Church Law Group

New Overtime Regulations

On May 18, 2016, the Department of Labor (“DOL”) issued its anticipated final rule to the Federal Labor Standards Act (“FLSA”) overtime regulations on salary thresholds for exempting white collar workers subject to the duties test (executive, administrative, professional, outside sales and computer employees) and highly compensated employees (“HCE”). The new rule more than doubles the salary level that allows employers to exempt white collar workers and increases the HCE exemption by 30%. The rule goes into effect Dec. 1, 2016. There are no specific exemptions for churches or ministries (but see the longstanding Ministerial Exception to FLSA below) so the new rules could have a significant impact.  All workers earning less than $47,476 per year ($913/week) will now be eligible for overtime pay—just over double the current threshold.

These are the implications and factors that need to be considered:

For churches and ministries, there are several options, which may be considered on their own or in combination with one another:

  • Just Pay overtime.

This does not automatically 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.  However, it does mean that the employee must be paid overtime for hours worked in excess of 40 hours per week.  

  • Raise salaries (to qualify for the new salary basis and avoid paying overtime).

For those employees who meet one or more white collar exemption job duties tests and who often work overtime, you will need to analyze the numbers and see whether raising their salaries to $47,476 could result in an overall benefit to the organization. At the same time, consider whether it’s necessary to reduce discretionary bonuses or other benefits to offset costs.

  • Adjust work schedules.

Employees may tend to work longer hours during certain times of the year, such as enrollment at schools or during times of fundraising, etc.  Churches and ministries 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.

Ministerial Exception to FLSA

Ministers are exempt from any FLSA coverage for the most part and Table 3-1 of the final regulations lists “clergy and religious workers” as one of  six categories of  “Occupations Exempt from FLSA’s Overtime Provisions.”  Basically, they aren’t subject to minimum wage or overtime requirements of FLSA.  If the work concerns spiritual/pastoral functions (not just ordination) then the minister is not covered by FLSA and it’s minimum wage or overtime requirements.

The more a job actually functions in a ministerial capacity and the more a job description and title uses religious words like minister, ministry, discipleship, spiritual formation, spreading the faith, evangelism, etc. then it is likely not even under FLSA.  Further, the job description could state “Religious Worker Not Covered By FLSA, Not Entitled to Overtime or Minimum Wage” and identify and highlight the discretion and independent judgment with respect to spiritual matters/discipleship training, etc. We advise churches and religious nonprofits to ultimately work with legal counsel to determine application of the Ministerial Exception.

It is necessary to do some analysis in order to know what the optimal decisions may be with respect to the forgoing options our firm hopes this will help raise the questions that need to be asked and answered in order to optimally respond to the Final Rule.

Please see: https://www.dol.gov/whd/overtime/final2016/

Please also see: https://www.dol.gov/sites/default/files/overtime-nonprofit.pdf

Church Law Group

Written by Church Law Group  |  Category: Main Articles, Church Employment, Executive Compensation, General, Tax-Exemption
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