isolated occasions spends an insubstantial amount of time performing such work is individually covered by the FLSA. Additionally, even where an employee regularly engages in interstate commerce and is individually covered, the Department focuses its enforcement efforts on circumstances where it can have significant impact on compliance, generally where there is enterprise coverage.”
So what does all of this mean to you non-profit employers? It means that it may be possible, in some instances, that the FLSA does not apply to your corporation. In each case, you have to determine: (1) if your organization is covered by the law as a whole through enterprise coverage; and/or (2) if any of your employees are covered individually. If the law does not apply to your organization as a whole or any of your employees individually, employees exempt from overtime as an executive, professional or administrative employee do not have to be paid the required $913 a week pursuant to the new law. (But remember, this is probably unlikely since employees may be covered individually if they engage in interstate commerce activities).
One important note: while it may be of benefit to a non-profit corporation that the DOL is too busy or uninterested to concern itself with enforcing the new overtime rules with regard to covered individual employees where enterprise coverage does not apply, that doesn’t mean that the organization should not comply with the new rule. Why? Because employees covered individually by the FLSA can still file a private civil complaint for unpaid overtime wages through the court system. In other words, employees can enforce their rights to overtime pay in one of two ways: (1) by making a complaint to the DOL who will investigate, and if substantiated, can make the employer pay overtime wages due to the employee (this is the situation the DOL is saying it is not overly concerned with as far as non-profit entities go); or (2) the employee can sue the employer in court on its own without involving the DOL and possibly get a judgment against the employer for overtime wages owed. Therefore, it’s always best to comply with the rule even if the DOL won’t be knocking at your door because it doesn’t prevent private causes of legal action between an employer and employee.
You should be aware of one more exception to the rule for non-profits. The Non-Enforcement Policy, recently published by the DOL, applies on a time-limited basis to providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes or facilities with 15 or fewer beds. This non-enforcement policy works basically as follows. From December 1, 2016 to March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week against those covered employers. Employers have a lot of questions as to the application of this non-enforcement policy since it is not clear what is meant by “residential care facilities.” For instance, it is not clear from the policy if it will apply to a facility that has no residential beds but does have a separate residential component, not part of that same facility. (Picture a Medicaid-funded program for intellectually challenged individual that has multiple facilities. Some of the “facilities” have no beds while some of the other “facilities” do have beds. Does the policy apply to all of the “facilities” or only the ones that have 15 or fewer beds?”) Hopefully, the DOL will issue some additional guidance in the future to clarify this application because they sure didn’t do it in the initial guidance.
However, just like individual coverage above, the non-enforcement policy does not apply to private causes of action between the employer and the employee. Again, an employee can still file a private lawsuit for unpaid overtime wages due pursuant to the new rule (remember, DOL enforcement is different from a lawsuit filed privately by an employee in court). The policy applies only to DOL enforcement and does not apply to private causes of action under the FLSA filed by an employee against an employer. So arguably, a concern is that the policy is going to lead to some real confusion among these types of employers and a false sense of security.
The new rule also has a unique effect on certain government employers. Recognizing that fact, the DOL was kind enough to publish guidance specific to state and local governments. Unlike non-profit employers, there is no analysis where you can escape application of the FLSA and the new overtime rules. The FLSA will apply both from an enterprise coverage level and in some cases individually to your employees. However, the unique application of the new overtime rule is with regard to compensatory time (i.e. comp time). For whatever reason, comp time in lieu of payment of wages for overtime to non-exempt employees (or in lieu of any hours worked really) is illegal under both state and federal law, unless you are a state or local government employer. The FLSA allows these employers to provide comp time to its employee in lieu of overtime. Pretty nice, huh?
So how would that work in light of the new rule? Well, if you are a state or local government employer with an exempt employee who is paid less than the required $913 per week that actually works overtime, you may be able to avoid raising their salary to meet the new threshold or paying them overtime if you provide comp time instead. Whether you choose to pay overtime or offer comp time, your newly non-exempt employees will need to start keeping accurate records of their time worked.
But, of course, there are limits on how much comp time can be provided in lieu of overtime. Most state and local government employees can accrue up to 240 hours of comp time. Law enforcement, fire protection and emergency response personnel, as well as employees engaged in seasonal activities, may accrue up to 480 of comp time. In addition, comp time should be set up initially pursuant to an agreement with the employees before performance of the work. Comp time must be provided at a rate of one and half hours for each overtime hour worked. So, if a non-exempt government employee works 44 hours in a single workweek, they would be entitled to six hours of comp time.
If you are a non-profit or a state or local government employer and have additional questions, please contact us at 855-873-0374 or by email to HRHelpline@eastcoastrm.com.
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