New rules related to overtime pay being proposed by the U.S. Department of Labor (DOL) are cause for concern in Montana’s nonprofit community. The changes will cause significant increases in payroll costs, inevitably leading to a reduction of services to nonprofit clients and patrons.
Under current DOL rules, employers, including nonprofit organizations, may designate employees who are in administrative and professional roles as salaried, “exempting” them from hourly wages and mandatory overtime. To qualify, those employees must make at least $23,660 annually and meet specific conditions for their job, as set by DOL. The proposed changes more than double the salary threshold for exempt employees, raising the minimum salary to $50,440.
For most organizations the current rules make sense. Employees in management or administrative roles often need to have more flexible hours in order to fulfill their duties.
Nonprofit staff may have to work longer hours preparing for a board of directors meeting, or a development director may need extra hours working on a grant application deadline, or a direct care clinician may have a client in crisis who needs assistance past 5 p.m., or an arts organization may work longer hours hanging an exhibition or rehearsing for a performance.
The examples are endless, but all are tied to the need for common sense flexibility in the nonprofit workforce.
The proposed change by the U.S. DOL means employees earning more than $50,440 would be eligible to be salaried – but all other employees under that threshold would have to be hourly workers. Put in context, Helena Industries, one of the largest nonprofits in Helena and where I work, would only have two positions meeting the DOL threshold out of 65 full-time staff.
There are precious few nonprofits in Montana that can afford to pay supervisors and managers overtime every time they have to work beyond 40 hours a week. One response to the increase in payroll costs would be to reduce staff to fit within budget constraints leading to program cuts and elimination of services to nonprofits’ clients.
For any employer, making this change from salaried to hourly pay structures for management and administrative employees will mean higher payroll costs. But this is especially troublesome for Montanan’s nonprofits that typically cannot pass along increased personnel costs to clients. If I have a manager making $40,000 per year, I cannot raise that person’s wage to $50,440 because I don’t have the budget to do so. Case managers in my organization are paid based on reimbursement rates administered by the Montana Department of Public Health and Human Services (DPHHS). I have no control over what the Montana Legislature appropriates for DPHHS.
Furthermore, for years watchdog groups have taught donors to evaluate how much nonprofit organizations spend on overhead costs versus program costs. Since the DOL rule will dramatically and suddenly increase administrative and payroll costs relative to program expenditures, fundraising will become even more challenging for nonprofits.
For Montana, the proposed DOL rules hit employers unfairly in that they are based on a national one-sized-fits-all approach. Low wage states like Montana will have more serious consequences because we have higher proportions of employees whose wages fall well under the newly proposed threshold. With more than 80 percent of Montana’s nonprofit organizations having annual budgets of less than $100,000, under the proposed rule the majority of nonprofit executive directors and CEOs in Montana would no longer qualify to be salaried.
Although DOL’s proposed policy is intended to promote the well-being of America’s workforce and protect employees in particular industries from being exploited, the policy as written is rife with negative unintended consequences. Montana’s nonprofit employers champion human rights issues every day, and see the wisdom of ensuring employees are not exploited. However, the proposed bill must be modified to take into account the economics of individual states so that communities are strengthened rather than harmed by the proposed regulation.
This is an issue where Congress needs to intervene in order to make sure these types of unintended consequences are avoided. I’m urging Sens. Jon Tester and Steve Daines to join the efforts already moving in Congress to block DOL’s new overtime rules and force them to go back to the drawing board.
Russell A. Cargo, Ph.D., is the president and CEO of Helena Industries, a nonprofit organization that serves individuals with disabilities by providing work opportunities, job coaching, and case management services. Dr. Cargo was formerly chair of the board of directors of the Montana Nonprofit Association and an adjunct professor of Nonprofit Management and Philanthropy at Carroll College.