© 2016 New York Council of Nonprofits, Inc. 1

OVERTIME COMPENSATION COMPLIANCE GUIDE

Revised US Department of Labor FLSA Standards - Effective 12/1/16

& NYS Minimum Wage Act Standard - Effective 12/31/16

Introduction ……………………………………………………………………………… page 1

Do Federal FLSA Overtime Standards Apply To Your Nonprofit? ................................... page 2

How Do NYS Default Overtime Standards Impact Your Nonprofit? ................................ page 4

Chart of Minimum Wage and Overtime-exempt Salaries .................................................. page 5

Once You Decide if FLSA or NYS Overtime Standards Apply,

How Do You Determine Whether an Employee Might be Overtime-exempt? ................. page 6

You Have Staff Who Will Be Impacted. What Are Your Options? ................................... page 9

INTRODUCTION

Competing state and federal labor practices and regulations are expected to be a source of confusion for New

York’s nonprofit employers for years to come with respect to the proper classification of workers as it relates to

overtime compensation entitlements. Each the federal government, with the Fair Labor Standards Act (“FLSA”)

and New York State, (“NYS”), via the Minimum Wage Act (“MWA”), regulate labor practices, including the

minimum wage, overtime considerations and numerous other workplace considerations. Under the United States

Constitution, individual states are free to adopt labor standards that exceed—but, not fall-below—baseline

standards established by the federal government. In instances where federal standards exceed those of the states,

when applicable to the employer (more on this below), federal standards will govern. Unfortunately, as your

nonprofit will see, when it comes to labor standards, it all gets real complicated, real fast.

As you are likely aware, the United States Department of Labor (“USDOL”) and NYS Departments of Labor

(“NYSDOL”) each recently announced that regulations interpreting each the FLSA and MWA will be amended to

significantly increase the salary component of respective tests permitting certain workers to be considered exempt

from the general requirement of additional overtime pay, at the rate of time and one-half, for hours worked

exceeding forty per week. Most available overtime exemptions have both job duties and minimum salary criteria.

Effective 12/1/2016, the USDOL will dramatically expand the federal minimum salary level required for OT-

exemption from an annual salary of just $23,660 ($455 per week) to a new minimum of $47,476 ($913 per week).

Similarly, the NYS DOL announced in October 2016 that it will also increase the present statewide minimum

salary-level from $35,100 per year ($675 a week) to a new annual minimum varying between $37,830 and

$42,900 (depending on organizational size and region), effective 12/31/2016.

As addressed in detail herein, over the next several years, the minimum salary level for so-called “exempt”

salaried staff will rise under each state and federal standards. Initially, salary minimums under the FLSA (when

applicable) will exceed those minimums proposed by the state. But, in years-to-come, New York standards will

likely exceed or, at least, rival, those imposed by the FLSA. Regardless, in all instances, as an employer, you will

be obligated to adhere to the highest-attainable standard in labor practices, which may obligate your organization

to repeatedly switch between state and federal minimum salary levels on an annual basis for years to come.

© 2016 New York Council of Nonprofits, Inc. 2

DO FEDERAL FLSA OVERTIME STANDARDS APPLY TO YOUR NONPROFIT?

According to USDOL, “there are two ways an employee may be covered by the provisions of the FLSA:

i. Enterprise Coverage, in which any employee of an enterprise covered by the FLSA is covered; or,

ii. Individual Coverage, in which even employees of non-covered enterprises may be covered if they are

engaged in interstate commerce or in the production of goods for commerce.”

Enterprise Coverage

Your nonprofit is subject to FLSA “Enterprise Coverage,” if you answer “yes” to Questions 1 & 2 or “yes” to

Question 3 (all further clarified below):

1. Do you have “employees engaged in commerce or in the production of goods for commerce?

(applies to employer’s with at least two employees, and counts all revenues of a private business)

The phrase “enterprise engaged in commerce or in the production of goods for commerce” is interpreted

as an enterprise that “has employees engaged in commerce or in the production of goods for commerce,

or that has employees handling, selling, or otherwise working on goods or materials that have been

moved in or produced for commerce by any person.” [29 USC 203(s)(1)(A)(i)]

i. Examples of such activities include:

a) making out-of-state phone calls,

b) receiving/sending interstate mail or electronic communications,

c) ordering or receiving goods from an out-of-state supplier, and

d) handling credit card transactions or performing the accounting or bookkeeping for such

activities.

ii. Engagement must be “regular and recurring,” occasional interstate commerce activities will not

be considered for the FLSA purposes. [29 CFR §779.109]

The term “commerce” means trade, commerce, transportation, transmission, or communication among

the several States or between any State and any place outside thereof.” [29 USC 203(b), 29 CFR 776.8]

The term “does not include employees engaged in activities which merely ‘affect’ such interstate or

foreign commerce . . . .” [29 CFR 776.9]

The word “enterprise” means the related activities performed (either through “unified operation” or

“common control”) by any person or persons for a common business purpose, and includes all such

activities whether performed in one or more establishments or by one or more corporate or other

organizational units including departments of an establishment operated through leasing arrangements,

but shall not include the related activities performed for such enterprise by an independent contractor.”

[29 USC 203(r)(1) and USDOL Opinion FLSA2009-20].

2. Do you have “annual gross volume of sales made or business done of, at least, $500,000 (exclusive of

excise taxes at the retail level that are separately stated)?

In assessing revenue, the term “business” includes monies derived from:

i. endeavors such as “ordinary commercial activities” like “operating a printing and publishing

plant,” operating a gift shop, and most fee-for-service work that is generally available to the

general public (and not restricted to organizational members);

© 2016 New York Council of Nonprofits, Inc. 3

Note: This is not necessarily analogous to the IRS Unrelated Business Income Tax

(“UBIT") test that would exclude this tax on gift shop revenues if the activity were

“substantially related” to the entities’ exempt purposes.

ii. fee-for-service activities;

iii. gaming activities;

iv. rents; &,

v. sales of donated items.

Conversely, according to USDOL, the word “business” specifically excludes:

i. charitable contributions;

ii. funding from private foundations;

iii. membership fees, or dues (minus any non-token benefit provided to the payer);

iv. income from investments or royalties; &,

v. governmental contracts intended to benefit third parties (i.e. not to benefit government, itself).

Stipulated “business” exclusions in the FLSA come as a consequence of the fact that applicable

standards were not intended to cover a nonprofit, unless it “engages in commercial activities in

competition with commercial enterprises.” [FLSA2005-8NA and FLSA2006-25NA]

3. Are you “engaged in the operation of a/an:

i. “hospital;”

ii. “institution primarily engaged in the care of the sick, the aged, or individuals with intellectual

disabilities who reside on the premises;”

The term “primarily engaged” is considered to mean more than 50% [FLSA2005-8NA]

iii. “school for intellectually or physically disabled or gifted children;”

iv. “preschool, elementary or secondary school, or an institution of higher education (without regard to

whether such hospital, institution or school is public or private, or operated for profit or not);” or

A “preschool” is defined to include any custodial care for pre-elementary aged children, such as

“day care centers, nursery schools, and kindergartens.”

v. “activity of a public agency?”

This includes any nonprofit created by a governmental entity (such as a state, city, county,

school district, etc.) or where a majority of the board of directors is appointed by (or dedicated to

being comprised of) elected public officials. [FLSA2004-13 and FMLA-104].

Individual Coverage

Even if not subject to FLSA coverage as an “Enterprise,” your nonprofit may easily find that you have employees

with “Individual Coverage.” In order to access detailed information relative to such Individual Coverage, review

a comprehensive summary in USDOL Field Operations Handbook. Despite the foregoing, you will likely find

that you have a worker, individually, covered by the FLSA if you answer “yes” to Questions 1 & 2:

1. Is the worker truly an “employee?”

1. For in-depth discussion of distinctions between employees and independent contractors review USDOL

Opinion No. 2015-1.

Carefully assess actual hours worked as “[t]ime spent in work for public or charitable purposes at the

employer's request, or under his direction or control, or while the employee is required to be on the

premises, is working time. However, time spent voluntarily in such activities outside of the

employee's normal working hours is not hours worked.” [29 CFR 785.44]

© 2016 New York Council of Nonprofits, Inc. 4

2. Employees may not volunteer—or, count those associated hours as time worked—for activities similar

to those carried out in their employment context. [USDOL Opinion FLSA2006-25NA]

2. Is the worker engaged in “interstate commerce?”

a. The USDOL has specifically advised that it considers the following activities to constitute potential

engagement in “interstate commerce:”

i. making out-of-state phone calls;

ii. receiving/sending interstate mail or electronic communications;

iii. ordering or receiving goods from an out-of-state supplier; or,

iv. handling credit card transactions or performing related accounting or bookkeeping.

b. Even if an employee’s engagement in “interstate commerce” is “small in amount,” it may still be

sufficient to trigger FLSA coverage individually if the associated job duties are “regular and recurring”

[29 CFR 776.3]

Despite the foregoing, USDOL has opined that FLSA Individual Coverage will not be extended to

“an employee who on isolated occasions spends an insubstantial amount of time performing

individually covered work.” [FLSA2005-8NA]

__________________________________________________

HOW DO NYS DEFAULT OVERTIME STANDARDS IMPACT YOUR NONPROFIT?

Employer obligations under the New York Minimum Wage Act (“MWA”) are comparatively easier to understand

than those applicable to the FLSA. In NYS, virtually all employers—nonprofit, or otherwise—are obligated to

abide by common exempt salaried employee minimum standards. There are no “Enterprise” or “Individual”

coverage distinctions. Likewise, considerations as to “interstate commerce,” “business revenue” and operation of

so-called “named-enterprises” are irrelevant. Most salaried employees in NYS are presumptively entitled to the

NYS minimum salary standard, regardless of the size, activities or scope of operations of their employer. It

should generally be considered the default standard.

Effective 12/31/16, NYS intends to implement a regionally-based, progressively increasing minimum salary

standard for so-called exempt employees. This new salary standard will hike the current $35,100 statewide

annual minimum of $35,100 ($675.00 weekly) to somewhere between $37,830 and $42,900 ($727.50–$825.00

weekly) depending on number of employees and region, as fully described in the chart set forth below. Should

the temporarily higher FLSA minimum salary standards apply to your nonprofit, either as an enterprise or

individually (by as soon as 2018, NYS standards will exceed those of the FLSA), you are obligated to adhere to

the higher standard. If not, the standards set forth below will automatically apply—meaning most salaried

employees earning less than the applicable stipulated minimum are presumptively entitled to OT compensation.

© 2016 New York Council of Nonprofits, Inc. 5

© 2016 New York Council of Nonprofits, Inc. 6

ONCE YOU DECIDE IF FLSA OR NYS OVERTIME STANDARDS APPLY,

HOW DO YOU DETERMINE WHETHER AN EMPLOYEE MIGHT BE EXEMPT?

Unless employed as part of a recognized FLSA-named or covered “enterprise,” an individual employee may be

exempt from FLSA and/or NYS overtime compensation obligations if your organization can answer “yes” to

Questions 1, 2 & 3:

1. Salary Basis Test: Does the employee receive a predetermined salary?

Don’t forget the obvious. To be classified as “exempt” from FLSA or NYS wage entitlements,

employees must be paid the same predetermined salary each pay period for any week in which work is

performed, without regard to actual hours, quality of work, etc. [29 CFR 776.4(a)]

Related, where an employee “works two or more jobs for which different non-overtime rates of pay

have been established, the employee’s regular rate for that week generally is the weighted average of

those rates. [29 CFR 778.115]

2. Salary Threshold Test: Does the employee’s salary exceed the applicable required threshold?

As discussed in detail above, exempt employees must receive a predetermined salary that exceeds the

appropriate (FLSA or NYS) minimum thresholds.

i. FLSA: $47,476 annually ($913.00 weekly) effective 12/1/2016 through 2019

ii. NYS: $37,830-$42,900 annually ($727.50–$825.00 weekly) variable by number of employees

and location, proposed to become effective 12/31/16 and annually increasing thereafter.

3. Job Duties Test: Does the employee primarily perform job duties that qualify for exemption?

In general, in the nonprofit community, only employees who primarily perform “executive,”

“administrative” or “professional” job duties will satisfy criteria required for exemption.

Additional duties tests exist for positions not commonly found in the nonprofit sector, including

those for so-called “highly compensated” staff [29 CFR 541.601], as well those with

responsibilities primarily related to “computer” applications and “outside sales.”

Always remember, position titles and job descriptions do not determine exempt status. Only the

actual day-to-day job duties of the employees are relevant.

a. FLSA

Executive: An employee might be considered to have “executive” job duties [29 CFR 541.100] if

his/her responsibilities:

i. “primarily relate to management of the nonprofit or a recognized department or subdivision

thereof;”

ii. “customarily and regularly require the employee to direct the work of two, or more,

employees;” &,

iii. generally mandate or imply “the authority to hire or terminate other employees or to offer

suggestions and recommendations as to such considerations, as well as this concerning the

advancement, promotion or any other change of status of other employees.”

© 2016 New York Council of Nonprofits, Inc. 7

Administrative: Job duties considered to be “administrative” [29 CFR 541.200] usually require the:

i. “performance of office or non-manual work directly related to the management or general

business operations of the employer or the employer's customers;” &,

ii. “exercise of discretion and independent judgment with respect to matters of significance.”

Professional: An employee with “professional” duties [29 CFR 541.300] will primarily perform

work requiring:

i. “knowledge of an advanced type in a field of science or learning customarily acquired by a

prolonged course of specialized intellectual instruction as a “creative professional” [29 CFR

541.302]; or,

ii. invention, imagination, originality or talent in a recognized field of artistic or creative

endeavor as a “learned professional” [29 CFR 541.301].

Two subsets of the “professional” classification exclude each the Salary Threshold Test and

Job Duties Test, meaning at the employer’s discretion, an impacted employee could be

required to work 1, 40, or 160 hours in a given week . . . without any change in pay:

;

i. Lawyers and Physicians [29 CFR 541.304]; &,

ii. Teachers in bona fide “educational establishments” [29 CFR 541.303].

FLSA: The teacher must be “imparting knowledge” and be employed by an

“educational establishment”. This latter term is defined [29 CFR 541.204(b)] to

apply to “elementary”, “secondary”, or “higher” education (note the absence of

the term “preschool,” which that is an activity triggering default FLSA

“enterprise” coverage). The meaning of “elementary” school hinges on how the

home state views “elementary.” “Under the laws of most States, such education

includes the curriculums in grades 1 through 12; in others [including New York]

it also includes introductory programs like kindergarten . . . [others] may also

include nursery school programs in elementary education…”

NYS: While the NYS Education Department does set curriculum standards for

“universal prekindergarten” (UPK) classrooms [8 NYCRR 151-1.3], the US

Department of Labor maintains that “preschool and kindergarten” personnel

qualify for this exemption only when their primary duty is “teaching, tutoring,

instructing or lecturing”, and not when their “primary duty is to care for the

physical needs for the facility’s children”.

* Be advised, in instances where a nonprofit operates multiple programs and services, those

employees working under a named or covered “enterprise” may be entitled to FLSA protection

overtime standards, even if not otherwise covered individually by the FLSA, while colleagues

associated with other internal divisions may be appropriately classified as exempt.

b. NYS

Executive: All associated “executive” job duties are analogous to those required for FLSA

exemption. This is the Executive FAQ issued by NYSDOL offers additional clarification.

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Administrative: Most related “administrative” position responsibilities are comparable to those

necessary for FLSA exemption. However, in NYS, such an employee also “regularly and directly

assists an employer, or an employee employed in a bona fide executive or administrative capacity

(e.g., employment as an administrative assistant); or . . . performs, under only general supervision,

work along specialized or technical lines requiring special training, experience or knowledge.” An

Administrative FAQ from NYSDOL further clarifies applicable criteria.

Professional: While similar to “professional” job duties required for FLSA exemption, NYS

stipulates that an impacted employee must have responsibilities “requiring knowledge of an

advanced type in a field of science or learning customarily acquired by a prolonged course of

specialized intellectual instruction and study . . . and from training in the performance of routine

mental, manual or physical processes; or original and creative in character in a recognized field of

artistic endeavor (as opposed to work which can be produced by a person endowed with general

manual or intellectual ability and training), and the result of which depends primarily on the

invention, imagination, or talent of the employee; and, whose work requires the consistent exercise

of discretion and judgment in its performance; or whose work is predominantly intellectual and

varied in character . . . and is of such a character that the output produced or the result accomplished

cannot be standardized in relation to a given period of time.” A Professional FAQ published by

NYSDOL further clarifies applicable criteria.

NYS: The “professional” exemption, regardless of specific profession, is not tied to a specific

salary threshold. __________________________________________________

YOU HAVE STAFF WHO WILL BE IMPACTED. WHAT ARE YOUR OPTIONS?

Should you identify a presently exempt employee whose exempt status will be impacted by the expanded FLSA

or NYS regulations, your organization must take immediate action to come into regulatory compliance. There are

several available compliance options, which could be applied uniformly or selectively on a case-by-case basis.

1. Increase Salary to Appropriate Salary Minimum: You can simply increase the present wage to the new

applicable (FLSA or NYS) minimum salary threshold or beyond.

The new regulations only impact covered staff earning less than the applicable minimum salaries. By

simply increasing salaries to the new minimum thresholds, you avoid a problem.

Note: NYS (LAB §195) requires that employers provide written notice (and keep signed verifications

there) to their employees confirming their rate of pay, pay period, pay day, etc. at the time of hiring or

if changes are made thereafter and offers associated forms for both OT-exempt employees and

‘hourly’ employees.

2. Maintain Equivalent of Current Wage by Converting to Corresponding Hourly Rate: Essentially,

convert present salary to an analogous hourly rate—based on estimated, or required, hours worked,

even if more than 40-per week (mandating overtime pay)—and requiring you to:

i. Affirmatively establish the employee’s regular rate of pay:

You can establish an employee’s “regular rate” of pay by making educated decisions about the

number of hours that the employee customarily works or will be required to work, even if more

than 40-per week (for which overtime pay rates will apply). Provided the resulting hourly rate

exceeds the applicable NYS Minimum Wage, (which will annually increase for the next several),

this method is legally-compliant.

© 2016 New York Council of Nonprofits, Inc. 9

For example, if an employee is not covered by the FLSA, but qualifies as exempt under NYS

regulations and is subject to the pending NYS 2017 “upstate” minimum weekly salary of

$727.50 ($37,830 per year) and is expected to work 45-hours per week, an appropriate hourly

rate of pay could be determined as follows: $727.50/[40 regular hours + (5 overtime hours x

1.5)] = ~$15.32 per hour.

As another example, if an employee is covered by the FLSA and qualifies as exempt, and

thus must receive a minimum weekly salary of, at least, $913.00 and is required to work 50-

hours per week a corresponding hourly rate could be calculated in the following manner:

$913.00/[40 regular hours + (10 overtime hours x 1.5)] = ~$16.60 per hour.

o Note: Under the FLSA, an employee’s regular rate of pay cannot include travel

reimbursements [29 USC § 207(e)(2)] or discretionary bonuses [29 CFR 778.211].

ii. track and record weekly hours worked and pay overtime, if needed:

FLSA: Federal regulations concerning such determinations have many subsets [29 CFR 785.33-

41] but generally hold that an employee must be compensated when his/her activities are directed

by the employer. Non daily-commute travel is excluded, but requested travel during their normal

work period is compensable. When travel is required out of the employee’s region, compensation

will include duties performed during their normal work period, i.e. 9am-5pm, even on weekends,

but need not include time spent as a passenger during their regular work hours [29 CFR 785.39].

Note: The FLSA mandates certain recordkeeping requirements with respect to employee

compensation, outlined in this publication.

NYS: “[M]inimum wage protections apply for the time an employee is permitted to work, or is

required to be available for work . . . and shall include time spent in traveling to the extent that

such traveling is part of the duties of the employee." 12 NYCRR 142-2.1. “Employees who work

a shift of more than six hours starting before 11am and continues until 2pm must have an

uninterrupted lunch period of, at least half an hour between 11am and 2pm.” Meal periods do not

count as work time, thus employers need not pay for that time, unless employees perform work

during the period. Employers need not provide other "coffee breaks,” etc., but if an employer

permits a break (of up to 20-minutes), then they should pay for it as compensable work time.

Note: NYS also mandates certain recordkeeping requirements [12 NYCRR § 142-2.6].

3. Adjust Operations: Adjust operations and schedules to minimize the likelihood of paying overtime.

If projects or programs have been compressed into deliverable timeframes that may no longer be feasible

because it would require the payment of overtime, consider rearranging projects so that components can

be completed in 40-hour week increments or adjust schedules so programs can continue uninterrupted

without staff exceeding the 40-hour threshold.

It is entirely permissible to restrict hours so that employees are prohibited from working more than

40-hours per week (meaning they will never receive overtime), but you must pay overtime if they

work additional hours (including from home) anyway without permission (your only recourse would

be discipline or termination).

By converting salary to an hourly rate, you can permissible pay employees less than current salary for

working a short-week or more for working a long-week, possibly including overtime pay.

4. Re-Assign Job Duties: If job duties can be adjusted so that an employee never works more than 40

hours per week, there will never be an obligation to pay overtime

If the compensation of hourly or salaried staff is simply unaffordable, it may be advantageous to shift

certain job duties to other staff who are unlikely to ever work more than 40 hours per week or to current

or newly hired part-time employees.

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FLSA: Related to the foregoing, As staff a non-covered “enterprises” would only be individually

covered by the new rules as a consequence of their regular engagement in interstate commerce, by

transferring any commerce-related job duties to other employees, you could feasibly exempt,

otherwise, qualified employees from coverage

5. Maximize Reliance on a Limited Number of Exempt Staff: If an employee is already exempt, assigning

him/or additional duties and responsibilities can come at no additional cost.

Most nonprofit employers have a significant number of employees who are already exempt, earning

salaries beyond applicable FLSA or NYS minimum thresholds. If forced to reclassify certain presently

exempt staff to non-exempt hourly employees without the resources to pay overtime, by transferring some

of their current responsibilities to other exempt staff who will not be impacted by the change in standards,

you may be able to seamlessly continue current operations without incurring additional cost.

This publication is designed as a resource for nonprofits. The information contained herein is general

information and should not be construed as legal advice to be applied to any specific factual situation. This

publication is distributed with the understanding that the publisher is not engaged in rendering of any legal,

accounting, or other professional assistance to the reader. If legal advice or other expert assistance is required,

the services of a qualified professional should be sought.