Revisions to Overtime Pay Regulations in the Fair Labor Standards Act: Likely Impact on Nonprofit Employment

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Indiana University School of Public and Environmental Affairs on June 2016 by Indiana Nonprofit Sector Project

Introduction

New regulations on overtime pay (part of the Fair Labor Standards Act) will take effect on December 1, 2016 and require mandatory overtime pay for employees earning less than $47,476 per year, up from $23,660 per year. The full impact of these new regulations on
nonprofit employers in Indiana is likely to be significant, despite special accommodations for small charities (see https://www.dol.gov/whd/overtime/final2016/webinarfaq_np.htm).

Below we present data on average annual nonprofit wages by industry based on our extensive analysis of nonprofit paid employment in Indiana over the 1995‐2013 period.2 We also draw on survey data from Indiana nonprofits and basic financial indicator data available from the National Center of Charitable Statistics.

Jointly, these findings present strong evidence that increasing the overtime pay threshold to $47,476 (more than double the previous threshold) is likely to present significant challenges to nonprofit organizations in Indiana and elsewhere. Indeed, given precarious financial conditions of many charities, the new overtime pay regulations threaten the ability of charities to provide essential services and/or make a range of significant contributions to the quality of life in local communities.

Nonprofit Employment and Wage Levels

Indiana is typical of the U.S. in that the nonprofit sector is an important part of the state’s economy, delivers many essential services, and plays a significant role in the quality of life in local communities. However, average annual nonprofit wages are very low in many subindustries, suggesting that a significant number of exempt employees will have wages below the new threshold and therefore be subject to mandatory overtime pay. Key findings include:

Indiana nonprofits employed at least 268,000 workers in 2013 (about 9.4 percent of all paid employees; the actual number may be 100,000 – 150,000 higher). More than half (56 percent) work in health care, followed by educational services (13 percent) and social assistance and various membership organizations (10 percent each). Only 2 percent work in arts, entertainment and recreation, while all other industries jointly make up 8 percent.

Total nonprofit payroll stood at more than $11.1 billion in 2013 (9.4 percent of total payroll in the state)
Average annual nonprofit wages were about $41,600.3 However, this relatively high level is due mainly to high wages in health care services (accounting for more than half of all nonprofit employees). Average wages were much lower in other key nonprofit industries.
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