On May 18, 2016, the Department of Labor (DOL) announced changes to the Fair Labor Standards Act (FLSA) “white collar” or administrative employee overtime exemption rules. The Final Rule strengthens overtime protections for workers by raising the salary level for exempt status from its previous amount of $455 per week ($23,660 per year) to $913 per week ($47,476 per year). This change goes into effect on Dec. 1, 2016.
Employees are classified into one of two categories:
Churches and other non-profits are subject to minimum wage and overtime requirements in one of two ways, (1) Enterprise Coverage or (2) a worker is individually covered. The Enterprise coverage standard applies if the organization has more than $500,000 per year in revenue from commercial activity OR operates a preschool, school, hospital, or older adult or disability care facility. Charitable donations do not count towards the $500,000. Most churches would not meet the Enterprise standard based on the commercial revenue criteria, but would be covered if operating a school, preschool, daycare or similar enterprise that is incorporated under the church organization.
Even if an organization is not covered under the enterprise standard, it may still have individual employees who are covered. An employee who engages in any interstate or foreign commerce, including selling or packaging goods made in another state, regularly sending mail, using email, buying from commercial enterprises, making telephone calls or other communication, or traveling to other states is covered by FLSA. Unfortunately, there is no clear definition of how much time an employee spends doing the above to determine individual coverage. To protect your ministry against FLSA-related lawsuits, it is best to assume that individuals are covered by the FLSA.
If your administrative employees are covered by FLSA but meet the salary level test for exemption, they must still meet the job duties test. Employees must perform certain job duties to qualify for exemption. Job titles are irrelevant to the duties test. The following website provides information about administrative exemptions, https://www.dol.gov/whd/overtime/fs17a_overview.htm.
For ministers, the "ministerial exemption" will likely shield them from impact. While not part of the regulations, some courts have held there is a ministerial exemption from overtime regulations, and the DOL has generally declined to apply overtime rules to clergy. A person is considered a minister if ordained, commissioned or licensed and is serving in the capacity as a minster. However, as previously mentioned, job titles do not confer exempt status. Frequently, positions such as Childrens’ Minister, Youth Pastor, etc. are not clergy as defined above and may be subject to the new overtime rules.
It is likely that small churches with one pastor, and maybe one or two part-time employees will not be impacted. However, whether large church or small church, it is a good idea to seek assistance from a local attorney to make a final determination.
Once a position is considered non-exempt, overtime only comes into effect when an employee works more than 40 hours in a normal work week. A person who has a 20-hr per week job who works 27 hours in a given week does not qualify for overtime under DOL rules. Overtime only goes into effect after 40 hours.
Overtime is defined as 1.5 times the normal rate of pay. For an hourly worker, this is simple. Hourly rate x 1.5 = overtime rate. This overtime is only paid for those hours over 40, not for the full hours worked.
Flex time is permitted within a work week. The law is clear that you cannot give employees future “comp time” instead of overtime pay but adjusting schedules within a work week is allowed to minimize overtime pay. Also employers cannot average work time over multiple weeks to eliminate overtime.
Non-exempt workers do not have to be paid on an hourly basis. Employers can establish a salary and pay overtime for hours worked in excess of 40 per week. There are several ways to pay a salary and pay overtime. The following website provides more information on salary options as well as general guidance for non-profit organizations: https://www.dol.gov/whd/overtime/final2016/nonprofit-guidance.pdf.
A weekly timesheet for non-exempt workers is required. The timesheet must include specific information such as full name, pay period, hours worked and overtime hours, etc. There is no particular form and there is no requirement for the employee to “clock-in and clock-out”. Timesheets can be kept on an exception basis for employees on a fixed schedule that seldom varies. The “exception” timesheet should show the daily schedule and weekly hours and merely indicate the employee followed the schedule, or record the actual number of hours worked if varies from the schedule.
Whatever method is used for figuring pay and whatever time keeping system is used, it must be communicated to staff and followed consistently.
Please contact Bruce Cooper, firstname.lastname@example.org, or Keith Cox, email@example.com, for assistance. The Treasurer’s Office staff cannot give legal or tax advice but may be able to assist in finding resources to help you make the determination of church employee classifications.