New Overtime Changes That Impact the Church

Starting July 1, the U.S. Department of Labor will implement a change to the Fair Labor Standards Act (FLSA) that is expected to make an additional four million workers eligible for overtime pay.  

According to the Department of Labor, overtime protections have been a critical part of the FLSA and were established to benefit workers, their families and communities. While this new change is intended to bring fairness in employee pay, the topic of compensation, employee classification, and overtime continues to be a confusing area for churches.

The FLSA
The FLSA applies only to employers whose annual sales total $500,000 or more or are engaged in interstate commerce (which can mean receiving letters, phone calls, or internet contributions from another state). There is no exemption for nonprofits. So, for many churches, this rule change is important to understand.

The Fair Labor Standards Act provides protections for employees and prescribes standards for wages and overtime pay. Generally, covered workers (who are not otherwise exempt) should be paid the federal minimum wage and overtime when they work over 40 hours per week. However, the FLSA allows exceptions for some categories of workers. One of those exempt categories includes executive, administrative, and professional employees. These employees are exempt from the FLSA requirements of minimum wage and overtime pay and are oftentimes called “exempt employees.”  

To qualify for an exemption in the executive, administrative and professional category, the employees must meet certain tests regarding job duties and minimum salary. For example:

• To qualify for the executive exemption, the employee must have a minimum salary, and their job duties will include such duties as managing the organization, a department or subdivision, and regularly directing the work of at least two or more full-time employees. 
  
  
• To qualify for the administrative exemption, the employee must have a minimum salary, and their job duties will include managing general business operations with the freedom to exercise discretion and independent judgment in significant business matters. 

New Rates in July 2024, January 2025, and Beyond
From 2004 to 2019, the salary threshold for these exempt positions was $455 per week (equivalent to $23,660 per year for a full-time worker). In 2020, the standard salary level increased to $684 per week, or $35,568 per year. 

With this new rule change on July 1, 2024, the salary threshold will increase to $844 per week, or $43,888 per year.

Starting in January 2025, the salary threshold will increase again to $1,128 per week, or $58,656 per year. And then starting July 1, 2027, these earnings thresholds will be updated every three years. This will certainly make more employees nonexempt and eligible for overtime pay.

Important note #1: the value of fringe benefits such as health insurance, employer-provided housing, and employer-provided meals are not included in salary threshold computation. 

What To Do Next
For churches, it will be important to review all your salaried employees. This will include reviewing both their job duties and salary threshold. 
But there is a distinct difference between minister and non-minister employees: 

• For many years, courts have recognized that ministers are exempt from the FLSA requirements, and the Department of Labor also recognizes a general clergy exemption from FLSA coverage. This means that employees who meet the legal definition of a minister do not have to be paid overtime if they work more than 40 hours in a workweek, and do not have to be paid a minimum salary of $844 per week, or $43,888 per year. 
  
  
• Any non-minister staff member that doesn’t meet the minimum salary threshold of $844 per week now qualifies for overtime if they work more than 40 hours during any work week. 

Some additional steps to consider include: 

• Review your salaried employees to make sure they still qualify as exempt employees. While qualified ministers are automatically exempt, salaried non-minister employees should have their job duties reviewed.  
• Make sure job classifications are correct, and update job descriptions if necessary.
• Adjust any salaries up to the minimum threshold if necessary. 
• For nonexempt employees, make sure timekeeping records are maintained.
• Remind employees that reading and responding to emails and phone calls at home or on weekends does constitute work and must be compensated.
• Review your State’s wage and hour laws for additional requirements.  

Important note #2: Many churches will not be able to adjust the employee’s pay up to the threshold due to funding constraints. What should churches do in this situation?

Church leadership should review employee responsibilities to determine if they will work more than 40 hours per week. All employees who work more than 40 hours should be compensated for overtime pay.  If the church has funding constraints, be sure to talk to employees about your expectations for work hours and overtime.

Important note #3: Salaried employees who make less than the new threshold do not have to be converted to hourly pay.  Salaried workers earning below the new salary threshold may continue to be paid a salary, as long as that salary complies with minimum wage laws and the employee receives overtime for any work over 40 hours each week. 

Recordkeeping
The FLSA requires employers to keep records on wages, hours, and other key items. Most of this information is the kind generally maintained by employers in compliance with other laws and regulations. The records do not have to be kept in any particular form and time clocks are not required. Here are the general records that must be kept:

1. Personal information, including employee’s name, home address, occupation, sex, and birth date if under 19 years of age;
2. Hour and day when workweek begins;
3. Total hours worked each workday and each workweek;
4. Total daily or weekly straight-time earnings;
5. Regular hourly pay rate for any week when overtime is worked;
6. Total overtime pay for the workweek;
7. Deductions from or additions to wages;
8. Total wages paid each pay period; and
9. Date of payment and pay period covered.

For More Information
For more information about the FLSA, see the Department of Labor website at https://www.dol.gov/whd/regs/compliance/hrg.htm. 

You can research additional details that might affect your church or nonprofit not discussed in this article, such as other employee categories that are exempt from FLSA requirements, and details on what types of income should be included in determining the salary threshold. 

For frequently asked questions and answers about this new rule change, visit this link: Frequently Asked Questions - Final Rule: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees | U.S. Department of Labor (dol.gov).