Labor Department Issues Final Overtime Rule
On Sept. 24, the U.S. Department of Labor announced its Overtime Final Rule that adjusts the salary level test, part of a three-part test for determining when white-collar workers are exempt or must be paid overtime for working more than 40 hours in a week. The new rule raises the salary threshold for the white-collar exemption from overtime pay to $684 per week ($35,568 per year), up from the current level of $455/week ($23,660 per year). It also raises the salary threshold for highly compensated employees who are exempt from FLSA overtime pay requirements from $100,000 per year to $107,432 per year and allows employers to satisfy up to 10 percent of the standard salary level by using nondiscretionary bonuses and incentive payments.
The Final Rule goes into effect on January 1, 2020. The Labor Department rejected recommendations from some to phase-in the new salary thresholds over several years, adopt different levels based on geographic regions, or create carveouts for nonprofits or other sectors. The new rule does not alter the existing duties tests for executive, administrative, or professional employees, which also must be satisfied beore an employee would be considered exempt. View the National Council of Nonprofits’ resource page, read the new analysis, Understanding the New Overtime Final Rule, and join the Nonprofit Overtime Webinar on November 5.
November 5, 3:00 pm Eastern
Join officials from the U.S. Department of Labor and experts from groups representing workers and employers for an exploration of what the Overtime Final Rule means to nonprofit operations and missions, and what nonprofits should be doing now to prepare.
- Weeding Out Hate Groups: A recent hearing on how hate groups take advantage of the tax code highlighted several horrendous acts of violence perpetrated by individuals active in organizations that had received tax-exempt status from the IRS. The House Ways and Means Oversight Subcommittee heard that their legislative options were limited because the Constitution’s First Amendment protects offensive speech and outrageous ideas. But it does not protect illegal conduct or prevent the government from taking certain actions to protect the public. The National Council of Nonprofits submitted a statement for the record that identifies a serious flaw in the IRS process for determining whether organizations are eligible to receive tax-exempt status and receive tax-deductible donations. The statement lays out the history of IRS Form 1023-EZ, which the IRS adopted to reduce the agency’s pile of long-delayed applications. The abbreviated form and virtually automatic approval process have resulted in thousands of ineligible entities receiving recognition as 501(c)(3) organizations. The Council of Nonprofits is calling on Congress to prevent use of the defective application process, properly fund the IRS, and work with nonprofits to develop procedures to better protect the public from bad actors masquerading as charitable nonprofits.
- Capping SALT Deductions Upheld: A federal judge dismissed a lawsuit filed by four states challenging the constitutionality of the $10,000 cap on state and local tax (SALT) deductions enacted as part of the 2017 federal tax law. The states, Connecticut, Maryland, New Jersey, and New York, filed the suit against the U.S. Treasury Department and Internal Revenue Service asserting the cap exceeded Congress’ taxing authority and was designed to “coerce” the states to amend their tax codes. The judge rejected the claims, writing that the states “failed to show that the financial burden their taxpayers will experience as a result of the SALT cap is any more severe than the sort of burden that might accompany any other statewide economic disappointment.”
- Considering Race in Admissions Permissible: Harvard University’s admission practice of considering a prospective student’s race as one factor for admittance to the school was deemed permissible in federal court last week. The case was brought by a group of Asian American students who had been denied admission. The judge found that Harvard’s “admissions process may be imperfect,” but it is not based on “any racial animus or conscious prejudice.” She ruled that it is designed to benefit “racial and ethnic groups that would otherwise be underrepresented at Harvard and is therefore neither an illegitimate use of race or reflective of racial prejudice.” Schools are left to determine the weight of race-neutral factors, like test scores, grade point averages, extracurriculars, and life experiences.
- Ending Gender-Based Violence: For more than 20 years, YWCA USA has dedicated one week in October to draw attention to ending violence against women and girls. The Week Without Violence runs from October 14 to 18 and gives individuals and organizations the opportunity to participate in events, share information and stories, advocate, and more with a common goal in mind: together, we can end gender-based violence. Find an event on the interactive map.
Upcoming SCOTUS Cases Affecting Nonprofits, Subsectors
Today, the first Monday in October, marks the beginning of the 2019 term for the U.S. Supreme Court. Given the expansive breadth of the nonprofit community, it’s difficult to find a case before the Court without some connection to the work of some nonprofits, be it one side of an issue or often both. For example, with roughly half of the term’s docket in place, the Court will be considering cases involving abortion, environmental protection, gun safety, and immigration (including three cases reviewing the Trump Administration’s decision to halt the Deferred Action for Childhood Arrivals (DACA) program). So far, the Court’s docket is heavy on employment-law matters, including three cases to address discrimination due to sexual orientation or gender identification and one on age discrimination in the workplace. Another case asks whether federal law expressly preempts states from using personal information obtained from an employment Form I-9 to prosecute any individual, in addition to the employer, regardless of citizenship status. While these cases stem from disputes involving for-profit employers, the decisions will likely affect employment policies on sexual orientation, gender identity, race, and age, regardless of tax status. Additional cases will be added to the Court's docket on Tuesday.
A case that implicates charitable nonprofits more directly is a state tax-credit scholarship program case from Montana regarding whether a student-aid program that provides choice of religious or nonreligious instruction violates the Constitution – the separation of church and state and the Equal Protection Clause. The Montana Supreme Court had ruled that the tax credits violated the state constitution by providing direct or indirect aid to church-affiliated private schools. State tax credits and their effects on nonprofit organizations have been in doubt since the IRS published final regulations in June that curb federal tax benefits of state and local tax (SALT) credit programs.
Nonprofit Speech, Assembly Rights Protected
Federal judges in a pair of cases upheld the free speech and assembly rights of nonprofits in striking down recent state disclosure laws. The first cases involved a New York state law that mandated disclosure of certain nonprofit donors. The statute required 501(c)(3) organizations to disclose when they provided financial or in-kind support to 501(c)(4) social welfare groups that happen to lobby or engage in partisan, election-related activities. The district court judge expressly recognized that charitable nonprofits are limited in the amount of lobbying they can do or pay for and are absolutely barred from engaging in partisan activities under 501(c)(3). Proponents of the law claimed an intent to reduce secret money and campaign finance violations, but the court found that the law would have forced donor disclosures when organizations had relationships that had nothing to do with lobbying or partisan campaign activities. The court ruled that the State did not have a sufficient reason for imposing the burdens on 501(c)(3) organizations.
Across the river in New Jersey, a separate federal judge stopped a newly enacted law requiring that 501(c)(4) social welfare groups and 527 political organizations publicly disclose the names of large donors. The law would have affected donations of more than $10,000 and organizations spending more than $3,000 on elections and political activity. Three social welfare nonprofits opposed the law arguing it violated the First Amendment. The law’s disclosure provisions would have been triggered by publication of advertisements on regulations, legislation, and ballot measures, which is broader than other state laws restricting secret money and applying only to election-related communications. “Most constitutionally troubling to the Court,” the judge wrote, “is the way in which … the Act brings communications of purely factual political information into a disclosure and financial-reporting regime historically limited to electioneering communications.”
State Lawmakers Consider, Pass Employment Law Changes
Employment law changes have been top of mind for in state legislators and governors in 2019.
- Maine: Since May, the Legislature passed and Governor signed several bills that will affect all employers, including nonprofit organizations. As summarized by the Maine Association of Nonprofits, the laws restrict noncompete agreements, prohibit inquiries into compensation history, and ban gender identity discrimination and pregnancy-related discrimination. All of the new laws took effect on September 18, 2019.
- Massachusetts: Starting October 1, 2019, nonprofits and other employers in the Commonwealth are required to begin making payroll deductions to prepare for quarterly reporting and contributions to the Department of Paid Family and Medical Leave (PFML). Employers are also required to begin complying with the PFML law's posting and notice obligations. Massachusetts Nonprofit Network posted key provisions and preparation tips to help nonprofits comply.
- New York: Governor Cuomo signed a bill that expands sexual harassment rights and protections. The law lowers the standard for proving harassment claims, prohibits nondisclosure agreements related to discrimination, prohibits mandatory arbitration clauses related to discrimination, and requires employers to provide employees notice of their sexual harassment prevention training in writing in English and employees' primary languages. Importantly, the law extends the statute of limitations to three years for claims resulting from unlawful or discriminatory practices constituting sexual harassment.
- North Carolina: The Governor recently signed two employment-related bills of interest to nonprofits. One permits the creation of association health plans that allow certain nonprofit associations to form Multiple Employer Welfare Arrangements (MEWAs) to provide health insurance. As Investopedia explains, MEWAs are particularly useful for small companies, allowing them to offer employee's benefits beyond the government-run health insurance exchanges by sharing risk. The other NC measure creates a legislative study committee to explore better options for small businesses, including small nonprofits, to offer retirement benefits for their employees.
- Texas: A new law provides an organization immunity for reporting to a subsequent or prospective employer an employee’s or volunteer’s alleged acts of sexual assault, misconduct, sexual harassment, or public indecency. It protects good faith reporting of such improper or illegal conduct, but clarifies that there’s no immunity under the new law for a person reporting on his or her own conduct.
Taxes, Fees, PILOTs Update
- Property Tax: County officials in Roanoke, Virginia plan to ask the Commonwealth to approve a property tax increase for commercial tenants on property owned by the Virginia Tech Foundation. One Board of Supervisors member supporting the increase argued, “A true nonprofit, if they’re going to engage in commercial activities, they need to be on the same footing as everybody else. It’s my belief … when you’re giving somebody tax free status, you’re putting them on unequal footing.” Foundation leases for more than 50 years are fully taxed, but leases for shorter periods of time are incrementally reduced by 2 percent for every year.
- PILOTs: Providers’ Council, one state association of nonprofits in Massachusetts, joined 24 other nonprofits in forming the Coalition to Preserve Nonprofit Services to oppose three bills (HB 2407, HB 2471, and HB 2581) on payments in lieu of taxation (PILOTs) in the Legislature. The bills would set arbitrary starting points for PILOT negotiations. The Coalition submitted testimony stating, “Each nonprofit organization is unique. The various ways that local communities discuss … [PILOT] programs and other community benefit arrangements should also remain unique.” They continue, “In essence, these bills place arbitrary levels of taxation upon nonprofit organizations, regardless of longstanding state and federal tax laws, oversight and permissible charitable structure. We believe that requiring nonprofits to make [PILOTs] is shortsighted, and places the benefits that municipalities realize from hosting service-driven organizations at risk.”
- PILOTS: Nonprofits in Philadelphia, Pennsylvania, including the University of Pennsylvania, Philadelphia Museum of Art, and Lincoln Financial Field, are being targeted for not paying voluntary payments in lieu of taxation (PILOTs) despite constitutional protections for property tax exemption. Some students at UPenn and The Daily Pennsylvanian Editorial Board are seeking to pin the City of Philadelphia’s financial woes on nonprofits rather than elected officials’ budgeting decisions and without accounting for the government-owned tax exempt properties. Government properties at the city, state, and federal levels, plus housing authorities, SEPTA, and other agencies, make up 40 percent of the 23,000 exempt properties. The total amount of all exempt properties is valued at $29.6 billion. Tax abatements for new construction of for-profit businesses and opportunity zone developments are estimated at $11.6 billion over 10 years.
Voting: National Voter Registration Day 2019 Success
This year’s National Voter Registration Day broke records for voter registrations for an odd-numbered year. Partners from 4,083 organizations and 54 premier partners joined the program to register approximately 400,000 people to vote in 2019, more than three times the previous record for years focused primarily on local and state elections. The U.S. Senate also celebrated by passing a resolution recognizing National Voter Registration Day and encouraging "each voting-eligible citizen of the United States to register to vote; to verify with the appropriate State or local election official that … personal information on record is correct; and to go to the polls on election day and vote….”
2020 Census and Nonprofits
Interactive Map Helps Nonprofits Promote Census Participation
Nonprofits, local governments, and others committed to securing a fair, accurate, and complete 2020 census count have a new tool to aid their work. The interactive map of hard to count (HTC) communities program from City University of New York’s Graduate Center is the single-most used source of data and information, according to public agencies and nonprofits. The map shows rural and dense city neighborhoods where counts are low and allows for data overlays of certain low-response demographics, like students, immigrants, and households with young children. Nonprofits doing work in and interacting with their communities every day are often the most trusted messenger to get out the count. They now have a tool to find where else to expand their reach.
The following is an Advocacy in Action excerpt from the new report: Nonprofit Impact Matters, pages 25-26.
Policy Proposals at All Levels of Government Threaten the Work of All Nonprofits
All 501(c)(3) organizations need a reliable, steady, and supportive public policy environment in which to pursue their missions.
Yet those missions are vulnerable to actions by policymakers who, whether intentionally or inadvertently, can take away needed resources, impose unnecessary burdens, interfere with decision-making, erect harmful barriers, and otherwise change laws in ways that disrupt the work of charitable, religious, and philanthropic organizations.
It’s important to recognize that significant threats can occur not just at the federal level, but also at the state and local levels. Certainly, a change in law at the federal level can have nationwide ramifications. But changes in a state’s laws can be just as consequential for the charitable nonprofits, houses of worship, and foundations in that state. As this chart reveals, the odds of policy changes being made are much greater at the state than the federal level.
If your state proposed to limit or eliminate charitable giving incentives, eliminate tax exemptions for nonprofits, levy new taxes or fees on nonprofits, impose unwieldy regulatory burdens on nonprofits, substitute its opinions for your board’s informed decision-making, or proposed other harmful changes, would the nonprofits you care about be prepared?
Read more about a few of the many current sector-wide challenges include:
- Limiting nonprofit resources by tampering with charitable giving incentives.
- Taking charitable assets by taxing tax-exempt nonprofits.
- Failing to reimburse nonprofits for contracted costs
- Cutting government budgets.
- Attempting to politicize nonprofits.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.