The effect of fair labor standards on not-for-profits

written by Jay Logal

As of the writing of this article a Texas judge has issued a preliminary injunction. These rules were to take effect on December 1, 2016. Although these rules are still in place, they are not enforceable till the court rules for or against them.

My colleague Michael Wirth previously wrote an article titled Coping with Changes to Overtime Rules. This article dealt with the overall changes that the US Department of Labor (DOL) put into place with the Fair Labor Standards Act (FLSA). In this article I will discuss how the FLSA affects non-profit organizations. The FSLA coverage may apply to businesses or similar entities thru “enterprise coverage” or individually thru “individual coverage.”

Enterprise coverage apples when there are annual sales of at least $500,000 and would subject all of the entity’s employees to the FSLA rules. In the case where enterprise coverage does not apply, select employees who are engaged in interstate commerce or in the production of goods for interstate commerce would still be subject to the FLSA. Examples of interstate commerce would include an employee who regularly makes out-of-state phone calls, sends or receives interstate mail or electronic communications, ordering or receiving goods from an out-of-state vendor, or handling credit card transactions or performing the accounting or bookkeeping for those activities.

Non-profit organizations are not exempt from these rules, however the enterprise coverage is calculated slightly differently. To determine the annual sales amount for a non-profit, only activities performed or engaged in that are ordinary commercial activities apply. Examples of ordinary commercial activities would include operating a thrift store or providing veterinary care for a fee. Certain organizations are subject to the FSLA regardless of the dollar volume of business.

These include hospitals, schools of all levels (including preschools), government agencies and businesses providing medical or nursing care for residents. Unlike other employers, a non-profit organization may use volunteer services. Non-profit employers with employees that are subject to the FLSA rules may not use their employees as a volunteer if it is the same type of work for which they are employed. For example, a non-profit office manager may not volunteer to organize a fund raising event because that is a similar function for which they were employed. The office manager could volunteer to serve food at a fund raising event because that is a separate function for which they are employed. In addition, a non-profit organization may not use volunteers in commercial activities such as a gift shop. Many of these issues do not have a well-defined way to measure whether or not they apply.

In the case of the individual coverage the DOL has said an individual who spends an “insubstantial amount of time” performing interstate commerce will not be subject to the FSLA rules. There is currently no definition of what an “insubstantial amount of time” is. It is unlikely that the DOL will give the benefit of the doubt to the employer. This leaves the employer in a position of proving after the fact the functions or time the employee spent performing which tasks. The best defense in a case like this is to have good documentation.

If you have questions, the staff at Whitlockmpany would be proud to assist you 417-881-0145.