Fair Labor Standards Act
Nonprofit organizations must pay their employees or workers enough. The Fair Labor Standards Act (“FLSA”) states how employers must pay workers such as minimum wage and overtime pay.
Both for-profit and nonprofit employers must:
- Pay covered workers at least the federal minimum wage or the state minimum wage if higher;
- Pay overtime when covered, non-exempt workers work more than 40 hours in one week; and
- Pay overtime to covered, non-exempt workers at a rate of at least one and one-half times their hourly pay.
What does “covered” mean?
There are two ways that workers are “covered”, or protected, by the FLSA:
- If they work for certain organizations ("enterprises") or
- If they are covered by the FLSA.
Most people that work as housekeepers, cooks, and babysitters are covered if their wages reach a certain amount and they work for more than 8 hours per week for one or more employers.
People are protected if they are workers of an enterprise and their nonprofit employer:
- Has annual sales of greater than $500,000
- Does business between states or
- Is a hospital, a place providing medical or nursing care for residents, a school or preschool, or a public agency.
Even when they do not work for a nonprofit with the above rules, workers can still be protected by the FLSA. The FLSA protects workers who produce or exchange goods across state lines. This can include mailing letters across state lines, making phone calls across state lines, keeping records of interstate transactions, or accepting goods at a food pantry that have crossed state lines.
For example, a worker of a new Chicago nonprofit that does not fundraise outside the state, has revenues of $100,000, and whose position involves discussions within Illinois would not be covered under the FLSA.
See the FLSA Reference Guide for more information.
If a person is a covered, non-exempt worker they are protected by the FLSA’s rules and must be paid overtime for any hours worked over and above 40 hours per week.
When is someone exempt from overtime pay?
Certain workers are exempt and do not get overtime pay. The test to decide whether a worker is exempt has three parts:
- Be paid a salary;
- Be paid at least a $455 a week; and
- Do a certain type of work.
A worker must pass all three parts of the test to be exempt. The salary requirements do not apply to teachers, outside sales workers, and workers practicing medicine or law. The third part of the test (type of work) is the hardest to define.
Type of work defined
A nonprofit organization must classify its workers as either exempt or non-exempt based on the person’s type of work. Exemptions are defined under the FLSA. Nonprofit organizations should carefully confirm the definitions prior to classifying workers. The following are some examples of exempt workers:
- Executive. An exempt executive employee’s work involves managing the work of 2 or more other workers and hiring, firing, and promoting other workers;
- Administrative. An exempt administrative employee performs office or non-manual work for a nonprofit and makes independent decisions regarding important matters;
- Professional. An exempt professional does work requiring an advanced degree or they do work that requires creativity, invention, or imagination in an artistic job;
- Certain computer workers. The computer employee exemption refers to people with specialized knowledge of computer systems.
What can happen if a nonprofit organization ignores the FLSA rules?
It is not an option to ignore FLSA rules. A person can file a lawsuit against their employer if they have not been paid properly. For example, workers can sue their employer if their employer:
- Lists them as exempt from overtime payment by giving them important job titles but then requires them to perform non-exempt functions;
- Requires them to work “off the clock” and then does not pay them for this work;
- Fails to pay them for the number of hours worked; or
- Fails to pay them the correct overtime rate of at least one and one-half times their regular hourly rate.
A nonprofit organization must take the time to assign work tasks carefully. And it must classify, pay, and keep required records of workers to avoid lawsuits.