Background on FLSA Change

Unifying the voice of nonprofits to leverage their power

To address stagnant wages, President Barack Obama signed a presidential memorandum in March 2014 to update the overtime regulations under the Fair Labor Standards Act. It directs the Secretary of Labor to:

  • “Update existing protections in keeping with the intention of the Fair Labor Standards Act.”
  • “Address the changing nature of the American workplace.”
  • “Simplify the overtime rules to make them easier for both workers and businesses to understand and apply.”

In response to the President’s memorandum, Department of Labor (DOL) Secretary Tom Perez submitted a proposed FLSA rule change to the Office of Management and Budget for review. On May 5, 2015, Secretary of Labor Tom Perez wrote a blog post stating, “We’ve worked diligently over the last year to develop a proposed rule that answers the president’s directive and captures input from a diverse range of stakeholders.”

On July 6, 2015, DOL submitted its proposed regulatory changes to the Federal Register for a period of notice and comment. The proposed changes to FLSA would modify the rules governing the status of exempt and non-exempt employees. This change would alter the current thresholds and standards for what qualifies employees for exempt status and over-time pay. The current salary threshold exemption is $23,660 or $455 a week. In the proposed regulatory change the overtime salary threshold is to be raised to $50,440, potentially making hundreds of thousands of employees in Pennsylvania eligible for time and a half pay after 40 work hours.

The proposed rules received over 290,000 comments. DOL is now considering the comments and will write, approve, and enact the final rule. Attorney Andrea Johnson wrote for Lexology:

The regulations are expected to be finalized ‘mid-2016.’ No one can predict exactly when the DOL will finalize them, but the agency has indicated that it wants to see the first quarter employment and earnings data before the regulations are issued.  Presumably, there will be a 120-day window before the regulations are enforced, so employers have a chance to prepare for the new law.

On February 17, 2016, Wage and Hour Laws wrote that the new overtime rules would be released in July 2016:

Reports are that U.S. Solicitor of Labor M. Patricia Smith said again today that the U.S. Labor Department's revised regulatory definitions of the federal Fair Labor Standards Act's Section 13(a)(1) exemptions will be released in July.

She also reportedly said that the revisions will take effect 60 days after they are published.  This stands in stark contrast to the 120-day interval provided in 2004.

The Society for Human Resource Management's Allen Smith wrote on February 17, 2016:

It’s still anyone’s guess when the final overtime rule will be released. The later in the year it is published, though, the greater the chances that the rule will be overturned by the next Congress and president or the courts.

While Secretary of Labor Thomas Perez told Bloomberg BNA in a Dec. 16, 2015, interview that he was ‘confident’ the final rule would be issued by spring 2016, the Labor Department’s regulatory agenda pegged July 2016 as the release date. The department typically does not release rules before their projected regulatory agenda dates. Moreover, the department has not yet sent the proposed final rule to the Office of Management and Budget (OMB) for review, which can be a time-consuming process. …

Paul DeCamp, an attorney with Jackson Lewis in the firm’s Washington, D.C., office and a former administrator of the Wage and Hour Division, remarked, ‘The odds of litigation over the rule are pretty close to 100 percent. It is very difficult to envision any realistic scenario in which this regulation does not end up in litigation.’

On April 19 and April 25, 2016 Cohen and Grigsby's Rob Cottington presented on the FLSA changes to GPNP members. Click here to download the slides from the events. 

On May 2, 2016, the National Council of Nonprofits compiled the most current information into its Advocacy Matters email:

Rumors are flying about when the Department of Labor will release its final overtime regulations and what the new rules will say. Little is known publicly but here are key details for consideration.

  • Timing: Rumor has it that the overtime regulations will be finalized on or before May 16. This speculation is based on a memo from the Congressional Research Service estimating that a later publication date by the Department of Labor could subject the overtime rule to congressional review and disapproval in 2017, after a new president has been inaugurated. The draft regulations are currently under review by the Office of Management and Budget, the last step in the process before publication in the Federal Register, so the prediction of action before May 16 is possible. Once published, it is anticipated that the regulations would go into effect 60 to 180 days later. The Society of Human Resource Management (SHRM) is speculating that the effective date of the rule will be in September.
  • Blocking Actions: Two strategies are available to Congress for preventing the new regulations from going into effect: adopting a resolution of disapproval under the Congressional Review Act or enacting specific legislation, such as the Protecting Workplace Advancement and Opportunity Act (S. 2707 and H.R. 4773), which would nullify the proposed rule, among other things. Both actions require either the President’s approval (which is unlikely, given that the proposed rules are coming from his Administration) or sufficient votes (two-thirds of both the House and Senate) to override his expected veto.
  • Substance: No one outside of the federal government knows what the final regulations will mandate. DOL could raise the salary level threshold to $50,440, as proposed in the draft regulations made public last July, opt for a lower threshold, phase in the new level over a period of years, or adopt a new approach. It is not expected that the Labor Department will create a new exemption for nonprofits or other groups of employers.
  • Nonprofit Coverage: Whether or not a specific nonprofit is covered by the final overtime rules, and by the underlying Fair Labor Standards Act (FLSA), can be a complicated question. See the discussion in the analysis of the proposed regulations by the National Council of Nonprofits. A former Labor Department lawyer issued an analysis making the case that many nonprofits would not be affected by the change in overtime rules because they are not covered by the federal FLSA. That analysis did not acknowledge, however, that all states have their own wage and hour laws that may apply, or that several states, including Maryland,MissouriOhio, and North Carolina, incorporate the federal overtime regulations into state law, thus automatically applying any new regulatory requirements to almost every employer in those states.

Potential Impact

The current salary exemption of $23,660 (or $455 a week) is expected to increase significantly to $50,440 or $970 a week. Time spent performing exempt duties will be more closely monitored, and changes are ahead for the various job duties tests under the current exemptions. When these standards change, it is likely many jobs in the nonprofit sector will be subject to non-exemption. The chart below summarizes the potential impact:

Standards

Current Rule

Proposed Rule

Exempt Salary Cap

$23,660 or $455 Per Week

Anticipated at $50,440 Or $970 Per Week

Exempt Duty Threshold

None

Anticipated to be at Least 50% Of Time Spent On Exempt Duties

Job Duties Test

Administrative, Professional, And Executive

Anticipated Changes To Executive Duties

According to the Bayer Center for Nonprofit Management’s 2015 Wage and Benefit Survey of Southwestern Pennsylvania Nonprofit Organizations, salaries for many Social Service, Mental Health, Medical, Education, Employment/Work Training, Community Organizing, and Maintenance positions fall below the $50,440 threshold. Such a change could have significant consequences for nonprofit organizations because certain employees may be newly eligible for overtime compensation.


Key Definitions

Exempt Employee

An exempt employee is a salaried worker paid over $23,000 that performs exempt job duties with three classifications of executive, professional, and administrative. Exempt employees are not entitled to overtime pay.

Non-Exempt Employee

A non-exempt employee is paid under $23,000 ($455 per week). Non-exempt employees must receive time and a half pay for any hours worked past 40 per week.

Exempt Job Duty Classifications

According to FLSA, there are three types of exemption categories: Executive, Administrative and Professional:

Executive Exemption: An employee’s primary duties are management of the company or a subdivision, they regularly supervise two or more employees, and has authority or whose opinion is given weight to hire or fire other employees.

Administrative Exemption: An employee’s primary duties are performance of non-manual work that includes the exercise of discretion or independent judgment to matters of significance.

Professional Exemption: An employee’s primary duties require knowledge of an advanced field of learning primarily acquired by prolonged education or requires talent in a recognized field or artistic endeavor.