How New FLSA Rules May Impact Your Nonprofit’s Payroll

Special thanks to Jessica Smith, who contributed significantly to this blog!

Overtime rules are changing, and they could have consequential impacts on your nonprofit.

(Does anyone else feel like they’re reliving this over and over — when we ran around figuring this out in 2016, all to have the changes called off last minute? Just me?)

In late April 2024, the Department of Labor issued new rules with effective dates in just a few months — with the first tranche hitting July 1, 2024. Yes — fewer than three months away. All of you 6/30 fiscal year-ends, this is just in time to incorporate as you finalize your budgets!

The changes are pretty comprehensive; see details in this recent CLA article — it’s worth a full read for any nonprofit leader, as the impacts of this rule could be significant.

Below are a few highlights of where we see it having the greatest impact for nonprofits.

Minimum salary threshold increases

These thresholds are used in part to determine if an employee is eligible for overtime (non-exempt) or not (exempt). Salary level is just one of three tests in determining exemption, but is the key threshold changing.

Today, the salary threshold is $35,568/year — meaning if someone is paid more than that amount and meets the other two tests, they’re not required to be paid overtime. July 1, 2024 — that amount goes up to $43,888 and then January 1, 2025, up to $58,656.

• Nonprofits with employees whose compensation falls in this range ($35,568 – $58,656) may have employees eligible for overtime who weren’t prior.
• For some organizations, employees in this range rarely work beyond 40 hours a week, so the impact here would be minimal. But for those whose employee base includes many roles that often work more than 40 hours a week, the overtime could add up and have an impact on the bottom line.
• Additionally, employees who are currently salaried and exempt and don’t track and report their hours worked, if they fall into these pay ranges and do not meet the other tests, they will become non-exempt and must begin tracking all time worked. This may require new systems or tools.

Highly compensated employees

Highly compensated employees (HCE) are those paid above a certain threshold who perform office or non-manual work and meet other job duty tests. The new rules increase the threshold for HCE from $107,432 today to $132,964 on July 1, 2024, and $151,164 on January 1, 2025.

What does this mean for nonprofits?

• We estimate many of our nonprofit clients have staff previously exempt under the HCE rule who received total annual compensation of $107,432 or more. Now, a larger group of employees’ compensation and job duties will need to be evaluated to determine if they are HCE.
• While the ultimate determination may not change — and thus limit bottom-line impact — the process to evaluate each relevant employee, their duties, and whether they meet the tests could be cumbersome to complete in this short timeframe. However, it should also be noted the HCE threshold applies to a limited number of employees who would not pass the exempt duties test(s).

If you think this sounds like a lot of work in a short time-frame — it could be. There could also be a legal challenge to this rule, based on similarities to the 2016 rules that were ultimately modified.

However, for nonprofit organizations, if the rule does stand or is not greatly modified, the impacts could be very significant in terms of the time and effort required to review current employees (and posted but still vacant jobs) and the cost of compensation adjustments or shifting of duties / changing of roles and responsibilities.

How we can help

Start with a quick evaluation of your employee roster, pay schedules, and exempt classifications to determine which employees will be impacted. If your organization lacks the experience or bandwidth to undertake this on your own, our talent solutions team is ready to help.