New Report: The Nonprofit Overtime Implementation Conundrum

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Results of the National Survey of Nonprofits with Government Grants and Contracts

Regarding the New DOL Overtime Rules

On May 23, 2016, the U.S. Department of Labor published its new overtime regulations that will require most employers, including many nonprofits, to pay overtime to all employees earning less than $47,476. The Overtime Final Rule goes into effect on December 1, which for many nonprofits will be during the performance period of their existing written agreements with governments to deliver certain services. This timing is significant not only for nonprofits with grants or contracts issued by local, state, tribal, or federal governments, but also for members of the public who rely on services those nonprofits provide.

Click the image above to see the full-size infographicRecognizing that the sector as a whole earns almost a third (32.5 percent) of all revenues from government grants and contracts, the National Council of Nonprofits conducted a national survey seeking insights from nonprofits with government grants and contracts about how changes to federal employment law could affect their costs and operations. The survey focused on those organizations because of both the likelihood they will face common challenges in complying with the new regulations while fulfilling service obligations on behalf of governments, and the extensive work of the network of the Council of Nonprofits on the topic of government grants and contracts. More than one thousand individuals (1,094) from all 50 states responded. Survey participants were generally representative of the nonprofit community at large.

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Findings

  1. Moral Support, Mixed with Operational Anxiety: Individual views expressed in the National Survey ranged from confidence that the “changes will help all nonprofits in the long run” to seeing the impact as “a disaster for us.” One survey respondent captured the overriding sentiments: “We wish to be fair and pay just wages, but also need to pay the light bill as govt. funding recedes and service demand increases.”
  2. Concern for the Public: Nonprofit leaders from across the country shared their fears that individuals who depend on services that nonprofits provide on behalf of governments will become unintended collateral damage unless some transitionary solutions are put in place.
  3. Between a Rock and a Hard Place: Nonprofits with government grants and contracts expressed concern that they will be put in the position of having to comply with new federal legal requirements imposing new costs that were not known when those grants and contracts were signed.
  4. Nonprofits Already Subsidizing Governments: The National Survey confirmed that seven out of eight nonprofits with government grants and contracts currently subsidize governments by providing services for which they are not fully compensated. Only 13 percent expressed the view that government grants contracts pay the full cost of the services provided on behalf of governments.
  5. Confusion about Current Law: Respondents’ comments also revealed a broader need for training to help nonprofit organizations understand their obligations under the Fair Labor Standards Act.

Solutions

  1. Grant/Contract Reopener Urgently Needed: Nonprofits need ways to reopen or renegotiate existing government grants and contracts either to receive reimbursement rates that incorporate the increased costs or that adjust performance obligations. Since the new costs are the result of changes to federal law, it is appropriate for the federal government to give direction to government program officers at the federal, state, tribal, and local levels on how to revise existing grants and contracts to ensure that nonprofits are made whole or are put in no worse position.
  2. Short-term Transition Support: Nonprofits will need additional resources to maintain operations and service levels during the interim phase of implementation (the first couple of years) to give nonprofits time to renegotiate government grants and contracts when renewed. Likewise, nonprofits need additional resources to come into compliance with the law. Individual and institutional donors can enhance compliance with existing and new wage and hour requirements by offering emergency funds that will enable their grantees to conduct compliance audits, develop updated job descriptions, implement time-management systems, and make other upgrades to human resources systems.

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