Overtime Rule Change Looms

With a Dec. 1 deadline looming, local nonprofits are changing how they operate to comply with a new federal overtime rule.

The federal Department of Labor’s changes to overtime regulations under the Fair Labor Standards Act, begun in 2014 and finalized this summer, stand to affect some businesses and especially nonprofits dramatically.

Employees and employers who may not have counted up work hours before will have to start counting them. And under the new changes, a lot more people will be eligible for overtime pay if they work more than 40 hours a week.

The changes to the law take effect Dec. 1. In anticipation, more than 100 members of nonprofits signed up for an explanatory seminar in July held by lawyers from Carmody, Torrance, Sandak, and Hennessey along with officials from the Department of Labor. Some of them are still working out what it means for their day-to-day operations.

Joanne Sciulli, who runs Solar Youth, was among the attendees in July. For her West Rock-based environmental education organization, the new overtime rules are forcing a culture shift. And some headaches. She has started early on putting the changes into place.

“This is something we’ve done tons of thinking about,” Sciulli said. During the seminar, she said, ​“I realized, ​‘Oh, this is a really big deal. We have to change a lot of stuff.’”

Changes To The FLSA

Under the longstanding FLSA, a worker can get overtime pay — standard pay plus half again as much — for every hour over 40 hours worked in a given week. But there have been exemptions, the most important one being that people with salaries over a certain level weren’t eligible for overtime. The last update to the FLSA, in 2004, set that threshold at a yearly salary of $23,660, or $455 per week.

The new measure doubles the threshold to a yearly salary of $47,476, or $913 per week. Many nonprofit salaries land under that level, and many of those employees work more than 40 hours a week.

For individuals, there are three big criteria affecting whether they get overtime pay. First: being above the $47,476 threshold. Second: having job duties that are primarily administrative, executive, or professional, as defined by the U.S. Department of Labor. And third: being a salaried employee.

A particular job must meet all three criteria for an employer to argue successfully that it doesn’t have to pay overtime to an employee. Meanwhile, an employee seeking to collect overtime can do so if his or her job fails to meet even one criterion.

Employers do get to decide what day their workweek starts, but once declared, they can’t change the dates to avoid paying their overtime obligations. ​“Once you pick them, you own them,” said Maureen Danehy Cox, a lawyer at Carmody who focuses on commercial and tort litigation.

Worker-Boss Balance

On its face, the changes in the law tilt the balance toward workers: If employers want people working more than 40 hours a week, they’ll have to dip into their pockets more often to pay overtime to more employees.

The changes thus constitute an ​“effort to promote pay equity among workers,” said Nick Zaino, a fellow lawyer at Carmody who specializes in labor and employment law. Regarding raising the threshold, ​“there was a sense that it was overdue,” Zaino said. Setting the threshold at its new level may also move workplaces toward greater parity between pay for women and men, Cox added.

But ​“as usual, there are unintended consequences of new laws,” Zaino said.

Raising the threshold so dramatically — doubling it in one stroke — could come as a shock to nonprofits, as many of their employees have salaries right around the threshold and far fewer options than for-profit companies have to make up the difference in paying overtime. They can’t just raise prices to make more money (the time-honored way for companies to increase their revenues) or take it out of current profits. With fixed budgets determined by yearly funding, it’s hard to say exactly where the additional funds will come from. Employees are likely to resist moving from salaried jobs to hourly ones. This could lead to pay being negotiated downward, or to layoffs.

And things get complicated for nonprofits seeking exemptions. Technically speaking, under federal law, a nonprofit with an operating budget of less than $500,000 is exempt as an enterprise from having to pay overtime. However, that doesn’t mean that that all of its employees are exempt, depending on the nature of their work. Nonprofits staring down a claim from the Department of Labor saying that they owe overtime pay could argue for an exemption, but the process might be more expensive than just paying up.

“You may be exempt, but it’s going to cost a lot to find out,” said Cox. ​“It would be a big battle.”

So ​“for most nonprofits, the safest course of action is to assume you’re covered under the law,” — that is, not exempt from paying overtime — said Zaino.

As the changes to the law are written, the salary threshold is to be updated every three years to avoid a dramatic jump in the future similar to what we’re seeing this year. In the meantime, 21 states are challenging the rule, Zaino said, though in his opinion — apart from the automatic update, which could be struck down — it’s likely the changes to the law will remain intact.

“It is going to hurt nonprofits,” Cox said — perhaps especially nonprofits with work that ebbs and flows from week to week or season to season, from homeless shelters, to churches and schools to summer camps. ​“You’re getting less money from the state, and now you’re in a position where you’re going to have to pay more for workers, and that’s going to be a problem.”

Solar Reboot

Small organizations like Solar Youth are used to managing the work week and shifts more flexibly.

“We have always had a very strong commitment to staff having a balance in their life and not overworking, but not in the frame of a seven-consecutive day period, and that is the biggest issue for us,” Sciulli said.

The majority of Solar Youth’s staff earns less than the $47,476 threshold, and the organization’s work flow is seasonal. For a 10-week session in the fall, a 4‑week session in the winter, a 12-week session in the spring, and a 6‑week session in the summer, many of the staff work more than 40 hours a week.

“We can’t live with the unpredictability of paying overtime,” Sciulli said. So the organization has compensated its employees with paid time off, which they have taken in between sessions — sometimes as much as a week or two at a time. Long hours during the seasonal sessions is balanced by a lot of flexibility at other times, especially summers and holidays.

Under the new regulations, however, Solar Youth’s employees can no longer bank their PTO to take longer breaks. Solar Youth has declared its workweek to start on Saturday to give everyone a chance to adjust their hours in reaction to weekend work.

“If folks work on a Saturday, they’re forced to take half days off at the end of the week,” Sciulli said — whether they want to or not. Some of Solar Youth’s longer trips, like a three-day retreat for the kids in the White Mountains, ​“burns up someone’s full week of hours,” Sciulli said. Getting rid of the retreat isn’t an option, but there’s also work to be done the same week when the trip is over. Sciulli said the staff are still working out what to in that case.

Solar Youth has began complying with the regulations already ​“because it’s a whole culture shift for our program staff,” Sciulli said, and staff members need time to work out the details. They had a chance to try out the new system just last week, Sciulli said, when all the program staff accompanied the kids on a weekend hike in East Rock. They then had to take half days at the end of the week to avoid overtime and stay in compliance.

Solar Youth’s move toward compliance with the new regulations has had a small benefit: It ​“inspired us to change how we’re tracking time,” Sciulli said. Before, staff filled out time sheets once a week. Now Solar Youth uses an online system called Zenefits, which lets staff members track their time more accurately.

“We really like it,” Sciulli said. ​“We’ve more clearly defined what constitutes work time and non-work time.” But down the road, she said, ​“we have to somehow incorporate the cost of overtime into the costs, when we are already having incredible struggles.”

From Dodging (Metaphorical) Bullets To Changing Culture

Neighborhood Music School is taking the changes to the FLSA in stride, according to Executive Director Dan Gurvich. Because of the way the organization is structured, it finds itself almost completely in compliance with the new standards, he said. It already tracks many of its employees’ hours. Many of its staff are hourly. Almost all of those below the $47,476 threshold are working within 40 hours a week. And those working more hours meet all three criteria for exemption.

“I kind of feel like we dodged a bullet on it,” Gurvich said. ​“The impact on NMS is going to be minimal, but it’s just sort of lucky that works out that way for us.”

“I can easily see how this would hurt quite a number of nonprofits,” Gurvich said.

Just down Audubon Street from Neighborhood Music School, Creative Arts Workshop is adopting something of a wait-and-see approach, in part because right now, it has few other options.

“We’re not doing anything to increase salaries because we can’t,” said CAW Executive Director Dan Fitzmaurice. ​“We are changing how we track our employees’ hours and making it clear that they can’t work past the hours they’re given.”

This leads to some complications when CAW employees work events at night or on the weekends. Before, this was folded into their job description; as of Dec. 1, having employees work those events means giving them comp time.

“We’re going to see how this affects productivity,” Fitzmaurice said. He could also see the changes to the FLSA affecting future hiring, as CAW figures out how to make the most of its funding.

In a broader sense, Fitzmaurice also sees the changes in labor law affecting how CAW does its work, as many people who work there are driven as much by passion as the paycheck.

“When are we not working? A lot of what we do is in our DNA,” Fitzmaurice said. ​“When you’re at someone else’s event, is that working? When you’re networking, is that working?” These questions matter when every hour needs to be counted to ensure that CAW is complying with the law, and the answer is unclear.

Looking Ahead

The questions that businesses and nonprofits alike have about the changes in the law may become more acute. ​“Connecticut is usually not outdone by the federal government,” Zaino said; Hartford often sets state labor standards above those mandated by Washington. So ​“don’t be surprised if something is passed” in the state legislature to keep that gap intact, Zaino added. (Connecticut’s hourly minimum wage is rising to $10.10 as of Jan. 1, with some exceptions for the hospitality and restaurant industry and certain minors.)

For their part, Gurvich, Fitzmaurice and Sciulli see why the changes to the law happened.

“I more than understand the viewpoint,” Fitzmaurice said. ​“For some of our employees, the boundaries are good.”

Gurvich agrees. Despite the additional constraints, ​“to look on the flip side — I’m saying this at a time when all the staff are working hard and feeling stretched — there is a body of work that says that after 40 hours a week, there’s a law of diminishing returns, you’re getting less productivity,” he said. ​“It’s a good protection against employee burnout, and good protection for employees.”

Sciulli likewise agrees with the intent behind the changes. ​“Ultimately the regulation is about protecting workers, and I think that’s great,” she said. ​“But it’s defining what work looks like.” For everyone at once. And it turns out one size doesn’t quite fit all.