Overtime Final RuleWhat it means to Non-Profit Organizations

Fair Labor Standards Act (FLSA) The minimum wage and overtime provisions of the FLSA

generally apply to employees at non-profits.

Like other employers non-profits are not required to pay overtime to employees who satisfy the salary level AND the duties test of one of the white collar exemptions:

oExecutive, oAdministrative, oroProfessional

Employees meeting the salary level and duties test of one of the above white collar exemptions are referred to as EXEMPT employees.

Overtime Exemption

Employees meeting the OT exemptions in both salary level and the exemption duties test are EXEMPT from overtime pay when working more than 40 hours in a 7 day work week.

Current Exemption Salary Level Employees meeting one of the white collar exemptions are

required to make at least:

$455 PER WEEK - $23,660 PER YEAR.

As long as the employee meets the weekly/annual salary level and performs the duties test outlined in the Executive, Administrative or Professional exemptions they are exempt from receiving overtime pay (OT) for hours worked past 40 in a work week (7 day work week).

New Overtime Final Rule

Effective: December 1, 2016

The New OT Rule

Exempt Salary Level raised to:

$913.00 per week - $47,476.00 per year

What does this mean?

Exempt white collar employees paid below the NEW salary level are generally entitled to overtime pay for any hours worked over 40 in a work week.

Exempt white collar employees paid at or above the salary level are exempt from overtime pay if employees also meet the duties test of the Executive, or Administrative or Professional Exemptions.

Does it Apply to Teachers?

Teachers continue to be an exception to the OT regulations and the New Exempt Salary Level and are considered exempt if their primary duty is:

TeachingTutoringInstructingLecturing

Teachers include: Regular academic teachers Kindergarten or nursery school teachers Pre-School Teachers (See following slide for explanation) Teachers of gifted or disabled children Professors Adjunct instructors Teachers of skilled and semi-skilled trades & occupations Home economics teachers Vocal or instrument music teachers

Pre-School Teachers Bona fide teachers in preschool and kindergarten settings

may qualify for exemption under the same conditions as a teacher in an elementary or secondary school if they meet the primary duty test for a teacher and are employed and engaged in this activity as a teacher in a qualifying educational establishment.

Teacher - Primary Duty Test : Teachers are exempt if their primary duty is teaching, tutoring, instructing or lecturing in the activity of imparting knowledge, and if they are employed and engaged in this activity as a teacher in an educational establishment.

Pre-School Employees

Preschool employees whose primary duty is to care for the physical needs of the facility’s children.

The DOL does not consider pre-school and day care workers to be teachers under the provisions of the FLSA. The DOL takes this position even if the pre-school program incorporates educational activities designed to prepare children for kindergarten. Employees who primarily provide “custodial care” for children are not exempt from the overtime rule. The DOL views these employees as providing “babysitting” care rather than educational instruction and therefore are not exempt under the “Professional” employee exemption. Schools should meet the minimum wage and OT requirements for these employees.

Does it Apply to Religious Working in the Schools, Churches?No.

They are considered to be ministerial exceptions to the FLSA. Persons such as nuns, monks, priests, lay brothers, ministers, deacons and other members of RELIGIOUS ORDERS who serve pursuant to their religious obligations in schools, hospitals, churches, etc. operated by their church or religious order are not considered to be “employees”.

Side note: While they do not fall under the protection of the FLSA they should be compensated fairly.

Administrators Exempt from OT

Superintendent Associate Superintendent School Principal of elementary or secondary schools Vice Principal, Assistant Principal, Associate Principal Department heads in institutions of higher education Academic counselors

PREPARING FOR DECEMBER 1, 2016

Identify Exempt Employees

Make sure all employees considered to be exempt from overtime pay and currently paid a straight salary for all hours worked are actually performing job responsibilities that meet the duties test of one of the exemptions in the FLSA and are being paid a salary between the current rate of $455 per week and the new OT rate of $913 a week or more.

FLSA Exemptions: Executive

Administrative Professional

Exemption Requirements

Executive Administrative ProfessionalSalary Basis Test Employee must be paid on

a salary or fee basisEmployee must be paid on a salary or fee basis

Employee must be paid on a salary or fee basis

Standard Salary Level Test $913 per week(47,476 per year for a full year worker)

$913 per week(47,476 per year for a full year worker)

$913 per week(47,476 per year for a full year worker)

Salary level test does NOT apply to doctors, lawyers or teachers

Standard Duties Test The employee’s “primary duty” must be managing a customarily recognized department or subdivision of the enterprise and managing 2 full-time employees as well. (See 29 CFR 541 Subpart B)

The employees “primary duty” must include the exercise of discretion and independent judgment with respect to matters of significance. (See 29 CFR 541 Subpart C)

The employees “primary duty” must be to primarily perform work that eitherrequires advanced knowledge in a field of science or learning or that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. (See 29 CFR 541 Subpart D)

U.S. DOL Website

https://www.dol.gov/whd/# Topics Fair Labor Standards Act Presentations Executive, Administrative and Professional Exemption

Presentation

NEXT STEPSIdentify employees affected.Consider the options available for employees affected.Determine the best method for paying OT. Develop time keeping system. Communicate with the employees affected.

Identify Employees Affected

Check the current salary level of all employees being paid a straight salary for all hours worked in a work week.

Employees currently being paid a straight salary for the week or pay period but DO NOT meet the salary test or the duties test for an Exemption from OT will need to begin keeping track of the actual hours worked each day. These employees are overtime protected.

Employees currently being paid a straight salary for the week or pay period but DO meet the duties test for Exemption from OT but DO NOT meet the $913 per week salary level will ALSO need to begin keeping track of the actual hours worked each day. These employees are overtime protected as of December 1, 2016.

Consider the Options1. Allow formerly exempt employees to continue to work the

same number of hours they are used to working. 2. Raise Salaries to maintain exemption.3. Pay current salaries with overtime after 40 hours.4. Reorganize workloads, adjust schedules or spread work

hours.5. Adjust Wages.6. Reclassify and Prohibit Overtime Without Authorization

1. Continue to let the employee work the same hours Allow employees to work the same number of hours they are

used to working even if that means they will receive overtime pay.

First the employer should have a solid handle on how many hours the employee is working as it is critical to setting the new pay structure that is affordable for the employer.

2. Raise Salary

Employers can choose to raise the salary of an Exempt employee who meets the duties test for an exemption when the employee’s salary level is close to the new salary level and who regularly work more than 40 hours in the work week.

Keep in mind the DOL will be raising the exempt salary level every 3 years. The first increase is due in 2020.

3. Paying Overtime Above a Salary

4 Methods

1st Method for Paying OT The employer might pay employees a salary for the first 40

hours of work per week and pay overtime at 1 and ½ times the hourly rate of pay for any hours over 40. This would be a method for employees that routinely work a straight schedule (i.e., 35, 37.50, 40 hours) each week and rarely work overtime.

Example: Alexa, earns a fixed salary of $41,600 per year ($800 per week) for a 40 hour work week. Her salary is based on work performed in a 40 hour work week. Her regular rate of pay per hour is $20. If Alexa works 45 hours one particular week the employer would pay time and one-half (overtime pay) for five hours at a rate of $30 per hour. For the week Alexa should be paid $950, consisting of her $800 weekly salary and $150 OT compensation.

2nd Method for Paying OT

Paying Straight Time for more than 40 hours in a work week for employees who REGULARLY work more than 40 hours and paying OT in addition to the salary. Using this method the employer will only be required to pay an additional half-time OT payment for overtime hours already included within the salary and time and one-half for hours beyond those included in the salary.

Example follows

2nd Method for Paying OT

Example: Jamie, earns a fixed salary of $44,200 per year ($850 per week) for a 50 hour work week. The salary does not include the OT pay. Because the salary is for 50 hours per week Jamie’s regular hourly rate is $17 ($850/50). In a normal 50 hour week the employer pays Jamie the additional half time OT pay for the 10 hours of overtime (8.50 per hour). If Jamie works more than 50 hours in a week, the employer would also owe OT compensation at time and one half the regular hourly rate of pay ($17 x 1.5) for hours beyond 50 because the salary does not cover any payment for the hours worked over 50.

3rd Method for Paying OT

It is also possible an employer and employee agree to a fixed salary for a workweek of more than 40 hours in which the salary includes OT compensation under certain conditions.

If however the employee’s schedule changes in any way during the work week (working more or fewer hours than the normal work hours) the employer must adjust the salary for that week. Employees must be paid based on the actual hours worked during the workweek. This method might be helpful for employees who consistently work the same amount of overtime every week.

3rd Method for Paying OTExample 1: Andre, has an agreement with his organization where he is paid a fixed salary of $39,520 per year ($760 per week) for a 45 hour workweek. The fixed salary includes both straight time for the first 40 hours ($16 regular rate x 40 hours) and OT compensation for hours 41-45 ($24 OT rate x 5 hours). If Andre’s schedule changes in any way for any week, (by working more or fewer hours), his salary needs to be adjusted to reflect the hours actually worked for the week.

Example 1a: Andre works just 35 hours one workweek. $16.00 per hour x 35 hours is $560 for that week.

Example 1b: Andre works 50 hours in a work week and he is paid $760.00 for 45 hours and 1 and ½ times his regular rate of pay for 5 hours ($24 X 5 = $120) for a total of $880 for that week.

4th Method for Paying OTWhere employees have hours of work that fluctuate from

week to week, employers can pay a fixed salary that covers a fluctuating number of hours at straight time if certain conditions are met including a clear and written mutual understanding between the employer and employee.

4th Method for Paying OTThe criteria for using this method in Illinois are:

1.The employee’s hours MUST fluctuate from week to week.2.The employee is paid a fixed salary that does not vary with the number of hours worked in a workweek3.The employee’s fixed salary must be large enough to assure the employee’s average hourly compensation will not fall below the applicable minimum wage. (Illinois $8.25 per hour)4.The employee affected must have a clear mutual “understanding with the employer that the employee will receive such fixed amount as straight time pay for whatever hours the employee is called upon to work in a workweek whether few or many. 5.A written policy or understanding is essential for the Fixed Salary for Fluctuating Hours overtime plan to be used.

4th Method for Paying OT The fixed salary will be compensation for fluctuating hours.

In this method there is no fixed regular rate since the regular rate will vary each workweek depending on the number of hours worked.

The fixed salary constitutes straight time for all hours worked including hours worked over 40 and the additional half-time premium brings an employee’s compensation to the required time and one-half for hours worked over forty (40) in the workweek.

4th Method for Paying OTExample: Employer will compensate the employee on the basis of a fixed weekly salary for all hours worked in each workweek. This fixed salary will constitute the employee’s entire straight time compensation for the week regardless of the number of hours actually worked. In this regard the employee’s weekly salary, will NOT be reduced for weeks in which the employee works less than the full schedule of hours.

In addition to the fixed weekly salary the employee receives OT pay for hours worked over forty (40) in a work week. The amount of OT pay will equal one-half times the employee’s regular hourly rate for the week involved for all hours worked over forty (40).

4th Method for Paying OTThe employee should understand that the employee’s regular hourly rate will vary from week to week depending on the total number of hours actually worked.

It is necessary under this system that the employee accurately record hours worked each workday and the total hours worked in each work week.

4th Method for Paying OTExample: Employee’s fixed salary $800 per week:

1. In one week the employee works 45 hours. The employee is paid $800 for the 45 hours (800/45 = $17.78 hourly rate) and one-half the hourly rate ($17.78*.5 =$8.89) for the 5 hours over 40 ($44.45) for a total compensation of $844.45 for the work week.

2. In another week the employee works 50 hours. The employee is paid $800 for the 50 hours (800/50 = $16 hourly rate) and one-half the hourly rate ($16 *.5 = $8) for the 10 hours worked over 40 ($80) for a total weekly compensation of $880.

1. In another week the employee works 36 hours. The employeereceives $800 for the 36 hours worked.

4th Method of Paying OT The downside to the Fixed Salary for Fluctuating hours OT

calculation plan is the employees fixed salary for all hours worked however many or however few must receive the full fixed salary even if the employee works less than expected or is absent (without PTO) for any reason.

In addition figuring the hourly rate of pay each pay period to determine the overtime rate may be cumbersome.

4. Reorganize Workloads, Adjust Schedules or Spread Work HoursReorganize Workloads

The employer may decide to distribute some work to other employees, or increase the work hours of staff who work less than 40 hours or hire new employees to assist with the work load to eliminate the need for the overtime hours.

Adjust Schedules

Example: a manager at a charity consignment shop satisfies the duties test but does not meet the salary level. The manager is scheduled to begin work at 8am M-F. The employee also accepts donations between 4-6pm so the employee routinely works until 6:30pm. The employer may want to adjust the employee’s schedule to a start time of 10am thus limiting the number of work hours and preventing OT in most cases.

4. Reorganize Workloads, Adjust Schedules or Spread Work HoursAdjust Schedules The employee’s regular work shift is M-F 8 – 5 (40 hours).

Employee is scheduled to work Saturday in one payroll week and Sunday in the next payroll week. Each day the employee is expected to work 6 hours which will result in 6 hours of OT in each payroll week.

The employer can adjust the employee’s work schedule M-F of that week to schedule the employee off for 6 hours prior to the work performed on Saturday thus avoiding the employee working OT for the work week.

Likewise the work schedule in the following week is adjusted down by 6 hours for the work performed by the employee on Sunday to avoid the employee working more than 40 hours in the work week.

Reorganize Workloads, Adjust Schedules or Spread Work Hours

Adjust Schedules

Weekly shifts can begin in one work week and end in the following work week so that hours worked in excess of 40 fall in the following week.

Example: Employee is scheduled to work Thu, Fri, Sat of one week (24 Hours) and Sun, Mon, Tue, (24 hours) in the next week for a total of 48 hours that span two work weeks. Each week is less than 40 hours and therefore OT is not required.

Illinois One Day Rest in Seven Act

Adjusting Work Week Schedules

Non-exempt employees must receive 25 hours of rest in every calendar week. A calendar week is described as seven consecutive 24 hour periods starting at 12:01 AM Sunday morning and ending at midnight the following Saturday.

This act does not apply to employees working 20 hours or less or to employees covered as Exempt under the executive administrative or professional capacity.

4. Reorganize Workloads, Adjust Schedules or Spread Work Hours

Adjust Week Work Hours

The employer currently scheduling employees to work 40 hours in a work week may want to adjust the work week hours down to 35 of 37.5 hours per week to allow for those situations where job responsibilities of the employee may require them to work a half hour or more past their regular scheduled hours to address something that needs to be taken care of that day rather than the next. In this way the employee has some leeway in the work schedule to assist someone without going over 40 hours and requiring the payment of OT.

If adjusting the work schedule down from 40 hours per week the employees hourly rate of pay also needs to be adjusted up so that they are earning the same weekly earnings they would have earned in a 40 hour work week.

5. Adjust WagesEmployers can adjust the amount of an employee’s earnings to reallocate it between regular wages and OT so that the total amount paid to the employee remains largely the same.

The employee must still record hours worked and OT must be paid out to the employee.

5. Adjust WagesExample: the employee formerly exempt but now non-exempt from OT due to the new OT salary level earns $37,000 per year ($711.54 per week and $17.79 per hour). The employee REGULARLY works 45 hours per week. The employer may choose to pay the employee an hourly rate of $15 and pay time and one-half for the 5 hours overtime worked EACH week.

The Wage Adjustment Method would only be applicable to employees that regularly work OT each work week.

OT @ Current Wage OT @ Adjusted Wage

$711.54 (40 hours x $17.79 $600 (40 hours x $15.00)$133.45 (5 OT Hrs. x $17.79 x 1.5) $112.50 (5 OT Hrs. x $15 x 1.5)$844.99 per week $712.50 per week

Wage Adjustment Formula If you’re looking for a formula for this wage adjustment

please contact Chrissy Maher by email at cmaher@dio.org.

6. Prohibit Overtime Without Authorization

Employers can choose to reclassify affected employees as non-exempt and prohibit them from working overtime without authorization.

This option will likely reduce the number of hours some employees work.

This could be seen as a benefit, but it my also mean that affected employees cannot accomplish the same amount of work. If the employee cannot accomplish the work necessary inside of 40 hours a week employers will need to redistribute the extra work to other employees (part-time preferably)

6. Prohibit Overtime Without Authorization

Overtime Pay Cannot be Withheld If Employees Don’t Follow the No Overtime Policy.

If the OT was unexpected, unavoidable, or even unauthorized the employer must pay the OT to the employee for the week in which OT was worked.

The employer may then adjust the employee’s schedule going forward to schedule time off to balance out the payroll budget for the OT paid to the employee. If here is time to adjust the employees schedule in the week the OT was worked the employer may adjust the schedule in the week.

Employees that routinely work OT without authorization can be disciplined for not following policy. However the employer cannot withhold the OT pay.

OT Policy Have a clear policy regarding the authorization of OT Make employees aware of the policy through

announcements, bulletin boards, handbooks. If this is a new policy existing employees should sign a policy

statement acknowledging they have received the policy. This policy acknowledgement is placed in the employee personnel file. Add the policy to the employee handbook. New employees sign the employee handbook and therefore

accept the policies and guidelines within the handbook. The contents of a handbook should be reviewed with the new employee at orientation.

OT Policy Overtime is any time worked over and above 40-hours in a workweek.

No employee should work more than 40 hours per workweek unless the time over 40 hours is specifically approved by the ( insert: Pastor, Principal, Director, Immediate Supervisor, etc.) Employees will not be asked to work more than 40 hours per workweek unless there is an emergency or otherwise unavoidable situation.

If paid overtime is approved, overtime will be paid at the rate of 1.5 times the employee’s hourly rate for any hours worked over 40 hours per week. Overtime pay will not exceed 1.5 times the hourly rate even when the employee works premium hours for a portion of the workweek (such as nights, weekends, or holidays). Each workweek is considered separately in computing overtime and all other pay. Employees must work over 40 hours in one workweek to be paid for overtime and then only if approved in advance by the Director.

OT Policy It is not considered overtime if an employee should work over 8 hours in one day until the

employee has worked over 40 hours in that workweek. Employees should not expect overtime if they work over 8 hours in one day. If this should happen, the employee should work less hours at some other point within the same workweek so that the total hours worked do not exceed 40 hours for that week. The ( _______________) must approve this in advance.

Paid hours not actually worked (e.g., vacations, holidays, sick/personal days, etc.) will not be counted when determining if an employee exceeds 40 hours worked in a single workweek. For example, if a full-time employee worked 40 hours during the week of Thanksgiving in addition to the 8 hours paid for the Thanksgiving holiday, the total hours paid would be 48 at regular time rather than 40 regular time plus time-and-a-half for the 8 hour paid Thanksgiving holiday. Non-working time will not be counted as hours worked for overtime calculations. Non-working time might include holidays, sick/personal days, vacation leave, bereavement leave, etc. or any time when employees are paid for time not worked.

OT Policy If more than 8 hours of work is necessary in a single day, an

employee will be given equivalent time off in the same workweek. The equivalent time off will be arranged at the mutual convenience of the (_________________) and the employee. This arrangement requires approval of the (______________). The employee must take the equivalent time off in the same workweek in which it was earned. If this is impossible or impractical, the employee will be paid overtime. However the employer may adjust the work schedule of the employee in the following week to accommodate the OT paid.

Part-time employees will also be subject to this policy when asked to work in excess of forty hours per workweek.

Having the Conversation

Employees often see an exempt position as a benefit, either because of status or the fact that they can expect a consistent income.

It is important that you have a communication plan for reclassified employees to ensure you reduce the likelihood for turnover and employee dissatisfaction.

The following 10 tips may help send a positive message about any reclassification.

Having the Conversation

1. Come Prepared with Data: To effectively make the change you will need to understand the number of hours employees typically work. This will allow the employer to determine the hourly or salary rate used going forward. Employers may also consider paying reclassified employees on a fluctuating work week basis under certain circumstances.

2. Meet with the Affected Employees: If possible have a personal conversation with each affected employee. You may also want to have an HR representative present when management delivers the information.

Having the Conversation3. Be Open and Honest: Be transparent and honest about

major changes affecting their compensation and role. Share the fact that the Department of Labor regulations are forcing you to review all jobs in the parish/school/agency. Set the tone for effective conversation by being honest.

4. Try the “Sandwich” Technique: A common technique for delivering difficult news to employees is called the “sandwich” technique, where the employer provides positive feedback first, then shares any negative information and ends with another positive statement. This technique keeps the conversation positive. But you still need to be honest with employees about the updates to their position and the reason for reclassification.

Having the Conversation5. Provide Clear Next Steps: After you have shared the updates with the employee make sure they understand the next steps. For example when and what changes will occur within their current job? Do the employee need to sign any forms or change any daily activities, job responsibilities, work schedule, etc.

6. Offer a Feedback Loop: Employees will want to voice their opinion on the update. Be sure to provide the employee an email address or other contact information for employees to share feedback for management review. Being transparent and facilitating additional conversation with the employee will help reduce the likelihood for turnover. For some employees it may be best to schedule a regular “touch base” after job changes occur to ensure they are managing the change well.

Having the Conversation7. Sign Policies: All reclassified employees should receive

updated job descriptions, (if job duties changed) and any new policies they will need to begin complying with as they make the move to non-exempt employee. Employees will need to acknowledge receipt of a revised job description and policies (time keeping policies). The employee may not be familiar with hours of work, late arrivals, early departures or know how to record their hours worked.

Having the Conversation8. Start Tracking Time: Affected employees need to have their hours

tracked just like any other non-exempt employee to ensure they are being paid for all hours worked. A. Prohibit off-the-clock workB. Make tough decisions about whether to allow at-home work by affected

employees because it can be too difficult to track and can easily lead to OT hours.

9. Help Prioritize: If OT is prohibited without authorization, affected employees will need to complete their tasks in fewer hours than before. If that is not possible then some tasks may have to be distributed to other employees. Help the newly non-exempt employee develop a prioritization plan and look for ways to be more efficient.

Having the Conversation10. Be Positive: Whether or not OT is prohibited, be positive

and sensitive to the fact that change is tough for everyone.

A. If OT is prohibited without authorization don’t forget that some employees may have been counting on or at least expecting OT pay.

B. Explaining how their new pay structure benefits both them and the organization will help make for a smoother transition.

Volunteers

Non-profit organizations may use volunteer services if:

A volunteer generally will not be considered an employee for purposes of the FLSA IF the individual FREELY for public service, religious, or humanitarian objectives, and without contemplation or receipt of compensation.

UNDER THE FLSA, EMPLOYEES MAY NOT VOLUNTEER services

Volunteers Volunteers should not displace employees.

Volunteers should not perform work that would otherwise typically be performed by employees.

Paid employees of a non-profit organization MAY NOT volunteer to provide the SAME TYPE of services to the non-profit organization that they are performing as an employee.

Questions: Call Pat Kornfeld at 217-321-1155 or email pkornfeld@dio.org

Webinar record and Powerpoint available on the Diocese of Springfield in Illinois website www.dio.org Select Departments, Human Resources and from the right hand menu Resources