The following article is not intended as legal advice but instead human resources best practices.
Earlier this month, on May 18, 2016, the Department of Labor (DOL) released its final regulations making changes to Part 541 governing overtime exemptions under the Fair Labor Standards Act (FLSA). These changes include significant increases to the salary threshold established for exempt employees, along with instituting automatic threshold increases in the future.
With new regulations effective December 1, 2016, employers are beginning to grapple with the potential impact. New regulations make no distinction or compliance differentiation for/between the following: for- and non-profit organizations, industry types, changing economic conditions or regional variances; meaning the local church is among the variety of ‘employers’ needing to plan and prepare for compliance. (Note: FLSA exemption exists for clergy. Carefully review this matter prior to addressing clergy compliance and compensation.)
Five Things to Know
- What is the New Salary Threshold? The salary threshold has doubled for full-time positions passing the duties test (exempt positions), increasing from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). The new threshold represents the 40th percentile of full-time salaried employees from data collected in 2013. This means full-time exempt salaried employees presently paid less than $913 per week will need salary adjustments to meet the new threshold level on or before December 1, 2016 or (an alternative option) be re-classified as non-exempt and paid at an hourly rate, including overtime wages if earned.
- What is the Duties Test? The duties test provides guidelines for determining whether primary duties classify the position as exempt from overtime wages, or non-exempt, making an employee eligible for overtime wages if earned. (See dol.gov for guidelines.)
- Why the Change? On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department of Labor (DOL) to update regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime law. In response, on July 6, 2015 the DOL issued a proposed rule change citing: “The Department’s proposal…represents the most appropriate line of demarcation between exempt and nonexempt employees. This…minimizes the risk that employees legally entitled to overtime will be subject to misclassification based solely on the salaries they receive, without excluding from exemption an unacceptably high number of employees who meet the duties test.“ The proposed rule was refined and affirmed on May 18, 2016.
- The Salary Threshold Will Increase Every 3 Years. An automatic increase to the 40th percentile threshold will take place every three years using the lowest-wage census region. This automatic increase is intended to manage the core intent of the FLSA by continually addressing sub-standard wages and excessive working hours.
- Highly Compensated Employee (HCE) Exemption Will Increase. The threshold for HCE’s has been set at the 90th percentile of full-time salaried workers nationally, increasing it from present level of $100,000 annually to $134,004.
A Challenge and Opportunity for Church Leaders
As Church leaders seek enhanced ministry effectiveness, while at the same time currently employing staff at minimal and/or under-staffed levels, FLSA changes offer a bit more stress to an already stressed system. But, let’s consider another perspective. This challenge is also an opportunity! Church leaders now have reason to dust off and freshen-up old job descriptions, personnel manuals, compensation plans, etc., providing future clarity and consistency in policy, procedure and practice; key contributors to enhancing confidence and trust between leaders and staff members. With this in mind, the following Five Things to Do will help you get started moving in the right direction.
Five Things to Do
- Identify the Process. Decide who will do the review, how it will be done and when. Determine if legal and/or HR expertise is needed. Identify who will make recommendations and who will make final decisions. Prepare a communication plan to be used throughout the process; keeping staff, board members, personnel committees, etc. informed of progress and outcomes.
- Consider ‘What Is’ (Your Present Reality). Review present documentation, procedures and practices (i.e. position descriptions, compensation structure, current pay levels, time-keeping systems, payroll practices, personnel policies, etc.)
- Clarify What Is Desired. New FLSA regulations provide an opportunity for bigger picture conversations. E.g. Are present position descriptions aligned with your church’s strategy? Do policies/practices and compensation levels reflect our values? Do staff members have clarity about their roles and responsibilities?
- Create Options. Look at what needs to be done and what you would like to do to close the gap between ‘What is’ to ‘What is Desired’. For example: What staffing and/or compensation scenarios will help meet ministry goals and/or budget constraints? How can position descriptions and compensation practices be updated and in compliance? What changes with our payroll and/or time-keeping systems will be helpful?
- Confirm Your Decision(s) and Action(s): Finally, confirm which options created in the previous step are ones you will decide to move forward with and put into action.
With the FLSA compliance deadline on the horizon (December 1, 2016), now is a good time to begin considering what challenges and opportunities exist for your church in light of the new regulations.
Deb Rice, M.A., SPHR, BCC is a human resource and organizational development consultant and leadership coach with Missional Movement International. For further information or assistance, she can be contacted at firstname.lastname@example.org.