As of July 1, 2024, the U.S. Department of Labor (DOL) implemented significant changes to overtime regulations that are poised to impact many non-profit organizations across the country. These changes, which include raising the salary thresholds for exemptions under the Fair Labor Standards Act (FLSA), are designed to extend overtime protections to more workers. For non-profits, this means potentially increased labor costs and the need for strategic adjustments in operations and budgeting.

The key change in the DOL’s new rule is the increase in the salary threshold that determines whether an employee can be classified as exempt from overtime. This change applies to the executive, administrative, or professional (EAP) exemption, which previously required employees to be paid at least $684 per week ($35,568 annually). Under the new rule, the threshold will be raised in stages:

• July 1, 2024: The threshold increases to $844 per week ($43,888 annually).
• January 1, 2025: The threshold rises again to $1,128 per week ($58,656 annually).
• July 1, 2027: The threshold will begin to adjust automatically every three years based on inflation.

For non-profits, this change is particularly significant as many organizations rely on salaried employees who may now be entitled to overtime pay if they fall below these new thresholds. The DOL estimates that this rule change will impact approximately 460,000 workers in the non-profit sector, converting them from exempt to non-exempt status​.

Impact on Non-Profit Organizations

Non-profits, which often operate with limited financial resources, may find these changes challenging. The immediate effect is an increase in labor costs as more employees become eligible for overtime pay. The National Council of Nonprofits has projected that the total cost to non-profit employers could reach $44.8 million in the first year, averaging about $1,777 per organization​.

These increased costs come at a time when many non-profits are already facing financial pressures due to rising operational expenses, increased demand for services, and often stagnant or declining funding. The need to manage these additional costs without compromising service delivery will require careful planning and strategic adjustments.

Strategies for Compliance and Mitigation

As a management consulting firm focused on serving non-profits, Bluprint Consulting recommends a multi-faceted approach to navigating these regulatory changes:

1. Conduct a Comprehensive Workforce Audit:
   • Assess Current Salaries: Begin by reviewing the salaries of all employees currently classified as exempt to determine who will be affected by the new thresholds. This audit will provide a clear picture of potential overtime liabilities.
   • Evaluate Job Descriptions: Ensure that job descriptions accurately reflect the duties being performed, especially for roles that may straddle the line between exempt and non-exempt classifications.
2. Consider Adjusting Compensation Strategies:
   • Salary Increases: For employees who are close to the new threshold, it may be cost-effective to increase their salaries to maintain their exempt status, avoiding the need to pay overtime.
   • Reclassify Employees: For some roles, it might make sense to reclassify employees as non-exempt and adjust their work schedules to minimize overtime hours. This could involve redistributing tasks or adjusting workloads.
3. Enhance Timekeeping Practices:
   • Implement Robust Time Tracking: Accurate timekeeping is critical to ensuring compliance with overtime regulations. Non-profits should invest in or upgrade their time-tracking systems to capture all hours worked, particularly for newly non-exempt employees.
   • Educate Staff: Train managers and employees on the importance of accurate time tracking and the implications of the new overtime rules. This will help prevent unintentional violations and ensure everyone is aware of the changes.
4. Budget for Increased Costs:
   • Revise Budget Projections: Non-profits should revisit their financial projections to account for the increased labor costs associated with the new regulations. This may involve identifying areas for cost savings or seeking additional funding to cover these expenses.
   • Explore Funding Opportunities: Consider applying for grants or seeking donations specifically earmarked for covering operational costs, including compliance with labor regulations.
5. Proactively Engage Stakeholders:
   • Communicate with Donors and Funders: Transparency with donors and funders about the impact of these regulatory changes on your organization’s budget is crucial. Many funders may be willing to provide additional support if they understand the regulatory burden being placed on your organization.
   • Advocacy and Collaboration: Work with other non-profits and sector advocates to engage in dialogue with policymakers about the unique challenges non-profits face under these regulations. Collaborative advocacy can lead to potential adjustments or support mechanisms specifically for non-profits.

 

While the immediate focus will be on compliance and adjusting to the new costs, non-profits should also consider the long-term implications of these changes. The automatic adjustments for inflation mean that salary thresholds will continue to rise, potentially affecting more employees over time. Therefore, it’s important to build flexibility into your organization’s financial planning and to continually assess the impact of these and other regulatory changes.

Though the new overtime regulations present significant challenges for non-profits, they also offer an opportunity to review and optimize your organization’s workforce management strategies. By proactively addressing these changes and engaging in strategic planning, non-profits can not only comply with the new rules but also strengthen their organizational resilience.

For more information on how Bluprint Consulting can assist your non-profit in navigating these changes, feel free to reach out to us. We are committed to supporting your mission with tailored solutions that ensure compliance while maximizing impact.