Department of Labor Overtime Rule Changes

The Department of Labor (DOL) has issued new rules and guidelines for determining which employees are eligible to be paid overtime for hours worked in excess of 40 hours per week.  The significant change in these rules is the amount of salary that an individual must be paid to be exempt from overtime pay.  Currently the salary level is $23,660.  Effective December 1st, 2016, that same employee would have to be paid at least $913 per week ($47,476 per year) to be exempt from overtime pay.  The reason for the steep increase is that the DOL has not regularly adjusted the amounts to keep up with inflation.  The new rules anticipate regular adjustments to the salary requirement. 

Background – The rules for exempt and non-exempt classifications have been in effect for many years.  To be exempt from overtime pay, the employee must be in a position where they perform duties that are often referred to as “white collar” work.  The categories are – Executive, Administrative, Professional, Computer and Outside Sales.  These duties did not change under this new ruling.  In addition to being in an Exempt Duties position, the employee must be paid an exempt salary.  The amount of the salary is the only change in these new rules.  

Are Nonprofits Exempt? There is a common belief that churches and other not-for-profit organizations are not subject to these rules.  Unfortunately that is a common but false assumption.  Any employer is subject to these rules if they have over $500,000 of business income.  According to the DOL, contributions are not included in this test, so it would seem that churches are exempt.  However, another test applies to determine if employees are covered.  The additional test determines if an employee is eligible for overtime pay because their job duties involve interstate commerce.   An employee may be eligible for overtime compensation, even if the church would not seem to be covered due to the income test. 

The Department of Labor guidelines state that an employee will be subject to the new salary test if the individual regularly calls an out-of-state store and uses a credit card to purchase items used by the non-profit.  Purchasing books or materials on-line and paying by credit card likely constitutes interstate commerce.  As a result this employee is covered by the DOL rules – unless exempt because they meet both the salary and duties test.  The DOL notice does offer this grace, “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.” So, although the church might not be covered under the business income rule, the employee may still be entitled to overtime pay.

What about clergy?  - There is not a specific exemption for “ministers and religious workers” but the courts and the DOL have not been eager to engage in litigation with churches over clergy matters.  Like other professionals who are exempt under the duties test, persons licensed as clergy in the United Methodist Church would be exempt as professionals if they are paid at least $913 per week.  This is likely true for a church’s other professional employees such as school teachers, accountants, and music professionals and likely for supply pastors.  Unfortunately we have very little guidance on what this category would cover but believe that all persons who are licensed clergy would qualify for the exemption.  We remain uncertain about youth and children’s ministers or music ministers who are paid less than $913 per week. 

Next Steps – Paying our employees properly is an important part of our witness.  It is recommended that local churches review the job descriptions for all staff and consider if the employee will be exempt from overtime pay, beginning December 1, 2016.  If the position does not meet both the salary and duties tests, then the employee must be paid overtime pay at a rate of 1.5 times their hourly rate for all hours worked in excess of 40 hours per week.  Additionally, any non-exempt employee who works 7 straight days should be paid 1.5 times their hourly rate for all hours worked on the 7th day.   It is important to address any areas of uncertainty before the final rules are effective on December 1st.

If you have general questions about these rules please email either David Garvin or Lesley Williams. While we can answer general questions, we cannot give you legal advice.  For more specific questions related to your ministry, you may find the need to obtain outside counsel.