Pastors work tirelessly preparing for sermons, counseling parishioners, and managing other administrative aspects of running a church. A teacher at a religious school spends countless hours developing lesson plans, and even more instructing students on matters of doctrine. A missionary’s work in the field does not fit the traditional 9 to 5 work day, and the person may be “on call” nearly 24-7. Often, religious workers, driven by a sense of calling, work far more than a 40-hour-work week. Does a religious organization have to pay overtime under a federal law called the Fair Labor Standards Act (FLSA)? While the answer used to be “most likely not,” a recent change in the rules governing when overtime must be paid creates some confusion, and probably a mixed result.
The Department of Labor recently increased the wage amount required to qualify under FLSA’s overtime exemptions for the administrative, executive, and professional exemptions to almost double the current rate. This means that in addition to meeting one of the criteria for being exempt, the employee must also be paid to a salary threshold. The final rule, which goes into full effect on December 1, 2016, raises the salary threshold for FLSA’s exemptions from $455 per week/$23,660 per year to $913 per week/$47,476 per year. This amount will continue to increase every few years, as the new rule requires that salary thresholds be automatically adjusted every three years, which is another big change.
What does this mean for your ministry? For some organizations the rule change means big adjustments, while for others, the rule may not have much effect. Here are four things your ministry needs to do to get ready for the change, as well as resources to review as you consider your options.
1. Determine to What Extent FLSA Even Applies to Your Organization.
Before jumping into how your organization should prepare for these changes, realize that not everyone reading this will have to worry about the new rules. While there is no “religious employer” exemption to FLSA, some religious organizations may not be covered due to the nature of their operations. In a nutshell, FLSA can apply in two ways: (1) to the organization as a whole (called “enterprise” coverage); or (2) to the individual worker’s position (“individual” coverage). If neither your organization nor the individual worker is entitled to FLSA protection, you need not worry about the new change. But because of FLSA’s broad reach, many organizations are likely to be affected.
In addition, it is also important to consider whether another exemption might apply. For example, with some limited exceptions, FLSA’s overtime and minimum wage provisions do not apply with respect to any employee while working in a foreign country (although there may be local laws that apply).
The Department of Labor has prepared several helpful resources for non-profits on how to comply with the overtime rules. These guides are not specific to religious organizations, but may be helpful background to determine whether FLSA applies to your enterprise or individual workers.
• United States Department of Labor, Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act, May 18, 2016, available at: https://www.dol.gov/whd/overtime/final2016/nonprofit-guidance.pdf
• United States Department of Labor, Overtime Final Rule and the Non-Profit Sector, available at: https://www.dol.gov/sites/default/files/overtime-nonprofit.pdf
2. Consider the Ministerial Exception.
As with many federal laws that seek to interfere with the employment relationship between a minister and its church, there is a strong argument that the ministerial exception, grounded in the First Amendment, should prevent application of FLSA to ministerial employees. Though the question is the subject of much debate, several federal courts have determined that ministerial employees are not subject to the overtime provisions of FLSA. Though the ministerial exception is not reflected in FLSA itself, guidance from the Department of Labor continues to recognize that clergy and other like-religious workers are not considered “employees” subject to the FLSA. History is also on the side of ministries. Last time the DOL increased these salary thresholds, their economic report on the impact of the change repeated over and over how it would not affect clergy and religious workers because those individuals were not covered by FLSA. Historically, ministers have worked very hard and been very underpaid compared to other professionals. In effect, they are storing up treasures in heaven and not under the FLSA.
You may need some assistance in determining the employees who are ministers. This categorization is much broader than many might assume, since ordination or a particular role is not required.
• Review the latest Field Operations Handbook, from the United States Department of Labor, Wage and Hour Division, which describes how certain religious workers are not subject to the Act at: https://www.dol.gov/whd/FOH/FOH_ch10.pdf.
• Take a look at the economic report from the last time the DOL changed the overtime salary thresholds and see how clergy and religious workers were treated as exempt: https://www.dol.gov/whd/overtime/econreport.pdf.
• Read the cases where the ministerial exception has prevented application of FLSA:
o Schleicher v. Salvation Army, 518 F.3d 472 (7th Cir. 2008);
o Shaliehsabou v. Hebrew Home of Greater Wa., 363 F.3d 299 (4th Cir. 2004).
3. Carefully Consider Your Options, but Do It Quickly.
As stated, first determine which employees are in a ministerial position, and make sure their job description and personal understanding match that determination. For employees who are not ministers, the main workers who are going to be affected are those who are salaried, and who meet the “duties test” to qualify for an exemption from FLSA, but who now make less than the salary threshold and can no longer qualify for that exemption. If changes need to be made, it is important to get ahead of the new rules (which go into effect on December 1st) by spending some time now reviewing the job descriptions and salary structure for the exempt employees in the organization. Do not wait until it is too late to be sure you are in compliance.
For employees who no longer meet the qualifications for exemption from overtime, it is important to be strategic about any changes. There are several ways that the change can be managed, and there may not be a “one size fits all” solution to fixing the problem. Any changes should be strategically considered. The DOL is hoping that massive salary increases will be the answer. Given the difficulty of funding nonprofits, the sad reality is that existing funds may simply have to be reallocated in ways that comply with the law but don’t necessarily help employees.
• We found this handy calculator from ADP helpful in thinking through the dollars and cents of how different approaches might affect the bottom line.
• The DOL is putting on free informational webinars about the new rule. A webinar for the non-profit sector is scheduled for June 7, 2016 from 1:00 p.m. – 2:30 p.m. EST. Click here to register for this or other sessions.
4. Put a plan in place to track future increases and monitor the issue going forward.
Even after a thorough review of the current state, an organization should implement a system for reviewing and updating exempt status in light of the fact that the salary thresholds will continue to adjust every few years. For example, an employee who qualified this year for an exemption might not in five years. Perhaps the Supreme Court will hear a case involving the application of the ministerial exception to FLSA and put the exception on even firmer ground. The Department of Labor may consider clarifying FLSA’s application toward religious workers. While it is impossible to know what the future holds, putting systems in place to ensure continued compliance and keeping tabs on important changes in the law, will go a long way toward setting the organization up for success.
• At Telios Law, our Ministry Telios Tip will continue to monitor changes in the law, so be sure you, or anyone you know who might be interested in these updates, is on our list. Click here to sign up for the Ministry Telios Tip.
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