It’s budgeting season in a year like no other. For those of us without psychic ability and a crystal ball, how do we plan for 2021? There are many things to consider, but I want to lead with a big policy change that needs to be a focus of your forecasting: Significant changes to the Washington state overtime threshold rules are being phased in over the next 7.5 years.
The biggest impact for nonprofits: Beginning on January 1, 2021, you must pay overtime to all staff earning less than $42,713 as an annual salary if you have 50 or fewer staff members or to all staff earning less than $49,832 if your organization has 51 or more employees, regardless of their job duties. Each year, the minimum threshold will rise according to this schedule until it reaches 2.5 times the minimum wage (approximately $79,000) in 2028. Since nonprofits often have exempt staff members who earn salaries well below $79,000, many will have to make changes to stay in legal compliance.
Why is this happening? The overtime threshold has not changed since the 1970s. As a result, it has not kept up with the rate of inflation. Having a higher overtime threshold protects lower wage workers from exploitation. Nonprofits have the same obligation as for-profit employers do to be good employers. Although this will require change, it will result in better compensation and working conditions in the nonprofit sector overall, which will in turn increase equity and our ability to attract and retain the best talent at our organizations.
If we have exempt staff with salaries below the increasing threshold, what should we do? There are several options you can consider:
- You as an employer may opt to convert salaried “exempt” employees to salaried “non-exempt” or hourly “non-exempt” and pay any overtime or limit hours to 40 per week.
- Employers may also decide to continue keeping their salaried employees “exempt”, ensuring that they meet the duties test requirement as well as the salary requirement. Just remember that you will have to revisit and keep pace as the threshold rises in the coming years.
If you have exempt employees that currently earn less than $50,000 per year, you will want to do some analysis to determine the best path forward and inform your budgeting for 2021 and beyond. First of all, review the updated rules for exempt staff and confirm that each of these employees is properly classified. Nonprofits can misunderstand the rules and think that all staff can be salaried and exempt. This is not the case.
Second, you’ll need to know how many hours beyond 40 your employees are working (be sure to ask about seasonal variations!) to assess what it might cost you if they become eligible for overtime. Chances are, your organization may not be tracking this, so you’ll need to conduct a survey and perhaps a time audit to collect this information. Take a look at the hours that your employees are putting in and calculate how much it would cost if you were to pay those staff members at the overtime rate of 1.5 times their usual hourly rate. To avoid paying overtime (which is more expensive for the organization if many employees are working overtime), it is possible you’ll need to hire additional staff to cover those hours.
You can also check to see if there are any separate exemptions to overtime requirements that may impact your organization. For example, camp counselors receive an exemption due to the nature of their work and special status as residential staff. If you do have an exemption, you will still need to decide whether to keep pace with the increases. Keep in mind that you may have trouble competing for qualified staff if they can move to other organizations with better compensation.
Can our employees simply volunteer a portion of their time? No! It is illegal for you to have employees engage in similar work duties as volunteer time. The only time when a staff person can volunteer for the same nonprofit that they work for is when they are supporting an entirely different activity and there is no coercion. For example, an accountant for an animal rescue organization could volunteer to be a greeter at the organization’s annual fun run. They cannot volunteer to work extra hours beyond 40 per week to complete the monthly financial report.
Can we just offer comp time? No! Private employers cannot offer comp time in lieu of overtime pay. However, private employers can allow employees to flex their schedules within the same workweek.
What if we can’t afford to fix the situation? It will be difficult for many nonprofits to adjust to the new rules. Often, our costs of doing business seem to rise more quickly than our grants, contracts, and other sources of revenue. Additionally, most nonprofits are “people businesses” and a large percentage of our budget is typically spent on staffing, so it isn’t easy to make cuts elsewhere to fund higher labor costs. Here’s what you can do:
- Right-size people’s workloads and expectations of what your organization can do with the funds you have available. Nonprofits are famous for doing more with less. However, there are limits. This might be the time for some tough conversations with your board regarding doing what you can reasonably do and not more. This is difficult but necessary. Brave conversations with funders may be needed as well.
- Don’t lose perspective as you work through these issues. If you have staff who are consistently working more than 40 hours per week, it is not a good situation for your employee or your organization to be in for the long term. Studies show that workers become less productive when they work excessive hours and become vulnerable to burnout. By correcting overwork in your organization, you may see some very positive results.
- Get involved in advocacy. Washington Nonprofits advocates for nonprofits like you, and we have been sharing how squeezed many nonprofits feel by rising costs and stagnant government contracts. Work with us to tell your legislators how this impacts your services and why increased funding levels and reimbursement rates are needed.
What else should we be thinking about? If you have relied primarily on exempt staff, you may not have a time tracking system in place to track your staff’s hours. Consider putting one in place and requiring all employees, even exempt staff, to participate. Online time tracking tools are a good option to consider.
Also, be sure that you communicate clearly about any changes you are making. People do not like change and may resist tracking their hours even if it benefits them as a worker. Staff members who are reclassified from exempt to non-exempt may perceive the change as a demotion, so it is important to explain the decision and underscore that this is an adjustment that does not reflect on their performance and will provide them with additional protections.
This is just one of many things to consider when budgeting this fall. We wish you the best and will continue to share information and tools to help you work through this latest challenge. We recommend you visit Labor & Industries Changes to Overtime Rules resource page to learn more. You can also watch two recorded webinars from Washington Nonprofits on this topic that provide good information about the rules and strategies for implementation.
If you have have any concerns or thoughts, please let us know: firstname.lastname@example.org