New Payroll Rules - Fair Labor Standards Act

New Payroll Rules - Fair Labor Standards Act

Ross Williams

Chances are your church has someone other than the pastor on payroll, so you need to be aware of new Department of Labor (DOL) rules and guidelines that will become effective on December 1, 2016.  The new regulations of the Fair Labor Standards Act (FLSA) strengthen overtime and wage protection for workers by raising the salary level for "Exempt" employees from the prior amount of $455 per week ($23,660/year) to $913 per week ($47,476/year).  Churches will therefore want to look carefully at salaried employees who earn less than $913/week ($47,476/year).  

Employees of an organization are generally considered to be either "Exempt" or "Non-exempt."  Non-exempt employees are entitled to overtime pay.  Exempt employees are not entitled to overtime pay.  

It is not always easy to classify your employees as Exempt or Non-exempt so attached is a flowchart, which I hope you find helpful.  (FLSA Exemption Flowchart)   Misclassifying an employee to avoid paying overtime can result in significant federal penalties and fines as well as employee back-pay with interest, so it is critical that employees are properly classified and compensated.  Ministers are generally exempt from wage and hour regulations, since the IRS and DOL consider them self-employed for tax and benefit purposes.

Churches who employ workers, other than their minister, are not exempt from federal or state labor laws, especially concerning wage and hours regulations.  The FLSA establishes minimum wage, overtime pay, record keeping and employment standards in the private sector.  Currently in New York the minimum wage is $9.00 per hour; in Connecticut, it is $9.60 per hour (these wages have scheduled increases over the next few years.)   Any Non-exempt employee who works over 40 hours in a week, must be paid overtime, at a rate of one and one-half times their hourly rate.

Some churches have chosen to pay their Non-exempt employees (secretary, custodian, etc) a fixed salary each week, based upon a set number of hours that they are expected to work. If this is the case, all hours worked each day should be recorded.  If the actual hours exceed the agreed upon hours each week or pay period, then you must pay your employees for the extra hours they have worked. 

Example:  Church secretary Mary is paid $300 per week as a salaried Non-exempt employee to work 20 hours, which equates to $15 per hour.  During one week in December, Mary works 30 hours.  For that week, she would be paid $450.   If Mary worked 42 hours during a one week period, she would need to be paid $645 calculated as: 40 hours x $15 = $600 plus 2 hours x $22.50 = $45.

What should you do to be compliant with wage and hour laws?

1. Prepare a written job description for each employee.  The conference has an easy to follow template available for your use (e-mail Sally Truglia at struglia@nyac.com).
2. Define each position’s employment status as either Exempt or Non-exempt based upon their duties and responsibilities (see flowchart).
3. Determine and agree upon the employee’s pay and standard work week.
4. Track each Non-exempt employee’s daily and weekly hours worked, approve their time sheets and pay them appropriately.  Time sheets should be kept for at least three years.
5. All hours worked must be paid.  The DOL does not allow for "comp" time (e.g. awarding a day off in return for working long hours) or allow employees to work off the clock.

If your employees are Non-exempt hourly employees, you may continue pay to them their agreed upon rate as long as it meets or exceeds the minimum hourly wage for your state and you pay them according to their hours actually worked.  

For churches with Exempt managers or administrative professionals, you will need to carefully evaluate the position and the laws governing their FLSA exemption and determine if they meet all the necessary requirements.  If so, their minimum weekly wages must meet or exceed the new $913 weekly pay rate, effective December 1, 2016.

The General Council on Finance and Administration (GCFA) has issued a White Paper summary of the changes affecting employees, which is attached (gcfaflsawhitepaper.pdf).  Additionally, they have partnered with ComplianceHR to offer a software tool to assist in determining who qualifies for overtime, guide you on how to re-classify your employees and provide a risk assessment.  The cost is $60 per position and more information can be found on the attached flyer (compliancesoftwareflyer.pdf).

For more detailed information you can also visit:

GCFA web-page on the FLSA:  http://www.gcfa.org/compliancehr-is-now-available-through-gcfa

Department of Labor websites:  https://www.dol.gov/whd/flsa/  and 
https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm
 
Sincerely,  Ross