In May 2016, the Fair Labor Standards Act (FLSA), which governs federal minimum wage and overtime pay requirements, was amended. These changes will be effective December 1, 2016. Employees who hold nonexempt positions, meaning they are eligible for overtime pay, are not affected in any way. Employees who currently hold exempt positions, meaning they are not eligible for overtime pay, may be impacted by the FLSA amendments depending on how much they are paid.
As defined by the FLSA, exempt employees are those in Executive, Administrative or Professional positions. It is important to note Clergy are not subject to the provisions of the FLSA (if they are performing religious work).The FLSA amendment significantly increases the minimum salary requirement necessary to maintain exempt status in such positions. The current minimum exempt employee rate is $23,660 per year of work (or $445 per week). Starting December 1st, that minimum amount will increase to $47,476 per year of work (or $913 per week). This rate applies to employees regardless of being full time or part time; whether working 20 hours per week or 40 hours per week.
What does this mean for your congregation if you have exempt lay staff?
If you currently have an exempt employee who is paid less than $47,476 per year of work (or $913 per week), there are three options to consider according to Church Finance Today, August 2016:
- Reclassify the employee to non-exempt and commence paying regular time for hours worked above regular hours up to 40 hours and time and a half the regular pay rate for hours worked over 40 hours in a work week.
- Prohibit or restrict non-exempt overtime hours or reduce the scheduled work week to less than 40 hours. Paying regular time for hours worked above regular hours up to 40 hours and time and a half the regular pay rate for hours worked over 40 hours in a work week.
- Increase the employee’s compensation to the new minimum threshold.
If you are not sure of an employee’s status (exempt or non-exempt), be conservative in your determination and/or contact legal counsel for an opinion. There are potentially stiff government penalties for employers that wrongly classify employees as exempt when their duties and compensation level are more closely aligned with the FLSA’s non-exempt requirements. The following resources may help you identify an employee’s status:
- United States Department of Labor Fact Sheet 17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)
- FLSA Classification Decision Tree for Churches and Other Religious Organizations
We have two template letters available, if so desired, for your use informing employees that they will or will not be impacted on December 1, 2016.
Update: Your Questions on the Fair Labor Standards Act change
More questions? Contact Cathy Hobart in the diocesan office.
Q: “This rate applies to employees regardless of being full time or part time; whether working 20 hours per week or 40 hours per week.”
Can you please explain what this means and/or how part-time employees would be effected?
A: The employee would need to earn $913/week and meet the other requirements in order to be considered exempt. Typically, one would think that if a person works part-time, the $913 per week would be prorated based on hours worked (ie – $913 for 40 hours, $456.50 for 20 hours). In this case, the employee must earn $913/week even if they are part-time.
Q: “The new FLSA regulations seem to only apply to businesses with gross sales of $500,000 or more.”
A: The church would not meet the definition of an enterprise (gross sales of $500,000), but the FLSA coverage may apply to individual employees.
From Church Law & Tax:
Key point 8-08.3 The Fair Labor Standards Act mandates that employers pay the minimum wage, and overtime compensation, to employees who are engaged in commerce or in the production of goods for commerce. There is no exceptions for religious organizations, but there are exceptions for certain classifications of employees.
The FLSA can cover an employee “engaged in commerce or in the production of goods for commerce” regardless of whether the employer constitutes an enterprise.
Update: Injunction Issued; Implementation Delayed
November 29, 2016:
A federal judge has issued an injunction halting the intended changes to the FLSA. Until a final decision is reached, the policies described above will not go into effect and employers may continue to follow the existing overtime rule.