Evaluating the U.S. Department of Labor's Overtime Proposed Rule

On Aug. 30, 2023, the U.S. Department of Labor (DOL) announced proposed new regulations designed to update and revise overtime protections for millions of workers employed by nonprofits, for-profits, and governments. DOL is expected to issue a final rule in Spring 2024.

The public comment period closed on Nov. 7, 2023. See the National Council of Nonprofit's comments to DOL.

What's Being Proposed?

The Department has issued proposed overtime regulations that would do three things, if implemented after a public comment period and further analysis. The Department proposes:

  1. Raising the standard minimum level for salaried workers from $684 per week ($35,568 per year) to what amounts to the 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South), which would be $1,059 per week ($55,068 per year) based on current data.
  2. Raising the standard salary minimum for highly compensated employees from $107,432 per year to the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally, or $143,988 per year.
  3. Implementing a mechanism for automatically revising these two minimum earnings thresholds every three years using updated wage data.

Read NCN's analysis,  DOL Proposed Overtime Reforms and the Impact on Nonprofits.

The Department is not proposing changes to the standard duties test, discussed below.

What DOL Wants to Know

As part of its public outreach, including hosting Listening Sessions in late September, the Labor Department posed several questions and requests for data to help them evaluate the impact of the proposed rule:

What would be the costs for complying with the proposed rule?

DOL estimates the cost per small nonprofit to be around $3,500, which several participants on the September 27 call said was unreasonably low.

How many employees would be affected?

The DOL materials suggest that the proposed rules would have an effect on 38,000 nonprofits employees.

What are entities planning to do to comply, "such as raise their wages, make them hourly and give them overtime, etc."?

DOL would like to get a sense of what they will do to ensure compliance with higher salary thresholds - to the extent employers know or are willing to predict. The North Carolina Center for Nonprofits has prepared an excellent summary of the options: Don't Panic (Yet): What Your Nonprofit Needs to Know About the (Latest) Proposed FLSA Overtime Rule, updated Aug. 31, 2023.

What You Should Ask

The National Council of Nonprofits encouraged all charitable nonprofits reviewing the proposed regulations to conduct a mission-based analysis of the proposed regulations. That meant answering questions about how the proposed increase in the minimum salary levels would affect operations, resources, and staffing, as well as what impact the draft regulations would have on persons relying on the services and the mission of the nonprofit, all while factoring in what is equitable to the nonprofit workforce. Below are several questions that could help shape an organization’s analysis.

If the draft regulations were to be implemented as written:

1. What effect - positive or negative - would the proposals have on your organization's ability to advance its mission?

Variables could include the need to raise more money, serve fewer people, or not being able to perform under government grants or contracts that set reimbursement rates or impose salary caps too low, among many others.

2. What effect - positive or negative - would the proposals have on the individuals and communities your organization serves?

For example, would higher compensation, if realized, reduce the number of individuals seeking services from the organization, and thus cut the workload of the organization or enable you to pursue other mission objectives?

3. What fact situations would you ask the Department of Labor to address to reduce confusion and clarify gray areas of the law?

In the past, the Department has been criticized for explaining the law and offering examples as if all employees worked in a factory setting. Are there unique nonprofit jobs, such as in development/fundraising or volunteer management, that need clarification as to how and when the FLSA overtime rule applies.

And if the Department of Labor is open to further revisions:

1. What substantive changes to the draft regulations would your organization seek?

Should there be a separate minimum salary level based on a percentile of nonprofit salaries? If so, should higher education and hospitals be included in such a grouping of salaries. NOTE: Generally, NCN favors broad rules without carveouts, based the view that nonprofit employees should not be treated as second-class workers and the charitable sector should not be considered the employer of last resort. We recognize, however, that some nonprofits with unique missions could justify narrow adjustments to the rules.

2. What transition rules do you think would be appropriate for your nonprofit and similarly situated organizations? Should implementation of final regulations be delayed until a certain date, i.e., July 1, 2024, or phased in over a period of time?

Should nonprofits with existing government grants and contracts be exempt from the implementation of any new rules until the time that the local, state, or federal government pays the higher amounts for the higher salary rate? Stated another way, should governments be required to adjust existing grants to reflect the added costs of the proposals, or, in the alternative, should the change require governments to automatically adjust wages up to the minimum salary levels or perhaps reopen grants for renegotiations?

More About the Proposed Rule

Additional Resources