In May, President Barack Obama put down another marker in his progressive legacy by issuing an executive action that will expand the number of workers who qualify for overtime pay under the Fair Labor Standards Act. Beginning Dec. 1, 2016, any workers who make less than $913 a week, or $47,476 per year, will qualify for time-and-a-half pay for hours they work beyond 40 hours a week. That’s an increase from the previous maximum salary, which for the last decade has been restricted to workers making less than $455 a week ($23,660 per year).
“Forty years ago, more than 60 percent of workers were eligible for overtime based on their salaries,” explained Obama during his weekly address on May 21. By contrast, today “only 7 percent of full-time salaried workers are eligible for overtime based on their income…This is the single biggest step I can take through executive action to raise wages for the American people.”
By some lights, it’s an overdue measure; adjusted for inflation, wages for hourly and salaried employees haven’t grown in almost three decades, while the cost of living has continued to rise. The new overtime rules could be a boon for overachieving salaried employees; a 2014 Gallup survey found that the average American puts in 47 hours a week at their job. On the other hand, the U.S. Department of Labor estimates that fully 60 percent of the 4.2 million workers who will be newly eligible for overtime pay won’t qualify because they don’t work more than 40 hours a week.
So only 1.7 million workers will be paid overtime under this new rule, and not even that much—about $718 a year more on average. Still, a number of employers, particularly many in the media and publishing industries, have expressed misgivings, seeing the new rules as a challenge to long-standing practices of low-paying entry-level positions with long hours.
What might these new rules mean for not-for-profit theatres, which are often similarly reliant on sweat equity and quasi-volunteer labor? Which kind of institutions will be most affected? We consulted with labor attorney Burton J. Fishman (of Fortney & Scott, LLC) and came back with the following answers.
1. Some basic FLSA history
The Fair Labor Standards Act was signed in 1938 to regulate wages for full- and part-time American employees. In addition to establishing the minimum wage and child labor standards, it also set overtime pay, establishing the standard that both hourly and salaried workers under a certain threshold should be paid time-and-a-half for hours worked over 40 a week (not including lunch breaks).
The Department of Labor last updated the salary threshold for overtime in 2004, when it set the weekly salary level at $455 ($23,660 annually). Under the new rules, salary levels will be updated every three years, with the threshold expected to rise to more than $51,000 annually when next updated on Jan. 1, 2020.
The White House estimates that the new rules will give overtime protection to 4.2 million Americans not currently eligible for it.
2. An important size exception
There are some exemptions: Small businesses, including nonprofits, that bring in less than $500,000 annually in revenue are not required under FSLA to pay employees overtime, and that hasn’t changed with the new ruling. What’s more—and this is extremely relevant to nonprofits—that revenue number only includes business-related revenue (earned income such as ticket sales, bar concessions, gift shop transactions), not income from grants, donations, or membership fees (a.k.a. contributed income). So if your theatre brings in $600,000 in income but $105,000 of that comes from donations or grants, your employees don’t get overtime. Unless…
3. An exception to that exception
One small caveat to that $500,000 revenue rule: Small businesses may not be required to pay overtime to all of their eligible employees but they may be required to pay overtime to certain of their employees—specifically those who “engage in interstate commerce or in the production of goods for interstate commerce.” So, for example, if a theatre’s general manager earns $40,000 a year and regularly stays late to purchase office supplies from an out-of-state vendor, they’ll qualify for overtime pay. This would almost certainly also apply to theatres that send out its employees to accompany touring productions across state lines.
“Be wary,” cautions Fishman. “Almost any contemporary activity—sending brochures, sending e-mails out of state—will bring the business into interstate commerce.”
4. Resident artists are employees
The FLSA is designed for employees, not short-term contractors or freelance artists (i.e., most directors and designers). But the resident playwrights that Mellon funds have helped install on the staff of many theatres nationwide? They’re employees, and as such are covered by the new rules, as are any companies that have resident actors employed on a salaried basis. The same applies to temp employees.
Suffice it to say, according to Fishman, paperwork is important. “Be sure all independent contractors have contracts spelling out duties, length of affiliation, etc.,” he says.
5. Volunteers: Still kosher
If your theatre regularly uses volunteers as ushers or as servers for special events, no need to worry. Volunteers remain legal as long as they work on a part-time basis, don’t engage in commercial transactions (a.k.a., work a cash register), don’t perform work that would be typically performed by employees, and otherwise work “freely for public service, religious, or humanitarian objectives, and without contemplation or receipt of compensation.” So if you have volunteers showing patrons into and out of the theatre, just make sure you don’t also have a paid employee ushering at the same time.
(The flipside is also true, by the way: You can’t ask an employee to “volunteer” at the job that they’re paid for. So your managing director puts in 60 hours a week but doesn’t bill 20 of those hours because he’s “volunteering”? Nope!)
So what can theatres do to respond to the new rulings? A few options:
1. Start tracking hours
All nonprofits are required to track the hours that their non-exempt employees work. The Department of Labor doesn’t dictate how they’re tracked. But if you regularly have non-exempt employees working late into the night (hello, theatres) but haven’t been filling out detailed forms accounting for those hours, now (not December) is the time to start keeping those records. This will allow you to see who exactly on your staff is working overtime hours, and how many. Those records will be essential for the next five parts.
Let’s say you’re at a theatre that brings in more than $500,000 annually in revenue, with a bunch of employees who make less than $47,476 but who often work 50-hour workweeks. You can either budget more for their overtime or increase their salaries to least $47,476 annually, whichever works better. The hours you track, as advised above, should help you decide (though keep in mind that the salary threshold is scheduled to raise to more than $51,000 in 2020).
Which is why we’ve included other options below.
3. Pay folks the same-ish
If you can’t afford to change your budget/hours calculus, there’s another way: Lower the hourly rate so that any overtime paid is equal to existing salaries. For example, say a development associate earns $37,000 a year, or $711.54 per week, for 50 hours of work a week. If you lowered their base salary to an hourly rate of $13, or $520 a week, plus time-and-a-half for their 10 overtime hours, they’d make a weekly rate of $715. Or…
4. Cut hours
If higher pay is out of the question, hours might be moved around. To comply with the new overtime rules, a theatre might cut its workday hours for individual employees. There is no minimum for how many hours employees need to clock in per day or how many days they need to work per week. For example: If Saturdays are 10-hour days for staff but Mondays are slow, a theatre can reconfigure their business hours so they are in operation from 10 a.m. to 8 p.m. on Saturdays and from 12 p.m. to 6 p.m. Mondays. As long as the workweek hours total under 40 (with no lunch breaks), no overtime applies.
5. Cut benefits
The base salary that determines the overtime salary threshold doesn’t include any health or retirement benefits package that you pay for as an employer. So, for example, if you have an employee making a base salary of $43,000 and your contribution to their healthcare premium is $5,032 (the national average), then you can take the amount you’ve been putting into their health plan and give it to them in the form of a higher salary. That way, they meet the overtime threshold and they can purchase their own health insurance. (Be sure, though, that cutting health insurance doesn’t lead to a penalty for you as an employer; it may not if you have fewer than 50 full-time employees.)
6. Hire more people
If you’re in a theatre where it seems like everyone on staff is consistently working overtime and everyday is hectic, it may be more helpful to hire a part-time assistant or another full-time entry-level employee to ease the workload to ensure that everyone else on staff doesn’t have to work 10-hour days. Something’s gotta give, and it shouldn’t be your sanity. As Andy Schmidt puts it in the Nonprofit Quarterly, “People go into the nonprofit sector because they want to help others, even with the knowledge that they might be on the edge of poverty themselves. And I just can’t conceive of a world where it is fair to make those people work more than 40 hours in a week if they are going to make less than $47,500.”
Or to put it another way, says Fishman, “Don’t give a club to your least well-paid employees. Pay them for the time they work.”
*More information about the new overtime rule and its effects on nonprofits can be found here, here, here, and here. The advice in this article is not a substitute for theatres running their practices and strategies past a labor lawyer, especially because rules may differ on a local and state level.