New federal overtime rule may affect church employees

Although pastors may be exempt from a new federal overtime pay rule that will take effect on July 1, the new rule still may affect a church’s payroll for non-ministerial program and support staff.

Churches and other non-profit organizations now may be required to pay overtime to employees who formerly were exempt from overtime or they may be required to significantly increase salaries to maintain exempt status from overtime pay rule, unless pending court challenges block the rule.

The Department of Labor estimates that the new rule could affect as many as 3.65 million salaried workers across the country. Of that, the DOL estimates that more than 380,000 work in the nonprofit sector, including churches and ministries. By the agency’s own admission, “… nonprofits are more likely than for-profit businesses to feel the impact of the [proposed] overtime rule, with about 16.8% of nonprofit employees being reclassified as non-exempt” compared with 12.0% of for-profit employees.

The rule could cost churches billions and threaten the existence of smaller congregations.

Under the new rule, he salary threshold will increase from $35,568 to $43,888 annually, based on the methodology used in the 2019 overtime rule update. The rule’s new methodology will take effect on Jan. 1, 2025, at which point the threshold will increase again, to $58,656.

“Sadly, the Department of Labor’s latest attempt at implementing their burdensome overtime rule is once again a terrible result for hardworking Americans,” said Rep. Tim Walberg (R-MI) who introduced a bill to block it early June. “Small businesses, nonprofits, and colleges across America will now be looking at bottom lines, and then make the tough decisions to lay off valuable staff or force salaried workers into hourly positions. This puts a squeeze on those who are most vulnerable, such as students and workers looking to build experience. The downstream impacts from this rule will include more inflation and pain for those already suffering from unsound economic policy. I want to thank Senator Braun for his leadership as we work to block this excessive and misguided rule.”

“The Pathway” recommends several possible action steps:

• Budgeting and staffing. Churches and ministries may need to reevaluate their budgets and staffing models. Some salaried employees who formerly were not paid overtime now may be eligible for overtime pay, which could increase payroll costs.
• Review salaries and job descriptions. Compare current salaries and job descriptions against the new thresholds and duties tests.
• Employee classifications. Review the classification of employees to ensure they meet the criteria for exempt status under the new rules. Misclassification can lead to legal issues and financial penalties.
• Time recordkeeping. Consider keeping time records of hours worked by all salaried employees who are close to the new salary thresholds. This is essential for compliance and for addressing any disputes that may arise.
• Consult legal or HR experts. Engage with legal or human resources professionals to ensure your organization is fully compliant with the new rules.

More information is available from the U.S. Department of Labor, National Council of Nonprofits and the Society for Human Resource Management. Be aware that litigation is still pending that could make changes in the rule or its effective dates. You may periodically check some legal sites or accounting websites for updates.

–Dwight Widaman | Metro Voice