08/24/2016

A note to the synod...Overtime exemption regulations information

The following information is provided in consultation with our synod attorney, but should not replace the legal advice of your congregation's attorney, as every congregation's employee salaries and responsibilities are unique to that congregation. Please make sure to consult with your congregation's attorney as you look at how the new Fair Labor Standard Act’s (FLSA) white-collar exemptions impact you. Please make sure to click on the 'here' links in the final paragraph to read the FAQs and Guidance for Non-profits material from the US Department of Labor. The information is actually helpful and relatively easy to understand.

Overtime Exemption Regulations

The US Department of Labor has released the long-awaited Final Rule modernizing the Fair Labor Standard Act’s (FLSA) white-collar exemptions. The good news, for those who have been following the development of the Final Rule, is that there are no big surprises.

What are the changes? 

Expected to require employers to pay overtime to roughly 4.2 million additional US workers, the regulation changes include:

• Increasing the current minimum salary requirement for the executive, administrative, professional and computer employee exemptions from $455 per week ($23,660 per year) to $913 per week ($47,476 per year), with automatic increases every 3 years to the threshold wage level based on the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region (currently the South);
• Increasing the threshold for exemption as a “highly compensated employee” from $100,000 to $134,004, with automatic increases every 3 years to the threshold wage level based on the 90th percentile of weekly earnings for full-time salaried workers; and
• Permitting up to 10% of the standard salary level to come from non-discretionary bonuses, incentive payments, and commissions paid at least quarterly.

The DOL decided not to make any changes to the duties test at this time. Importantly for our congregations, clergy typically fall into the professional exemption.

How much time do I have?

The Final Rule goes into effect December 1, 2016, giving congregations three months to prepare for the changes. However, there is no time for procrastination! The dramatic increase in the salary threshold will require most employers to make some significant changes to ensure their organization is compliant.

What are our options for compliance? 

Your options for compliance include:

• Raise salaries: For employees whose salaries are below the new threshold but meet the duties test, employers may choose to raise these employees’ salaries to meet the new threshold and maintain exempt status.
• Pay overtime: Employees below the threshold can be re-classified as non-exempt and be paid time-and-one-half the employee’s regular rate for all hours worked over 40 in a workweek. These employees need to ensure they are also properly recording their start and stop times and total hours.

Where can I go for more information?

The U.S. Department of Labor has published a fact sheet for non-profits, which can be found here and guidance for non-profits, which can be found here.