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5 strategies to help nonprofits adjust to new overtime rules

08-05-2016

By David J. Manbeck, CPA

As employers try to figure out how to deal with recent changes in overtime regulations, many nonprofits find themselves in a uniquely tough spot.

The Department of Labor identified no exceptions for nonprofits or charitable organizations. With the overtime rules taking effect Dec. 1 — midway through the fiscal year — it will likely require many nonprofits to reexamine their budgets and how they are allocating resources. Because the changes issued by the U.S. Department of Labor also call for the overtime threshold to be periodically increased, it means for-profits and nonprofits alike will have to take a close look at their workforce and future hiring strategies.

What’s changing
As of Dec. 1, workers making an annual salary of up to $47,476 will be eligible to earn time-and-a-half after working more than 40 hours a week. That’s double the current salary cutoff of $23,660. Workers who qualify for overtime are entitled to time-and-a-half for every hour worked, or 150 percent of their regular pay.

High-earning employees may be due something additional as well. The new rule, issued in May, raises the threshold for these employees from $100,000 to $134,004.

Additionally, the new rules call for reviewing the overtime threshold every three years. Federal officials expect the annual threshold salary to rise to more than $51,000 by 2020.

In general, employees do not qualify for overtime if they:

• Manage a firm or a department

• Oversee two or more employees

• Have hiring/firing authority or make recommendations

• Job entails “discretion and independent judgment’’ regarding important business matters

• Have duties directly relating to business operations or to the firm’s clients

Here are strategies for dealing with the changes:

1. Assessing your workforce
Now is the time to take a look at your time-tracking methods and see if workloads should be redistributed.

In some cases, does it make sense to give a salaried employee a raise to put them above the $47,476 overtime threshold? Bonuses and incentive payments can also count up to 10 percent of an employee’s salary when calculating the threshold. Would it be more cost effective to give a performance bonus to alleviate the need for a worker’s overtime pay?

2. Hooray for volunteers!
Volunteers are the lifeblood of many nonprofits, and they may help ease overtime. Are there tasks hourly employees are doing that volunteers can assist with or take over? Keep in mind that under federal regulations, a non-exempt employee cannot “volunteer’’ to work additional hours for his or her employer.

3. Check your grants
Most grants cap administrative costs at 10 percent, which is why the overtime changes taking place in the middle of the 2016-17 fiscal year may present a challenge for many nonprofits. While increasing the amount set aside for administrative costs likely isn’t an option, nonprofits are usually able to reallocate funds between line items.

Assess the impact overtime will have on your projects and then have a conversation with your grantor organization. Most grantors are going to realize that the overtime regulation changes will have a big impact.

4. Future hires
Keep in mind that the overtime threshold will now keep increasing, so it may make sense to think about pay scales and hourly workers. Does it make sense to hire additional hourly workers to save on overtime? Should the starting salary for future employees be lowered to compensate for expected overtime?
Especially when it comes to determining who qualifies for overtime, it’s a good idea to meet with your CPA and make sure your organization is following the rules. All it takes is one disgruntled employee to make a complaint and start a Department of Labor investigation. Keep in mind, these investigations can look at past years and can end up being costly headaches.

The bottom line is that these changes impact virtually all businesses and organizations. Advance planning now will make a big difference come Dec. 1.

David J. Manbeck is a director at Boyer & Ritter LLC and is a member of the firm’s nonprofit and government services groups. He can be reached at dmanbeck@cpabr.com.

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