Phoenix nonprofits prepare for possible change to federal overtime law

By Sydnee Schwartz

Children aging out of the foster care system have had an opportunity to develop a foundation for their adulthoods through Jewish Family and Children’s Services’ Real World Job Development program, which started in 2006.

Teenagers voluntarily spend their mornings working to earn a GED, and they develop life skills and gain work experience in paying internships.

The nonprofit JFCS also offers counseling, substance abuse and treatment, domestic violence survivor support, senior enrichment and emergency financial education and help.

But to keep their services running at the same level, JFCS may need to make adjustments in the new year to comply with new overtime guidelines that could go into effect. The new guidelines would raise the salary level for the first time in 12 years and would apply to all non- and for-profit entities.

Fair Labor Standards Act’s coverage for nonprofit organizations. (Graphic by Sydnee Schwartz)

The threshold for overtime eligibility would increase from $455 a week to $913 a week for full-time workers, which would entitle someone earning less than $47,476 to overtime pay.

The rule would also raise the threshold for white-collar workers whose duties extend beyond their job titles. These employees making more than $134,004 a year will become ineligible for overtime compensation. The previous limit was $100,000.

According to Frank Jacobson, vice president of marketing and development for JFCS, his organization would need to come up with $1.5 million to keep their staff working their regular shifts, based on an internal study. In the 2014-2015 fiscal year, JFCS spent $26,402,465 on salaries and benefits. That’s about 54 percent of their total support and revenue for 2014-2015.

In the 2014-2015 fiscal year, about 88 percent of JFCS funding came from external support such as grants, government contract and special events. The other 12 percent came from revenue efforts from its different programs and services.

Gina Harper, a JFCS program director, said their staff provides essential services to their community, and cutting their hours to avoid paying overtime would disadvantage their clients. “Many positions require a lot of constant client contact, which sometimes can lead to putting in extra time … depending on the needs of the client. We sometimes have to do more with less,” Harper said.

Lorrie Henderson, CEO of JFCS, said a longer period of time to implement the new guidelines would be beneficial.

Recently, Arizona and 20 other states sued the U.S. Department of Labor to block the rule. On Nov. 22 these states made some progress in their battle with the U.S. Department of Labor as a federal judge in Texas ruled for a preliminary nationwide injunction. This decision has pushed back the effective date for the new guidelines until the judge can issue a final decision.

The decision on how to comply with the new guidelines and whether or not to raise salaries or cut employees’ time isn’t a challenge JFCS alone faces. All nonprofit organizations nationwide would need to develop a plan to comply with the new guidelines.

Robin Stillwell-Harvey, divisional director of human resource management at The Salvation Army Southwest Division, said the Fair Labor Standards Act change would have a greater impact on nonprofits. Nonprofit organizations have no way to pass along any additional expense through product or service, making it much more difficult to navigate such a large increase in the overtime exempt threshold, she said.

Jacobson said JFCS will have to look at the statuses and benefits of their services and employees, and decide from there how they can comply with the new guidelines the least damaging way for the work they do for their community.

U.S. Department of Labor’s suggestions for complying with the new rules. (Graphic by Sydnee Schwartz)

According to the U.S. Department of Labor, businesses would have a variety of choices to make. Some could choose to raise salaries so they don’t need to pay overtime. Others could spread the workload out more to avoid employees working overtime. Employers could even minimize their workforce so they can afford to pay some employees overtime.

Employers could also change employees to hourly status, which would allow employers to keep closer watch on the hours employees log. Salvation Army’s Stillwell-Harvey said, “This change represents either a 100 percent increase in compensation for many previously (overtime) exempt employees or an adjustment in status (from salary to hourly), which feels to many, like a demotion.”

Despite the injunction, some nonprofits have already begun to prepare for internal changes.

Madeleine Stilwell, vice president of operations at Big Brothers Big Sisters of Arizona, said in order to avoid paying overtime, their team will focus on making sure employees are working effectively within their hours.