United States: Where Do The DOL's New FLSA White-Collar Overtime Regulations Leave Non-Profits And Educational Institutions?

Last Updated: May 25 2016
Article by Erin C. Horton and Tyrone P. Thomas

Over the course of this and next week, we will discuss the final overtime rule's impact and address related workplace issues on which employers should focus in advance of its December 1st implementation date. Today we focus on the rule's impact on non-profits and educational institutions.

On Wednesday of this week, the Department of Labor announced its Final Rule, which is aimed at expanding overtime eligibility for millions of American workers. At its core, the final version of the rule doubled the minimum salary employers must pay "white collar" workers to maintain their exempt status. See our post here for a summary of the new regulations.

But what does this mean for non-profits, including educational institutions, which may be harder hit by these changes than private sector employers? In short, generally the same thing it means for any other employer.

No New Special Relief For Non-Profits, Including Non-Profit Educational Institutions

Despite a considerable push by major non-profit organizations and higher education institutions for a different outcome, no new carve-outs—such as the suggested exemption from the salary requirement, reduced salary requirement, phased-in salary requirement increase, delayed implementation of the new salary requirement, and elimination of automatic updating of salary requirements—are contained in these regulations.

In its Guidance on the Final Rule, the DOL acknowledges and discusses at some length the non-profit sector's comments and concerns, including that non-profits generally pay lower salaries, are more constrained in their abilities to increase salaries, and the potential for increased costs leading to a decline in the quality or quantity of services they are able to provide. But, in the end, the DOL dismisses these concerns, explaining that the DOL "has never had special rules for non-profit organizations" and "such special treatment is not necessary or appropriate."

The DOL cites National Compensation Survey data, which shows that the average hourly management worker at non-profits makes $1,547 per workweek, well in excess of the 2016 required standard salary for white-collar exemption and that the average hourly wages of non-profit employees are not uniformly lower than employees in other sectors. In addition, the DOL appears less concerned about the impact on non-profits and educational institutions given the fact that the Final Rule bases the standard salary level on salaries in the lowest-wage Census Region (little consolation to those non-profits and educational institutions in that Region, of course).

Post-Docs Get No Special Treatment Either

As to post-doctoral researchers, the DOL was similarly unmoved. The DOL reviewed much commentary concerning the impact of these regulations on post-docs engaged primarily in research, whose stipends are often well below the proposed minimum salary level, especially among post-docs with less than five years of experience. The DOL looked to data from the National Institutes of Health (NIH) and responded simply that no special rule for post-docs was needed because the NIH FY 2016 stipend level for post-doc researchers with just two years of experience is only $208 less than what is required under the new Final Rule. In short, those post-docs who are not primarily engaged in teaching, likely meet the job duties test for "learned professionals" and must, like all other "learned professionals," also satisfy the minimum salary requirement in order to be exempt from overtime.

The "Good" News for Education

As painful as these new regulations may be for educational institutions, it could be worse. Historically, teachers qualify for the professional exemption under the FLSA no matter how much money they make, so long as their primary duty is teaching, tutoring, instructing or lecturing for an educational establishment. The DOL received multiple comments from teachers, university faculty, and their representatives asking that the DOL do away with this special relief offered to "teaching professionals" under the existing rules. Educational institutions may at least rest easy knowing that the DOL's Final Rule has left this special carve-out intact.

Similarly unscathed is the special provision for academic administrative employees, setting the salary threshold for exemption at an amount equal to the entrance salary for teachers at the same institution.

Guidance for Non-Profits and Educational Institutions

In connection with its release of the Final Rule, the DOL also issued Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act, which is aimed at assisting non-profit organizations in evaluating current practices and transitioning to the new Final Rule requirement. This guidance also provides helpful discussion of which non-profit organizations and employees fall under the FLSA's jurisdiction in the first place (i.e., enterprise and individual "coverage" under the FLSA).

The DOL also released Guidance for Higher Education Institutions on Paying Overtime under the Fair Labor Standards Act, which is aimed at assisting educational institutions in evaluating current practices and transitioning to the new Final Rule requirement.

What To Do Now?

For those non-profits and educational institutions impacted by the Final Rule, there are several options, which may be implemented on their own or in combination with one another. Among them are the following:

Pay overtime.

This does not necessarily mean that a salaried employee making less than $47,476 (the minimum salary for white collar exemption under the Final Rule) must be converted to hourly. But it does mean that the employee must be paid overtime for hours worked in excess of 40 hours per week. There are several models for achieving this while keeping overtime costs down, including through the use of the fluctuating workweek method, which we will address in a separate post.

Raise salaries.

For those employees who meet one or more white collar exemption job duties tests and who often work overtime, it is worth doing the math to see whether raising their salaries to $47,476 could result in an overall benefit to the organization, through cost-savings and/or less administrative burden. At the same time, consider whether it's necessary to reduce discretionary bonuses or other benefits to offset costs.

Adjust workloads or work schedules.

Employees may tend to work longer hours during certain times of the year, such as annual fund, fundraising gala season, incoming student interviews, or commencement. Organizations may shift work responsibilities or schedules so that employees needed to work in the evenings, early morning, or weekends are less likely to surpass 40 hours of work in that workweek. Part of this consideration is whether certain full-time positions may be split into two or more part-time positions in order to avoid overtime costs.

Adjust wages.

Some employees consistently work a small number of hours in excess of 40 hours each week (e.g., a regular workweek is 45 hours). For those employees, it may make sense to reduce their regular wages (to no less than the minimum wage, of course), recognizing that they will now earn back the difference by working overtime.

Consider volunteers (with caution).

For many non-profits and educational institutions, overtime soars with fundraising and extracurricular events in the evenings and on weekends, outside of regular work hours. To the extent the organization is not fully utilizing its community of volunteers, now is the time to start. Remember, individuals who volunteer or donate their services, usually on a part-time basis, for public service, religious, or humanitarian objectives, not as employees and without contemplation of pay, are typically not considered employees of the religious, charitable, or similar non-profit organizations that receive their service. Also, importantly, volunteers should not displace employees or perform work that would otherwise typically be performed by employees, and paid employees may not volunteer to provide the same type of services to the non-profit organization that they are otherwise typically employed to provide.

Consider non-discretionary incentive bonuses (with caution).

Employers are permitted to use non-discretionary incentive payments to satisfy up to 10 percent of the minimum salary threshold. "Non-discretionary" means precisely that – once the employee hits the requisite employment goal, the right to a specific payment is automatic and without discretion. These payments must be made on at least a quarterly basis. Employers should also track these amounts as the failure of paid incentive compensation to cause the employee to attain the minimum salary threshold may necessitate a "catch up" payment as permitted under the new Rules.

Educational institutions using this path should be particularly careful for compliance with the Department of Education's regulations on incentive pay. Under 34 C.F.R. 668.14(b)(22), universities are prohibited from incentive payments which directly or indirectly are predicated upon success in securing enrollments or the award of financial aid. While the DOE has recently issued a final rule clarifying that this prohibition does not extend to incentive payments based on students' graduation from or completion of educational programs, the general prohibition in these areas remain in place.

* * *

While the Final Rule provides no special relief for non-profits and educational institutions, the sectors' considerable efforts to have their voices heard at the DOL have at least paid off with some additional guidance specifically geared to the unique challenges faced by non-profit and education sector employers. As employers prepare for the Final Rule's implementation on December 1st, they should consult this new guidance and seek the assistance of legal counsel where the guidance leaves unanswered questions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Erin C. Horton
Tyrone P. Thomas
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