5 Steps To Prepare for New Overtime Pay Rules

Your church will likely face one of the largest challenges in just the next few months.

Most churches aren’t ready for the new overtime and worker classification changes to the Fair Labor Standards Act (FLSA) the Department of Labor recently published, which will impact to millions of U.S. workers and their employers. The rules go into effect December 1, unless Congress prevents or modifies them.

These changes will almost certainly affect how you pay at least some employees. In brief, if you have a salaried worker making under $46,467 per year, you will either need to give them a pay increase, cut them to hourly, or start paying them overtime when they work more than 40 hours per week.

The new overtime and worker classification rules doubles the threshold from $23,660 that salaried employees could make and be considered non-exempt from overtime (meaning employers would have to pay them overtime if they made less than that amount). That threshold, which equals $455 per week, had not been fully adjusted for inflation since 1975, although the last partial update had been made in 2004.

With the time left before December 1, churches should prepare and review the following five tips.

Examine Current Pay and Classifications

One of the first steps for churches is to make sure they truly understand their employees’ compensation structure, classification and the rules around FLSA exempt vs. nonexempt status. Employees that earn more than the new threshold of $46,467 can be classified as exempt from overtime if their work consists mostly of executive, administrative or professional duties. This is where having a solid understanding of their actual work duties is critical. Employees who earn less than that new threshold are probably classified as non-exempt, meaning they can earn overtime.

Monitor Employee Hours

Just as important as their classification and pay, it’s critical that employers assess the hours that their employees work, since that is at the core of overtime pay, if an employee ends up being non-exempt. One method churches can use is to either reduce a worker to part-time, or to minimize the amount of work a salaried (but non-exempt) worker spends doing work. Churches may consider using a time and attendance system that tracks worker hours and can alert them (and their supervisor) when they near or exceed a 40-hour workweek.

Compare the Costs of Pay

 As mentioned previously, it may make fiscal sense in some cases to change a non-exempt employee/s from salary to hourly, and then pay them overtime as necessary. This can be most useful when an employee does not consistently work 40 hours per week, but it requires more attention be paid to managing their work schedule. While the net-effect may not be much of an actual change in compensation, however, this action may be perceived negatively by employees. So churches should communicate the actions in advance.

Impact on Pay Equity

In order to ensure that employees are being paid fairly and based on their job, do not make changes on a per-employee basis, but instead based on their roles.

Proactively Control Costs

If workflows in the church require employee action outside of normal working hours and that leads to overtime for non-exempt staff, the church has a duty to pay them overtime. However, this is a good time to reexamine those workflows that might push staff members into overtime. Is it in the best interest of the church for its staff to be working after hours, on weekends or at other times? If it isn’t critical to church function, is it worth what will be an added expense? If not, then establish workplace policies that diminish the amount of work that non-exempt workers perform outside of traditional working hours. This can also be positioned as an effort to increase morale.

The new overtime regulations will have a significant impact on some churches. In the meantime, church can use the next several months to analyze their labor and productivity, and get a better understanding of what they will need to change to minimize the effects of the new rules. It’s also a good opportunity to reassess actual jobs, requirements and descriptions. 

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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