Overtime Change Impact on Churches

In September 2019, the U.S. Department of Labor made a change under the Fair Labor Standards Act (FLSA) that is expected to make an additional 1.3 million workers eligible for overtime pay.  According to Acting Secretary of Labor, Patrick Pizzella, this rule change will bring “consistency and certainty for employers as well as clarity and prosperity for American workers.” Yet, the topic of compensation, employee classification, and overtime continues to be a confusing area for churches.

The FLSA

The Fair Labor Standards Act provides protections for employees and prescribes standards for wages and overtime pay. Generally, for most 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.

Since 2004, the salary threshold for these exempt positions has remained at $455 per week (equivalent to $23,660 per year for a full-time worker). But with this rule change, the standard salary level will increase to $684 per week (equivalent to $35,568 per year for a full-time worker).

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

While the Obama administration proposed changing the salary threshold in 2016 to $47,476 per year, it was invalidated by the courts. The new rule change by the Trump administration didn’t propose as large of a change and was effective on January 1, 2020.

For churches, it will be important to review your salaried employees to make sure they still qualify as exempt employees. This will include reviewing both their job duties and salary threshold. For any non-minister staff member that doesn’t meet the minimum salary threshold of $684 per week, they will now qualify for overtime if they work more than 40 hours during any work week.

• Important note: 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 church staff 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 $684 per week, or $35,568 per year.

Some additional steps to consider:

1. 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.
2. Make sure job classifications are correct, and update job descriptions if necessary.
3. Adjust any salaries up to the minimum threshold if necessary.
4. For nonexempt employees, make sure timekeeping records are maintained.
5. Remind employees that reading and responding to emails and phone calls at home or on weekends does constitute work and must be compensated.
6. Review your state’s wage and hour laws for additional requirements.

For More Information

For more information about the FLSA, see the Department of Labor website here and this press release.

At the DOL website, 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.