Educating Nonprofit Employees: Pre-Tax Benefits

Print Friendly, PDF & Email

Imagine an employee who graduated with a degree in mathematics, handles finances for your nonprofit, and now wants to develop her skills by taking classes.  May the nonprofit help ease the accompanying tuition pain through pre-tax educational assistance?  To what extent may a nonprofit employer offer pre-tax educational benefits to its employees who seek to improve themselves, as a wonderful employee perk?   The short two-part answer is (a) up to $5,250, but with certain program conditions, or (b) to an unlimited monetary amount, so long as the educational program will develop the employee’s skills within her current role, and not prepare her for a different profession.

Paid Sick Leave Trending - Chicago and Beyond

Print Friendly, PDF & Email

Paid sick leave laws are steadily gaining traction among states and local municipalities across the United States.  The legislation is popular for employees but poses new challenges for employers now required to comply with a patchwork of diverse legal requirements.  This summer, Chicago became the latest city to join the trend, enacting a new sick-leave law effective July 1, 2017.  Here’s what is required for Chicago employers, and what all employers should consider in developing sick-leave policies.   

The National Trend – Challenging for All Employers

California, Oregon, Massachusetts, and the District of Columbia are examples of states that have recently adopted sick leave laws.  At the same time, more than 25 local municipalities have joined the bandwagon by enacting their own versions, including New York City, Seattle, Philadelphia, and now Chicago.  Due to this mix of new municipal and state laws, other states – particularly within the South and Midwest (excluding Illinois) – have responded by passing laws preempting local paid sick leave laws, seeking to avoid a complicated patchwork of local laws burdening employers. 

FLSA Overtime Rules Finalized: U.S. Department of Labor Raises Salary Threshold for Exempt Employees

Print Friendly, PDF & Email

The U.S. Department of Labor recently issued new overtime rules raising the salary threshold for “exempt” employees under the Fair Labor Standards Act, as anticipated within the Obama Administration’s closing months.  The new rule doubles the minimum salary from $455 per week ($23,660 annually) to $913 per week ($47,476 annually), effective December 1, 2016.  To address these legal changes and their implications, the Evangelical Council for Financial Accountability is offering a webinar on June 23, 2016, at 12 pm Central, with attorney Sally Wagenmaker as one of the featured speakers.  For more information and to register, please visit www.ecfa.org/Events.     

Background Basics

The proper classification of employees for FLSA purposes as “exempt” or “non-exempt” is an ongoing consideration for many nonprofits.  The FLSA imposes significant requirements for non-exempt employees, including minimum hourly wage amounts, “time-and-a-half” overtime pay obligations for more than 40 hours worked per week, and accompanying record-keeping requirements. An employer’s misclassification of its employees as exempt can result in serious liability under the FLSA when an employer fails to properly pay overtime or minimum wages. 

Under the DOL’s long-standing rules, the test for exemption is threefold and based on the following: (a) type of work; (b) whether the employee is salaried; and (c) salary amount.  The new DOL rule focuses on the salary amount.  Additional background information about FLSA requirements and development of the new DOL rule is contained in our law firm’s blogs – see August 2015November 2015, and March 2016

FLSA Overtime Rules - Coming Sooner Than Expected

Print Friendly, PDF & Email

Nonprofit employers, be aware:  the new overtime rules developed by the Department of Labor (DOL) may be finalized very soon.  To the consternation of many employers, the proposed regulatory changes significantly increase the minimum annual salary required for an individual to be considered an “exempt employee” (i.e., not eligible for overtime) from the current $22,660 to more than double that amount at $50,440 per year.  Employers will thus need to consider making any necessary changes much sooner than originally anticipated, potentially early this summer.

As we reported last November, the DOL had stated that the new salary requirement and other related rule changes would likely not be finalized until at least late 2016.  (For background information on the proposed changes and related considerations for nonprofit employers, please see our blog from August 2015.)  The extended time frame allowed time for the DOL to sort through the staggering 270,000 public comments, many filed by concerned nonprofits that depend on dedicated employees who are willing to work long hours.  Unfortunately for these nonprofits, the DOL has abandoned this expected timeline.   

On March 14, 2016, the DOL submitted its final rule to the White House Office of Management and Budget (OMB).  The OMB has up to 90 days to review the rule, and may approve the final rule sooner, at which time the new regulations are published in the Federal Register.  The rule would not go into effect immediately, as employers are entitled to at least 60 days to comply with the new regulations.  If the OMB takes only 30 days to review the rules, they could become effective in mid-June at the earliest.

Overtime Reprieve – Cause for Thanksgiving!

Print Friendly, PDF & Email

Nonprofit employers can breathe a sigh of relief that proposed regulatory changes for “exempt employee” salary qualifications have been shelved, at least for now.

The Department of Labor (DOL) previously published proposed regulations to increase the minimum annual salary requirement for exempt employees, from the current $22,660 level to $50,440.  In other words, in order for a salaried worker who performs generally higher-level duties to qualify as “exempt” from overtime and other protections under the Federal Labor Standards Act (FLSA), he or she must also earn at least $50,440 annually.  This drastic adjustment resulted in tremendous opposition, with an enormous outpouring of 270,000 publicly filed comments.  Many nonprofits have been quite alarmed, since such change could impose drastic financial adjustments to compensate currently exempt employees who work sacrificially long hours for low pay. 

The DOL has indicated that it will take substantially more time to review the comments, with finalization not likely until late 2016.  In the meantime, employers should maintain their current classifications for exempt and non-exempt employees, with accompanying budgetary and time-keeping considerations. 

Multi-State Employees’ Paid Leave Compliance

Print Friendly, PDF & Email

Does your nonprofit organization employ workers in multiple states?  If so, multiple legal requirements, such as varied paid vacation and sick leave benefits, may apply according to employees’ work locations.  What should responsible nonprofits do in response?  The following guidance explains some legal considerations and provides follow-up recommendations.

Overall Considerations

As a general rule, an employee is covered by the employment laws of the state in which the employee performs the work.  As the U.S. Supreme Court has instructed, "[a] basic principle of federalism is that each State may make its own reasoned judgment about what conduct is permitted or proscribed within its borders, and each State alone can determine what measure of punishment, if any, to impose on a defendant who acts within its jurisdiction.” State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 422 (2003).

The autonomy of state employment laws can have repercussions for multistate nonprofit organizations because employees working in different states may be entitled to varying vacation or sick-time benefits and related notifications.  Keeping track of and managing compliance obligations in several states is extremely challenging.

Unused Vacation Policies

Although many employers offer paid vacation time as part of their benefits package, they are not required to do so by federal law.  In addition, no federal law requires an employer to pay for unused vacation time when an employee leaves the organization.  Many state laws, however, treat accrued vacation time as compensation owed upon employment termination.

New Rules for "Exempt" Employees

Print Friendly, PDF & Email

More employees may soon qualify for overtime. In newly proposed rules under the Fair Labor Standards Act (FLSA), the Obama Administration aims to substantially increase the minimum salary requirements for qualification as an “exempt” employee.  The new limits should concern both nonprofit and for-profit employers alike, as the current salary threshold is $23,660 and the proposed rules more than double this amount.  Under the proposed rules, an employee must earn at least $50,440 per year to qualify as “exempt” and therefore not be subject to otherwise mandatory overtime requirements.  Exclusions may apply for certain nonprofit activity, but all employers need to understand the proposed rules’ implications and remain attentive to further developments. 

Background:  FLSA Employee Classification – Exempt Versus Non-Exempt

The proper classification of employees for FLSA purposes is an ongoing consideration for many nonprofits.  The FLSA imposes significant requirements for non-exempt employees, including minimum hourly wage requirements, “time-and-a-half” overtime pay obligations for more than 40 hours worked per week, and recordkeeping requirements to comply with the foregoing.  An employer’s misclassification of its employees as exempt can result in serious liability under the FLSA when an employer fails to properly pay overtime wages and related penalties.  Under the Department of Labor’s (DOL) longstanding rules, the test for determining whether an employee is exempt is three-fold. 

First, an exempt employee must perform a specific type of work.  Exempt employees include only executives, administrators, professionals, and certain computer or outside sales employees.  However, title alone does not classify the worker as exempt; the DOL maintains guidelines for exempt classification under each of these types of work.  While factors differ for each, the guidelines generally focus on the employee’s primary duty.

Second, an exempt employee must be salaried.  Workers paid by the hour are generally treated as non-exempt.  An exception occurs only if an employee is highly compensated – that is, receiving compensation of over $100,000 per year when considering certain bonuses and other compensation, with at least $455 per week of this compensation being salary or fees.  In that case, the type of work and salary requirements do not apply.

Checking Up on Work Applicants

Print Friendly, PDF & Email

 Each summer, thousands of volunteers join with employees at youth-centered nonprofit organizations – running sports camps, leading Vacation Bible School programs, and providing childcare.  Throughout the rest of the year, nonprofits regularly rely on both paid staff and volunteers as the bedrock of their religious, educational, and charitable programs.  Before serving in these positions, many applicants consent to background checks – perhaps by signing an application with only a sentence-long disclosure or by checking a box to mark their assent.  Although these background checks may appear to be simply another administrative step, they are an important element for nonprofits to minimize liability and to make wise hiring decisions.  What background checks are warranted, and how should a nonprofit proceed in carrying them out?  This article explains key distinctions and provides important guidance for handling background checks.

Criminal Background Checks

Criminal background checks are integral for hiring employees and selecting volunteers to work with children or other vulnerable populations.  An organization may be held liable under a "negligent hiring" or "negligent retention" legal theory for harm resulting from a person for whom a criminal background check was warranted but not performed.  Accordingly, nonprofit leaders should consider conducting background checks on a broad scope.  Background checks may vary in terms of time (how many years to check), geography (which states to check, federal checks), and cost, so organizations should follow discernible “industry standard” guidelines as much as possible.   


Clients rely on our firm to work through the myriad employment issues that arise in the daily operations of a nonprofit.  We enable nonprofits to maximize their workers’ contributions and minimize potential legal exposure for liability.

End of IRS’s Health Insurance Reprieve?

Print Friendly, PDF & Email

Since the Affordable Care Act (ACA)’s enactment, the IRS and the U.S. Department of Labor have delivered a rather unpleasant surprise to many, namely, that it now treats employers’ reimbursement or payment of employees’ individual health insurance premiums as taxable income to such employees (also known as health reimbursement arrangements or “HRAs”).  This new rule, which essentially is an interpretation of “plan” under the ACA’s so-called market reforms, applies to small employers that are otherwise exempt under the ACA.  The interpretation constitutes an about-face from the longstanding treatment of HRAs as a pre-tax employee benefit.

Transitional relief was granted when the IRS issued a notice in early 2015, providing that employers who provided such pre-tax benefit would not owe any penalties or be required to include such benefit as taxable income – at least through June 30, 2015. Such relief was extremely helpful (even though quite late), since the penalty for noncompliance is extreme: $100 fine per employee, per day (!).  

At this point, no further tax relief for HRAs is on the horizon.  Legislative rumblings of relief developed earlier this year but failed to produce any helpful result.  Now that the U.S. Supreme Court upheld the ACA’s federal subsidy programs in its recent King v. Burwell ruling (and therefore its core elements), perhaps legislators will focus again on modifying such ACA aspects as this HRA issue.   Instituting such relief would be both consistent with the fervent opposition of many politicians and greatly welcomed by many. 


Subscribe to RSS - Employment