Overtime Rule Changes on Hold

Changes were expected to have a widespread impact; now in holding pattern

Note: This article reflects the overtime pay rules currently in effect, as well as the new rules that are under consideration.

A change to a key overtime pay rule is currently on hold. This change was originally scheduled to take effect December 1, 2016, but a court injunction has delayed implementation until further notice.

A United States Department of Labor (DOL) rule included a new standard for determining who qualifies as an exempt employee under the Fair Labor Standards Act (FLSA). Currently, if an employee earns less than $23,660 per year ($455 per week), then in most cases the employee needs to be classified as non-exempt. The rule would raise this minimum salary threshold to $47,476 per year ($913 per week).

What You Need to Know About the Potential Salary Level Test Change

If the DOL’s rule is upheld, it’s likely that all businesses—including ministries—would be affected by this change. The new rule would increase the exempt employee minimum salary level from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). The DOL’s rule also provides for an automatic salary threshold increase every three years to maintain the minimum salary level at the 40th percentile of full-time salaried workers in the lowest wage census region.

If you currently have an employee performing exempt job duties, and the employee is being paid a salary of less than $23,660 per year, your business or ministry needs to do one of two things:

  1. Raise the employee’s salary to meet the new minimum salary level, or
  2. Reclassify the employee as non-exempt. This will subject the employee’s pay to minimum hourly wage requirements and overtime.

Two-Part Analysis for Ministries

To understand the potential impact that the recent minimum salary increase might have on ministries, it’s important to understand how the FLSA applies to ministries—and the exempt versus non-exempt employee classifications—under the FLSA.

Does the FLSA Apply to Ministries?

Yes, most ministries are covered by the FLSA, and it is important that your ministry properly classifying employees as non-exempt or exempt. The enterprise test and the individual employee test are used to determine whether employers are subject to the FLSA, and most ministries are covered by the FLSA under one test or the other. See Brotherhood Mutual’s article, Does the Fair Labor Standards Act Apply to our Ministry? and the DOL’s Reference Guide for additional details on the “enterprise” and “individual” tests.

Who’s an Exempt Employee?

Ministries governed by the FLSA must classify their employees as non-exempt and exempt. Non-exempt employees must be paid minimum wage, and they also must be paid overtime if they work more than 40 hours per week. By contrast, exempt employees generally are paid on a salary basis and are not eligible to receive overtime. Clergy (those who are ordained or who function in a similar religious capacity) have been held by courts to be exempt from federal wage and hour laws. It’s likely, however, that all other categories of ministry employees will be affected by this DOL ruling.

Qualifying Tests

An exempt employee must meet the following three tests:

  1. Salary basis test: This test requires that an exempt employee be paid a salary, and it limits the types of deductions that can be made to the employee’s salary.
  2. Salary level test: This test requires that an exempt employee be paid at least the FLSA minimum salary amount. This amount is currently $23,660 per year ($455 per week). The threshold was expected to be increased, effective December 1, 2016, but this increase has been delayed until further notice.
  3. Primary duties test: This test requires that an exempt employee typically perform executive, administrative, professional, or creative professional job duties. It’s important to note that a job title, such as “office manager” is not a determining factor. The employee’s job duties must pass the primary duties test.

Exempt vs. Non-Exempt … Salary vs. Hourly

An employee can meet the primary duties test but not pass the salary basis test, or pass the salary basis test but not satisfy the primary job duties test. Employees that fail to meet all three of these tests generally must be considered non-exempt and must be paid at least minimum wage and overtime. While employers can pay a non-exempt employee a salary without violating the FLSA, this often results in a misunderstanding. Paying a non-exempt employee a salary does not eliminate the need to pay overtime or minimum wage. MinistryWorks by Brotherhood Mutual has posted an article, Can a Part-Time Employee be Paid a Salary?. Ministry leaders may find it helpful.

What about the Ministerial Exception?

Courts have created a ministerial exception that exempts clergy from federal wage and hour laws. It does not appear as though the increase to the minimum salary level will affect the ministerial exception. The ministerial exception is intended to apply only to pastors, ministers, or other employees who are ordained or who function in a similar religious capacity. For non-clergy employees, ministries should follow FLSA rules and classify them as either exempt or non-exempt.

Consult an Expert

Ministry leaders are strongly encouraged to consult a locally licensed attorney to confirm which ministry employees may qualify for the ministerial exception, and the effect (if any) that the increased minimum salary level will have on the ministerial exception. An attorney who’s familiar with employment law and with your ministry organization will be able to ensure that you are complying with all applicable federal and state employment laws, as well as help you protect your ministry’s interests.