FLSA Overtime Rules - Coming Sooner Than Expected

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!

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

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.