Many small for-profits and non-profits do not realize that they are covered by the same wage and hour laws as larger businesses/organizations. In fact, these regulations arguably have the greatest impact on small non-profits due to the fact that they typically have lower pay rates and tighter budgets.
The federal Fair Labor Standards Act (FLSA), administered by the US Dept. of Labor, Wage and Hour Division, has been around since the Roosevelt era and applies to effectively all employers. The FLSA may not cover very small and/or local businesses, but those situations are not common.
There are two ways in which an employee can be covered by the law: “enterprise coverage” and “individual coverage.”
- Enterprise Coverage
Employees who work for certain businesses or organizations (or “enterprises”) are covered by the FLSA. These enterprises, which must have at least two employees, are:
(1) those that have an annual dollar volume of sales or business (revenues) of at least $500,000
(2) hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies.
- Individual Coverage
Even when there is no enterprise coverage, employees are protected by the FLSA if their work regularly involves them in commerce between States (“interstate commerce”). The FLSA covers individual workers who are “engaged in commerce or in the production of goods for commerce.”
Examples of employees who are involved in interstate commerce include those who: produce goods (such as a worker assembling components in a factory or a secretary typing letters in an office) that will be sent out of state, regularly make telephone calls to persons located in other States, handle records of interstate transactions, travel to other States on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the State.
See the U.S. Department of Labor/Wage and Hour Division website for more information (if you dare). Also, for non-profits specifically, see “Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act”.
Even if you fly under the radar of the federal FLSA, you are probably covered by the state equivalent. In Ohio, the threshold for coverage is sales of $150,000 per year (i.e. it extends to smaller businesses than the federal law). Otherwise, the Ohio law mirrors the federal.
It is important to understand the distinction between “exempt” and “nonexempt” when dealing with the wage and hour laws. “Exempt” positions are excluded from minimum wage, overtime regulations, and other rights and protections afforded nonexempt workers. To be exempt, the employee must (1) be paid a salary rather than an hourly wage, (2) the salary must meet or exceed the threshold amount set by the law (see below), and (3) the employee’s duties must meet one of the exemption tests. Typically, only executive, supervisory, professional or outside sales positions are exempt positions. Nonexempt positions are all other positions (i.e. production workers, clerical workers, inside sales, customer service, etc.).
With indications being that the threshold for exemption from the overtime pay requirements will likely be raised significantly from the current salary level of $455 per week (originally proposed to be more than twice the current level), it will mean that many employees of small for-profits and non-profits will no longer be considered to be exempt simply because they do not have a high enough salary to meet the exemption.
It is too early to tell how much the exempt salary threshold will be increased, but it is fairly certain that it will be, even under the Trump “death to regulations” administration. Early indications are that the threshold will be increased from the current level of $23,660/yr. to around $40,000/yr., effective possibly as soon as 2020 (see “Federal Overtime Rule Changes Are Coming”, May 11, 2018, SHRM newsletter). According to SHRM, the originally proposed rule change “would have presented particular challenges for employers whose salaries tend to be lower, such as small employers, nonprofits, employers in certain industries and employers in certain geographic regions of the country that tend to have lower costs of living”. Although the impact will apparently not be as great as was originally proposed, small employers, especially small non-profits, should pay more attention to these much-forgotten regulations than they possibly have been, and prepare for a potentially significant impact on operations.