Note: On November 22, 2016, U.S. District Judge Amos Mazzant III blocked implementation of the updated regulations that this article refers to. Stay tuned—we believe that the legal process on this issue is not finished.

We previously asked church leaders about the following situation:

New federal regulations go into effect December 1, 2016, that will expand overtime and minimum wage benefits to many employees. The current weekly salary threshold for those eligible to be considered exempt from overtime pay will more than double to $913. There is no exemption for religious employers.

What changes will your church need to make?

In 1938, in the midst of the Great Depression, President Franklin D. Roosevelt signed the Fair Labor Standards Act (FLSA) into law. The new law banned oppressive child labor, set the minimum wage at 25 cents an hour and the maximum workweek at 44 hours. Much has changed since then, so on May 18, 2016; the U.S. Labor Department published updated regulations for the law. Since these new regulations go into effect December 1, 2016, church leaders, as soon as possible, need to become familiar with them and how they could affect their ministry. It is our prayer that this article will be helpful to them.

The new regulations continue to limit the workweek to 40 hours and set the minimum wage at $7.25 an hour. What changes is which workers will be protected by the FLSA's minimum wage and overtime standards going forward. Currently the salary threshold that allows some workers to be exempted from the law is set at $455 a week. Starting December 1st that weekly salary threshold will nearly double to $913. This single step is expected to greatly increase the number of workers covered by the law.

While some socially engaged churches may be celebrating a more equitable standard for worker pay across the country, at the same time, they may be cringing at the impact the new rules may have on their personnel budgets and staffing schedules. What they may not realize; it may also affect job descriptions and employee handbooks.

Which workers are exempted by the law is fraught with it depends situations. The best way to handle the complexities that are involved is to take a step-by-step approach.

Enterprise Test

Let’s take our first step by looking at enterprise coverage. Under the law, businesses that (1) have employees engaged in commerce or (2) in the production of goods for commerce and (3) have an annual gross volume of sales made or business done of at least $500,000 are considered included under the enterprise provisions of the act. But here comes our first it depends: the Department of Labor (DOL) doesn’t count against the $500,000 threshold the portion of an enterprise’s income that comes from contributions or donations that are used for charitable activities. This puts many churches in the position of not having to comply with the act under the enterprise coverage requirements. But before your church’s leaders break out the party hats and noise makers, and start celebrating—as those late night TV ads say, that’s not all—there’s more!

There are some enterprises covered under the Act regardless of total annual income, or business done, or non-profit status. These are what are called, named enterprises. They include hospitals, schools, institutions primarily engaged in the care sick, aged, and those engaged in an activity of a public agency. Preschools are considered schools for the purposes of being a named enterprise and as such as covered under the Act.

But even if your church is not covered under the Act’s enterprise coverage provisions, an employee’s individual coverage will take precedence. Church leaders would be well served to work under the assumption that their church’s employees are covered by the FLSA. But before we get too far ahead of ourselves let’s stay true to our step-by-step approach.

The church must realize that it is not uncommon for an employment relationship to turn sour. If and when it does, has your church adequately protected itself by being in compliance with current employment laws and regulations?

In applying the rules regarding individual coverage there are several job types that are exempted from the start. These include doctors, attorneys, teachers in a school or college and people with essential religious duties. While it may seem that these job titles are self-explanatory, definitions that differ from agency to agency across the federal government, make some clarification necessary.

The DOL only includes schools in its definition as those institutions that teach students in grades K-12. That leaves out preschool teachers. If your church has a preschool, its teachers are not automatically considered exempt from the Act like doctors and lawyers are. That said, other conditions may provide them with an exemption. We will discuss those shortly.

Likewise the DOL definition of a minister differs from that held by other agencies such as what the IRS uses regarding who is eligible for housing allowance. For the purposes of the FLSA, the DOL’s definition is broader. It must be noted that the DOL’s definition relies on the results of rulings from several district and appellate federal courts for clarification. And since it is still evolving, for the time being they cannot state with certainty how or when it applies.

That said, under the DOL definition one does not need to be ordained, licensed or commissioned to be considered someone with essential religious duties according to the DOL Basically what they consider as essential religious duties includes teaching or preaching about spiritual matters, and/or praying with church members or others. In fact if you have someone who is ordained, licensed or commissioned as a minister of the gospel on your church staff, but who performs no essential religious duties, they would not be automatically exempted from the Act.

The essential religious duties test is important. For example, if a children or youth director performs sufficient essential religious duties they could be exempt from the FLSA. This means that when they go to summer church camp, the church doesn’t need to pay close attention to the number of hours worked during camp. The key necessary element is a well written job description that clearly includes essential religious duties among those required of the employee.

Please understnad that a ministry sounding job title is not enough. We recommend that churches carefully review the job descriptions for all its employees to confirm that they accurately represent what each employee actually does. This might also be a good time to re-consider what duties a particular employee is best suited to perform. It also might be a good time to engage a Human Resources professional to help. As one moves forward and starts reviewing other job duties that might result in an employee being exempted from the Act, having an accurate job description for every employee will become a clearer priority.

But first we’re going to take a short detour. We say short because we believe that what we’re about to say applies to an ever shrinking group of church employees. One of the FSLA’s requirements for non-exempt employees is that they must be engaged in interstate commerce. The bar for this test is very, very low. If an employee makes or receives phone calls, or places orders via the internet across state lines, or even prepares letters or other documents that are mailed across state lines and does so as little as once a month, that is sufficient to make them subject to the Act.

Churches should also understand that if they choose to pay a salary to exempt employees, they are required to pay those employees a set guaranteed amount each week regardless of the number of hours worked.

Prior to the new regulations going into effect on December 1st, all employees making less than $455 a week were considered non-exempt under the FLSA. But starting December 1, 2016, that salary threshold is raised to $913 a week. If your church has an employee who makes slightly less than $913 a week and who has been considered exempt in the past, it might be a good idea to give that person a small pay raise to move them above the $913 threshold. Not doing so would make that person eligible for overtime pay for all time worked in a week greater than 40 hours.

Duties Test

Please understand, the duties tests for exempt employees will not change under the new regulations, just the salary threshold that is required in order for one to apply the duties test. The duties test categories will remain (1) executive worker, (2) administrative worker, (3) worker in a recognized profession, (4) computer worker exemption, and (5) outside sales professional.

Since the outside sales professional exemption has limited if any application to churches, we will not take time to discuss it. As a refresher for church leaders we will briefly touch on the first four of the duties exemption categories:

The executive exemption requires that the worker’s primary duty include managing the organization or some distinct department or division of the organization; that they direct the work of the equivalent of at least two full-time employees and that they have authority to either hire or fire employees or their input on a decision carries significant weight.

The administrative exemption requires that the worker’s primary duty must be to perform office work or non-manual labor related to the management of the organization and that it must include the exercise of discretion and independent judgement with respect to matters of significance to the organization.

The professional exemption requires that a worker’s primary duty be to perform work that requires advance knowledge; the work must be primarily intellectual in character and requires consistent exercise of discretion and judgement, and that their work be in a recognized science or field of advanced learning.

The computer professional exemption requires that the worker must work as a systems analyst, programmer, software engineer or similar position; and their primary duty must consist of application of systems analysis, design development, creation, testing or modification of systems or programs; testing design, development or creation or modification of operating systems. This exemption will apply to an IT department manager, but not to those maintaining the organization’s computer networks.

Once a church has determined who is exempt and who is not exempt to the requirements of the new FLSA regulations, how should a church proceed? Some churches prefer the convenience of paying both exempt and non-exempt workers a salary each week without keeping any record of hours worked. But if no time record of hours worked is kept on non-exempt employees, how can the church verify that minimum wage and overtime requirements of the FLSA are being met?

Churches should also understand that if they choose to pay a salary to exempt employees, they are required to pay those employees a set guaranteed amount each week regardless of the number of hours worked. An exempt salaried employee cannot be docked for missing work in any week during which the employee worked any time at all. For paid time off, the employee must utilize it in daily increments. If necessary for disciplinary purposes, an exempt employee can be docked in one-half day increments.

Timecards

While a timecard for an exempt salaried employee is not a necessity, a time record of some kind can be helpful in keeping track of paid time off, either vacation or sick leave. The employee would only have to note on it which days were paid time off. In fact, if the employee tracks the number of hours they work each day, it could muddy the water should the church ever be subjected to a Wage-and-Hour Division audit. To the auditor it could look as if the employee was really being paid for the number of hours worked rather than a salary as intended.

Non-exempt employees, on the other hand, should be required to complete a weekly timecard that shows the number of hours worked each day. Some churches have chosen to pay non-exempt workers a salary, and while the law does not require that newly overtime-eligible workers be converted to hourly pay status, a time record of hours worked still needs to be kept. If a salaried non-exempt worker works more than 40 hours in a week, the employer is still required to pay overtime.

In regards to keeping time records, employees do not need to keep track of breaks of twenty minutes or less since the DOL considers such short breaks as compensable. As for meal breaks and other longer breaks, they may also be compensable depending on the circumstances.

To Pay or Not To Pay?

If employers expect non-exempt employees to answer phones or respond to work related requests during meal periods, they should expect to pay employees for meal periods. DOL regulations require that for a meal period to not be considered compensable time an employee must be completely relieved from duty for the purposes of eating regular meals.

If a non-exempt employee is involved in a job where they must be engaged to wait for some kind of activity of the employer, they must be paid for their time waiting. Such situations can be found at church summer camps or mission trips where staff may not even get an uninterrupted sleep period at night because of emergencies that may occur.

As one can see, the topic of employee compensation can be complicated. If you’re unsure whether the approach your church uses is lawful, we recommend that you engage an attorney who works in the area of employment law.

Also, if a non-exempt employee is required to carry a cell phone or have email so that he or she is available outside of normally scheduled work hours, then the employer is required at a minimum to compensate for time spent responding to telephone calls or emails. For waiting time, things are not as clear cut.

Factors that courts have determined make on-call time compensable include: the average number of calls the employee responds to during the on-call period, the amount of time the employee is required to respond within after being contacted, and whether an employee is subject to discipline for missing or being late to a call back.

If a non-exempt employee is required to work while traveling, that is considered compensable time. If the employee is the one driving while on the church sanctioned trip, his or her driving time is compensable. However, if the travel takes place on a weekend and the employee is not working in some way, only the time spent traveling that falls within what would be considered the employee’s normal administrative work day, say from 8:00am to 5:00pm, would be compensable. If the travel takes place outside of those hours and no work is being performed, no compensation is required.

Attendance of a non-exempt employee at training meetings and lectures must be counted as work activities unless all four of the following are met:

  1. Attendance is outside the employee’s regular work hours,
  2. Attendance is voluntary,
  3. The course is not directly related to the employee’s job, and
  4. The employee does not perform any productive work while attending the lecture.
  5. As one can see, the topic of employee compensation can be complicated. If you're unsure whether the approach your church uses is lawful, we recommend that you engage an attorney who works in the area of employment law.

    Nevertheless, DOL regulations provide a safe harbor for employers. The employer must exercise a good faith effort to classify its workers correctly. Having job descriptions that actually reflect the job duties and responsibilities is one thing that can be done. Next those job descriptions should be reviewed by an HR professional or attorney for assistance in properly classifying of employees. This should be done annually.

    Also, the church’s Employee Handbook should specifically authorize employees to challenge their classification for overtime purposes. If a challenge is raised, the church should engage an attorney to review the facts and assist the church in the correct classification of exempt or non-exempt.

    Taking steps such as these allows the church to demonstrate its good faith efforts in classifying employees. As a result, the FLSA allows the employer to avoid liability for double damages.

    As we’ve indicated, this is not a one and done process. In fact, the new DOL regulations state that the weekly salary threshold will be updated every three years. If your church conducts annual performance reviews, perhaps a job description review should be included as part of that process.

    Volunteers

    Lastly, because churches utilize volunteers so well in fulfilling their mission, we need to take a moment and talk about volunteers. The DOL states, …unlike for-profit employers, non-profit employers may use volunteer service under certain circumstances. Individuals may volunteer time to religious or charitable non-profit organizations and not be covered by the FLSA. Their statement continues, They may not, however, volunteer time to their own non-profit employer performing the same type or work for which they are employed.

    State labor laws can and do vary. The law that your church must follow is whichever one has the strongest protections for employees.

    We would also suggest that it would be best if a church’s non-exempt employees are not allowed to volunteer within the same department or under the same supervisor for whom they perform paid duties for. For church employees who bring a servant’s heart with them to work, this may be hard to accept. But the goal of the law is to protect employees from possible coercion from their employers. The church must realize that it is not uncommon for an employment relationship to turn sour. If and when it does, has your church adequately protected itself by being in compliance with current employment laws and regulations? Taking a it won’t happen here attitude sometimes does not turn out well.

    Lastly, we need to point out that we’ve limited our discussion to federal labor laws. State labor laws can and do vary. The law that your church must follow is whichever one has the strongest protections for employees. If you’re unsure which labor law to follow, please consult with a qualified attorney or HR professional.

    We would like to close with a reminder of the words of Christ as found in Luke 10:7: …the worker deserves his wages.

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Deborah Miller, cca

Charles Kneyse

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