New Changes to Overtime Rules Adopted

Many church leaders think that the “wage and hour” laws, and particularly overtime pay rules, do not apply to churches. That could not be further from the truth. Churches and church employees are NOT exempt from the “wage and hour” laws – and failure to obey such could result in substantial penalties to the church. To get around these laws, many churches have often wrongly “exempted” their employees from the law.

However, on March 7, 2019, the U.S. Department of Labor issued “proposed” regulations concerning who will be eligible for overtime under the Fair Labor Standards Act (FLSA). These new regulations, finalized by the Department of Labor on Sept. 24, 2019, will take effect on Jan. 1, 2020. It is expected that the new regulations will have a substantial impact on churches and other non-profit entities.

Before reviewing the changes in the regulations, it is important to understand the foundation of the Fair Labor Standards Act. The FLSA requires that workers be paid the federal minimum wage (or a higher wage if the local jurisdiction or state has mandated such) for the first 40 hours worked in a regular work week. Further, for any hours worked past 40 hours in a regular work week, the FLSA requires that most employees be compensated at time and a half of their regular hourly wage.

To be exempt from this “time and a half” overtime pay rule, the employee has to be classified as an executive, administrative, or professional employee – often called the “white collar” exemptions. Each category of exempt employees is defined specifically under the FLSA. However, not only do you have to meet the definition for an executive, administrative, or professional employee, but previously you had to be paid a salary of at least $455 a week ($23,660 for a full-year worker). Under the new regulations that will go into effect on Jan. 1, 2020, the minimum salary threshold to be an exempt worker increases to $684 a week ($35,568 for a full-year worker).

For example, assume that a church has an employee, such as the director of the church’s daycare, that they have designated as being exempt under the Fair Labor Standards Act as an “executive” because the person supervises more than two people, her position is primarily managerial, and she has genuine input into the job status (hiring, firing, promotion, etc.) of the employees she supervises. This person has been making $32,000 a year and averages working 50 hours a week at the church. Since the new regulations do not go into effect until Jan. 1, 2020, the church is currently in full compliance with the law. However, after January 1, this person, even though they remain an “executive” and can be paid a salary, must be paid “time and a half” for any hours worked over 40 hours in a regular work week, simply because her annual base salary does not meet the new minimum annual salary of $35,568.

With the new rules, it is important to remember the following:

  • An employee, whether classified by the church as exempt or not, can be paid a salary and still be subject to the new overtime rules.
  • Even a worker that meets the criteria of being designated an executive, administrative, or professional employee must be paid overtime (time and a half) if they are compensated at less than $684 a week after Jan. 1, 2020.
  • Overtime for this purpose is considered to be any hours worked in excess of 40 hours in a regular work week.

Any time there is a change to the overtime rules, there are always questions about the applicability of the new regulations to ministers. In other words, if a minister works more than 40 hours in a week and does not make more than $35,568 in taxable income in a year, will a church have to pay the minister time and a half?

Currently, there is no clear, specific answer to this question in the regulations, but the answer seems to be no. While ministers are not statutorily exempt from FLSA requirements, several courts over the years have found that clergy are exempt under the “ministerial exemption” – in other words, ministers performing religious functions are excluded from the definition of employees under the FLSA. The Department of Labor in a 2005 opinion letter seemed to recognize this exemption as well.

Should you have questions about the applicability of these rules to your employees, it is recommended that you check with a qualified employment attorney and seek professional advice regarding your situation immediately.

About benefitsboard

Art Rhodes is the President and CEO of the Church of God Benefits Board, Inc. - the administrator of the Ministers' Retirement Plan and the Church Loan Fund, Inc. The corporate offices of the Benefits Board are in Cleveland, TN.
This entry was posted in 09 - September 2019, Pay Roll Taxes, Tax Information. Bookmark the permalink.

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