The Must Know New Overtime Rules

By Raul Rivera

Now that we are in the fourth quarter of 2015, many churches will soon begin planning for next year’s budget. When doing so, there are many factors to consider such as rent/mortgage, utilities, the needs of each ministry department, and then of course, salaries. To adequately propose a budget for next year, it is necessary to look at the current year’s income and expenses, which should provide insight on how to project realistic income and expenses for next year’s budget. Additionally, it is important to stay informed on any changes that may potentially affect any aspect of the church’s budget, such as the newly proposed overtime rules.

For many pastors, the idea of a 40-hour work week is no longer a reality. It is not uncommon for a pastor’s job description to require that he be available at all times, thus resulting in him working well over 40 hours per week. But have you ever thought about, or took an honest look into, how overtime regulations relate to pastors? And what about other church employees?

With major changes in the current overtime rules likely taking effect sooner rather than later, it is imperative that you become familiar with these changes, as they could affect your church’s budget for 2016.

Current 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. It is the Department of Labor (DOL) that has the authority to define the rules, set forth in the FLSA, through regulation.

In general, workers who are paid hourly or earn below a certain amount are considered to be protected by overtime regulations. Employees protected by overtime regulations are also 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 work week.

Furthermore, employees who are not protected by the overtime regulations, or “exempt” workers, are those who earn more than the regulated income threshold and are considered to be “executive, administrative, and professional employees.” These employees are often working in what would be commonly considered “white collar” jobs.

In 2004, the Department of Labor increased the income threshold for overtime protection for the first time since 1975. The DOL increased the threshold from $250 per week ($13,000 per year) to $455 per week ($23,660 per year). In essence, this means that those who do not work in a “white collar” job and earn less than $455 per week are entitled to overtime protections.

Proposed changes to overtime regulations

Much of the pressure to reform overtime regulations stems from the fact that the current salary amount that exempts a worker from overtime protection ($23,660 per year) is actually less than the current federal poverty level for a family of four ($24,250 per year).

In 2014, President Obama signed a Presidential Memorandum instructing the Secretary of Labor “to propose revisions to modernize and streamline the existing overtime regulations.” The Presidential Memorandum went as far as to state 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.”

In response to the Presidential Memorandum, the DOL proposed rules that would increase the current income threshold for overtime exemption from $455 per week (or $23,660 per year) to $970 per week (or $50,440). According to the DOL, the proposed increase in the income threshold is an amount equal to the 40th percentile of earnings for full-time salaried workers. This proposed change to overtime regulations, if made final, will most likely affect businesses, but how might this change affect churches?

How these changes may affect churches

As employers, churches generally have two classifications of employees: 1. ministers/clergy members and 2. non-ministerial employees (ex. someone whose job is strictly administrative in nature). The proposed changes to the current overtime regulations will affect each type of employee differently. Let us first take a look at how these proposed changes relate to ministers.

Ministers and overtime regulations

Pastors are not strangers to working overtime. Pastors seem to realize that working more than 40 hours per week simply comes with the territory. But now that we know “executive, administrative, and professional employees” are exempt from FLSA overtime provisions, you may be asking, “How do the overtime regulations affect ministers?”, and, “What is the relationship between ministers and FLSA overtime regulations?”

Well, as long as a minister earns more than $455 per week, the current income threshold for overtime provisions, the minister would be considered a “professional employee”, and thus exempt from overtime regulations. But what about ministers who earn less than $455 per week? To help us answer this question, we can look to two sources.

1. The first source we can look to is the Department of Labor. In 2004, when the income threshold for overtime was last raised, the DOL noted several times throughout the final rule of its Economic Report that clergy and religious occupations are exempt from the FLSA’s overtime provisions. In estimating the number of workers covered by the FLSA, “the Department [of Labor] excluded the 14.9 million workers not covered by the FLSA, such as the self-employed and unpaid volunteers, and the clergy and religious workers.”
2. The second source that we can look to is the federal court system. There is precedent from several federal courts that have ruled that ministers are exempt from FLSA due to what is known as ministerial exception. In short, the ministerial exception is a legal doctrine that “shields” ministers from certain employment laws and FLSA regulations.

Now that we know ministers are not, in general, covered by the FLSA and are exempt from the overtime regulations, we will next take a look at how changes to the overtime regulations will affect the non-ministerial employees of a church.

Non-ministerial employees and overtime regulations

Most church employees are protected by the FLSA and are entitled to overtime pay for hours worked in excess of 40 hours per week. Should the proposed rules to the overtime regulations take effect, it will most likely have a significant impact upon the budget of many churches. Let us look at an example to help illustrate this scenario.

Example: A church administrator for Church ABC works at least 50 hours per week and earns an annual salary of $45,000. Under the current overtime regulations, the church administrator is exempt from the overtime rules. However, if the proposed changes to current overtime regulation go into effect, increasing the income threshold to $50,440 per year ($970 per week), then Church ABC will have to pay its church administrator time-and-a-half for the hours worked in excess of 40 hours per week.

Therefore, if the proposed changes go into effect and the church administrator continues to work 50 hours per week then the church administrator’s weekly income would increase by an additional $324.60. Over the course of a year, the church administrator’s annual salary would increase from $45,000 to $61,879.20. That is a significant increase in one’s salary that many churches will not be able to afford. However, this can be managed in one of two ways.

1. Implement measures that strictly limit (to 40 hours per week) the hours worked by non-ministerial employees.
2. For some churches, it may not be feasible to limit the hours of some non-ministerial employees. If this is the case for you, you may want to consider increasing the individual’s salary to an amount that exceeds the income threshold of the overtime regulations.

It would also be beneficial for all churches to spend time reviewing the classification of each employee. You want to make sure that those who are treated as an employee of the church actually meet the definition of an employee. (Click here to read more about the difference between an employee and contract worker.)

Conclusion

In general, labor laws can be burdensome and tough to fully understand. But when you look at how labor laws relate to churches, you begin to get into a completely different level of complexity. Although churches are generally exempt from FLSA regulations, as we just saw, there are exceptions about which churches should be aware. Church compliance may seem to be 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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