Federal Judge Puts New Overtime Rules on Hold

Over the summer, the Department of Labor (DOL) announced new overtime regulations that would go into effect this year. As of today, December 1, 2016, all employers must adhere to the new rules.

However, a federal judge in Texas issued a preliminary injunction blocking the new overtime rules from taking place today. This indefinite postponement will stand until the judge renders his decision on the case.

Many employers, including churches, have been preparing for today’s implementation of the new overtime rules. Some have even communicated the changes to their workers, trained managers on new timekeeping systems, and some have even implemented pay increases to certain workers. But now, this preliminary injunction has placed many employers and employees in limbo. 

So, what does this mean for your church as an employer? What does this mean for church employees? And, how should your church move forward? These are all legitimate questions that many pastors, church leaders, and church administrators are asking, and I will attempt to answer them next.

What should your church do now?

With the hold on the new overtime rules many employers, including churches, are asking, “What do we do now?”, and, "If we have already implemented changes that affects our payroll and financial books, what should we do?"

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The fact is that with the indefinite delay, there is no requirement for employers to uphold any changes that they have already made, or were planning on making. However, it is important that you not assume the new overtime rule is obsolete or something that you can now disregard.

The truth of the matter is that things change quickly. What was put on hold today can just as quickly be taken off hold. So, in my opinion, if your church has not yet implemented any changes relating to the new overtime rules, then hold off on implementing those changes until a decision from the federal judge has been made.

However, make sure your church is fully ready to implement any necessary changes in order to be in compliance with the new overtime rules. Now, in order to be adequately prepared to implement these changes, it is important that you fully understand the new overtime requirements.

I realize that many of you may already be familiar with the new overtime rules, but it never hurts to be refreshed on a subject matter. Before we do so, let us take a look at overtime regulations and the DOL.   

Overtime regulations

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, record keeping, and youth employment standards that affect most employees in the private and public sector. 

The DOL has the authority to define and regulate the rules set forth in the FLSA.

In general, workers who are paid hourly or earn below a certain amount are considered covered by the overtime regulations. 

Employees protected by overtime regulations are referred to as “nonexempt” workers who are entitled to overtime pay at a rate of one and a half times the regular rate of pay after 40 hours of work in a week.

Employees not protected by the overtime regulations are known as “exempt” workers and earn more than the regulated income threshold. 

These exempt workers are executive, administrative, and professional employees working in what are commonly considered “white collar” jobs.

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New overtime regulations

In 2004, the Department of Labor increased the income threshold for overtime protection for the first time since 1975. What had once been an income threshold of $250 per week, was increased to $455 a week ($23,660 per year).

A federal judge in Texas issues a preliminary injunction blocking the new overtime rules from taking place today.

However, as our economy grows, so does the cost of living. In 2014, President Obama signed a presidential memorandum instructing the secretary of labor “to propose revisions to modernize and streamline the existing overtime regulations.”

It is important to note that the new overtime regulations do not have an exemption for employees of churches or ministries.

The presidential memorandum stated that the “regulations regarding exemptions from the [Fair Labor Standard] Act’s overtime requirement, particularly for executive, administrative, and professional employees … have not kept up with our modern economy.”

On May 18, 2016, President Obama and Secretary Perez announced the DOL’s final rule updating overtime regulations, which will extend overtime pay protections to over 4 million workers within the first year of implementation.

The new overtime regulations include the following updates:

  1. Employees who earn less than $913 per week ($47,476 annually) are now eligible for overtime pay.
  2. The salary threshold will now be updated every three years.
  3. Employers may now include bonuses and commissions to satisfy up to 10% of the new salary level. 

There are no changes in the new regulations to the “duties test” for the exemption of executive, administrative, and professional employees. 

What does this mean for churches? How might these new overtime regulations impact your church finances and budget? 

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Next, let us take a look at these answers.

What does this mean for churches?

As employers, churches generally have two classifications of employees: 

  • Ministerial employees, and 
  • Non-ministerial employees. 

We will look at both types of church employees since the new regulations impact them in different ways. 

(Recommended reading: “How to Hire Church Employees the Right Way, Part 1” and “How to Hire Church Employees the Right Way, Part 2”)

It is important to note that the new overtime regulations do not have an exemption for employees of churches or ministries.

Ministers and overtime

Working more than 40 hours in a week is nothing new for ministers and pastors. So, how do the new overtime regulations affect ministers?

In general, ministers are not covered under FLSA employee regulations and guidelines. Several federal courts have ruled that ministers are exempt from FLSA regulations due to what is known as a ministerial exception. In short, the ministerial exception is a legal doctrine that “shields” ministers from certain employment laws and FLSA regulations.

Therefore, the new overtime regulations have no bearing on the hours that ministers work. However, the new overtime regulations still apply to all other non-ministerial, church employees.

Non-ministerial employees and overtime

In essence, there are two ways in which an employee can be covered under the overtime laws: “enterprise coverage” and “individual coverage.”

A church will not be subject to the overtime regulations under the enterprise coverage, unless it operates a daycare or school. In this situation, there are certain requirements that must be met in order for the enterprise coverage to apply.

Many church employees meet the individual coverage requirements. This coverage applies to employees whose work regularly involves commerce between states (interstate commerce).

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Perhaps you are thinking, “My church only operates in one state, so I do not think our employees would meet the individual coverage requirements.” 

Although it may seem that way, employees engaged in “interstate commerce” include those who regularly do the following: 

  • Make telephone calls to persons located in other states, 
  • Ship materials to other states, 
  • Handle records of interstate transactions, 
  • Travel to other states for work purposes, and
  • Send emails to people in other states. 

The important thing here is not to assume that your employees do not meet the coverage requirements.

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Let us look at an example to help put things into perspective.

Example:

A church administrator for ABC Church usually works at least 45 hours per week and earns an annual salary of $30,000. Under the previous overtime regulations, the church administrator is exempt from the overtime rules. However, as of December 1, 2016, the church administrator’s annual salary of $30,000 is no longer above the salary threshold and thus is no longer exempt from overtime regulations. Therefore, if the church administrator continues to work 45 hours per week under the new overtime regulations, an additional $5,623.80 will be earned from the overtime hours over the course of a year.

Maybe the additional $5,623.80 per year does not seem like much, but for some churches, the additional overtime pay may not be readily available. 

Also, keep in mind that the salary threshold now applies to all employees who earn less than $913 weekly or $47,476 annually.

What can your church do to prepare for the new overtime regulations? Let us look at that next.

3 ways to address new overtime regulations

While the new overtime regulations can be good for employees, it can be a challenge for employers. Below are 3 ways that your church can prepare for the new overtime regulations.

  1. Limit work hours to 40 per week: Implement a strict policy stating that overtime hours for non-ministerial employees must be approved beforehand.
  2. Raise salaries above the new salary threshold: In some instances, it may be more reasonable and affordable to simply raise one’s salary above the new salary threshold than to pay overtime throughout the course of a year.
  3. Pay time-and-a-half for overtime work: Most churches will have a limited number of employees who have the possibility, availability, and interest to work overtime. For these situations, paying them time-and-a-half will likely be the most affordable way to stay in compliance.

Where to go from here

The DOL can impose serious penalties on churches that do not abide by the new overtime regulations. Although churches are generally exempt from FLSA regulations, you should be familiar with the exceptions that exist. 

We love providing helpful information to pastors and church leaders, but if you have specific questions pertaining to your church and the new overtime regulations, you should seek legal advice from a qualified attorney.

Church compliance may seem like a complex matter, but it does not have to be that way. Join us at one of our Ultimate Church Structure Conferences for a day that is dedicated for you to work not just IN your ministry, but ON your ministry.

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