New DOL Overtime Rule Raises Salary Threshold to $58,656 in 2025

On Tuesday, the U.S. Labor Department (DOL) announced its final rule on the salary threshold for overtime pay under the Fair Labor Standards Act (FLSA) that specifies that most employees earning less than $58,656 per year will soon be entitled to overtime compensation, regardless of whether they are currently classified as executive, administrative, or professional (white-collar) workers. 

Under FLSA, employers, including nonprofits, must pay employees one-and-one-half times their regular rate of pay for all time worked in excess of 40 hours in any work week. However, workers are exempt from this overtime pay requirement if they:

1. Are paid at least the minimum salary level under DOL regulations (currently set at $684 per week or $35,568 per year);
2. Are paid on a salary basis; and
3. Exercise job duties that are classified as exempt under FLSA (which means administrative, executive, or professional job duties for most nonprofit positions).

The new rule raises the salary threshold in a two-step process over the next eight months:

1. The salary threshold goes up from the current level of $35,568 per year to $43,888 per year ($844 per week) on July 1, 2024. This is essentially adjusting the salary threshold from the 2019 rule for inflation since it maintains the current methodology of setting the threshold at the 20th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South).
2. The salary threshold then goes up to $58,656 per year ($1,128 per week) on January 1, 2025, which is the 35th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South).

Under the new rule, the salary threshold will be automatically adjusted for inflation every three years, beginning on July 1, 2027 to reset it at the then-current 35th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South), which is the same methodology used to set the salary threshold on January 1, 2025.

DOL estimates that the final rule will result in about 4.34 million currently exempt employees becoming non-exempt. Of these workers, DOL estimates that more than 460,000 work in the nonprofit sector. DOL also estimates that nonprofits are more likely than for-profit businesses to feel the impact of the overtime rule, with about 18.9% of nonprofit employees being reclassified as non-exempt (as opposed to 13.6% of for-profit employees). Since nonprofit wages in North Carolina are below the national average, it is likely a higher percentage of nonprofit employees in North Carolina will be reclassified as non-exempt. 

It is likely that business groups will challenge the final rule in federal court in the coming months. The outcome of this potential litigation is uncertain, so it is important for your nonprofit to start preparing now so you can make the necessary operational changes to adapt to the increased salary thresholds on July 1 and January 1. To help your nonprofit get ready for the higher salary thresholds, the Center has prepared an analysis of the final overtime rule and its likely impact on North Carolina nonprofits, concluding with 15 compliance options and eight next steps for nonprofits to take now to be ready to adapt to the significantly higher salary threshold in eight months.

Good News: Nonprofits’ Input Made a Difference in Final Overtime Rule

The Center was one of more than 33,000 organizations or individuals that filed public comments on the proposed rule last fall. The Center’s public comments, which were based on input we received from more than 100 nonprofits (thanks if you shared input with us!), explained the impact of the proposed rule on North Carolina nonprofits and recommended several steps that DOL should take to minimize operational challenges for nonprofit organizations, including:

1. Treating nonprofits the same as other employers in the final rule;
2. Phasing in the implementation of the salary level threshold increase over several years to minimize immediate operational costs for nonprofits;
3. Setting the threshold no higher than $55,068 annually (the level in the proposed rule from August 2023) – and possibly lower than that – during the initial phase-in period;
4. Considering setting different salary level thresholds for employers in different states or regions;
5. Clarifying in its final rule the actual compliance costs of the higher salary level threshold for nonprofits and other employers;
6. Actively encouraging government and philanthropic grantmakers and the donating public to consider increasing their investment in nonprofits’ operational costs to offset the higher payroll expenses that will accompany this rule change; and
7. Providing guidance to help nonprofits assess whether common nonprofit jobs – including fundraising/development staff, volunteer managers, and child care workers – meet one or more of the duties tests for executive, administrative, and professional workers.

The Center is pleased that DOL clearly read our comments; in fact, the final rule cites the Center’s comments in four places and adopted (at least partially) at least four of our recommendations. Specifically, the final rule:

1. Treats nonprofits the same as other employers and cites the Center’s input in doing so. This ensures that nonprofit workers are not treated as second-class workers under federal law. 
2. Phases in the implementation of the salary level threshold over two steps occurring six months apart. While this is a faster phase-in than the Center recommended, it is probably the most generous phase-in that was politically feasible in a Presidential election year.
3. Sets the initial salary threshold below the proposed level of $55,068 during the initial phase-in period, giving nonprofits a longer lead time (about eight months) to adapt to the higher salary threshold.
4. Clarifies DOL’s perspective on the compliance costs for nonprofits and other employees. Note that DOL’s perspective does not match the perspective of the 100+ North Carolina nonprofits that reached out to the Center with their input.

The final rule also acknowledges that the compliance costs associated with the higher salary threshold will create funding challenges for some nonprofits, including those with government grants and contracts. While the final rule provides no fundraising solutions for nonprofits, this acknowledgement may be helpful in sector-wide advocacy with government funders and with individual nonprofits’ advocacy with foundation, corporate, and individual contributors to increase their support to help offset the compliance costs associated with the higher salary threshold.

Translation: If you shared your input with the Center, we shared this information with DOL, and DOL incorporated as many of the Center’s suggestions as we could reasonably hope into the final rule. While the final rule is far from perfect from the perspective of most North Carolina nonprofits, it is much better than the proposed rule. Your input and advocacy made a difference!

Want to Learn More? Join a Free Webinar on the Overtime Rule

While we hope that the Center’s comprehensive analysis of the final overtime rule will help your nonprofit prepare for the higher salary thresholds on July 1 and January 1, we recognized that many nonprofits may have more questions about the rule. To provide more information and help answer your questions, the Center is offering a free webinar on the overtime rule on Friday, May 10 from 10:00-11:30 a.m. Registration is now open. As long as there appears to be interest (which we suspect there will be), we may schedule a second webinar in June.

Governor Cooper Releases Proposal for FY2024-25 State Budget

On Wednesday, Governor Roy Cooper released his proposal for the state budget for FY2024-25. Governor Cooper’s budget proposal includes a variety of spending increases and tax changes that would benefit nonprofits and the people they serve. The proposed changes include:

• An investment of $745 million in new funding for child care and early childhood programs to help ease the “child care cliff” that is expected when temporary expanded federal funding for child care ends on July 1. Without significant additional state funding this year, the current shortage of affordable, accessible, high-quality child care – which affects nonprofits as both employers and service providers – could get much worse. Among other things, Governor Cooper’s budget proposal would increase funding for Smart Starts by $10 million per year, provide $200 million in one-time child care stabilization grant, and make significant recurring increases to child care subsidy rates and NC Pre-K reimbursement rates. During our first four Nonprofit Policy Conversations, many nonprofit leaders have said that investment in child care and early childhood programs is a top policy priority this year, and the Center hopes that legislators will follow Governor Cooper’s recommendations and make significant investments in early childhood programs in this year’s state budget.
• A $43 million expansion of the Healthy Opportunities program that provide grants to many nonprofits providing programs related to social determinants of health.
• A refundable child and dependent care tax credit that would provide financial support to many low-income families.
• An increase in unemployment insurance (UI) benefits, which would provide more financial assistance to people who are out of work – particularly during a recession – who often rely on nonprofits to meet many of their basic needs. Note that this change could also increase UI liability for nonprofits that elect to reimburse the state for UI benefits rather than paying state unemployment tax (SUTA).
• A reduction in SUTA rates for employers (including nonprofits) with 500 or fewer employees. This could be a cost savings for nonprofits that pay SUTA instead of reimbursing the state for UI benefits.
• A $5 million increase in investment in need-based financial aid at (nonprofit) private colleges and universities. 
• $2.5 million in new funding for grants management staff at the NC Office of State Budget and Management (OSBM). This additional support for state grants management could help ease many of the challenges that nonprofits have experienced with late payments and late contracts on their state grants and contracts and could provide OSBM with the resources necessary to help address other challenges that nonprofits regularly encounter when they partner with the state to provide services to their communities.
• Additional funding for business registration staff at the NC Secretary of State, which could help the Secretary of State be more responsive to nonprofits’ needs and questions related to corporate filings.

Governor Cooper’s budget proposal also includes about $730 million in new funding for public schools, including an average raise of 8.5% for public school teachers, along with average pay raises of about 5% for other state employees. Governor Cooper recommends using several revenue streams to pay for his proposed new state expenditures, including:

• Spending most of the projected $1.4 billion in excess revenue for the current biennium on a variety of state investments. 
• Maintaining 2024 tax rates for individual income tax (4.5%) and corporate income tax (2.5%). The NC General Assembly has included further tax rate cuts (including eliminating the corporate income tax by 2028) in previous state budgets. Freezing tax rates at their current level would increase state revenue not only next year, but in the future when the fully implemented tax cuts are projected to reduce state revenue by several billion dollars per year. In the future, this could mean fewer reductions in state funding of nonprofits and less pressure on lawmakers to impose new taxes and fees on otherwise tax-exempt charitable nonprofits. 
• Saving $250 million by eliminating the second year of funding for NC Innovation, a relatively new economic development nonprofit that received an unprecedentedly large $500 million appropriation (over two years) in last year’s state budget. While the rollback of the largest-ever appropriation to a nonprofit could be seen as a symbolic loss for the nonprofit sector, it also could free up significant state funds that could be used (at least partially) to support the work of a much broader, more diverse group of nonprofits.
• Imposing a moratorium on growth of the Opportunity Scholarship program, which provides vouchers that families can use to cover tuition to (mostly nonprofit) private schools. Nearly 72,000 families applied for the significantly expanded voucher program for the 2024-25 school year, and thousands are expected to be on the waiting list unless legislators provide more funding for scholarships for the 2024-25 school year. Legislative leaders have signaled an interest in providing the roughly $300 million in additional funding to provide vouchers for families that wind up on the waiting list. On the other hand, Governor Cooper’s proposed budget would save more than $200 million by keeping Opportunity Scholarship funding at 2023-24 school year levels, meaning that none of the 72,000 families who applied this spring would receive vouchers. 

Legislators will almost certainly ignore most parts of Governor Cooper’s budget proposal as they develop their own version of the state budget over the next couple of months. However, it is possible that parts of Governor Cooper’s budget recommendations with bipartisan support – such as his proposal to invest heavily in child care and early childhood programs – could be incorporated into the legislative budget.

NC General Assembly Begins 2024 Short Session

The NC General Assembly officially opened its 2024 short session on Wednesday. Legislators got off to a slow start this week, with lawmakers filing 26 new bills (17 in the House and nine in the Senate) on Wednesday and Thursday, none of which directly affect the nonprofit sector. 

Legislators’ main goal during the short session will be to make adjustments to the state budget for FY2024-25. But they also could take action on a variety of other bills that passed either the House or Senate in 2023 or that affect state taxes or spending. Among the bills eligible for consideration during the short session are legislation to exempt nonprofits from paying sales tax on their purchases and to modernize the NC Nonprofit Corporation Act. 

The Center will continue to advocate on nonprofits’ behalf on these and other issues, and we will keep you posted with any developments and/or opportunities for your nonprofit to take action.

Register for Nonprofit Policy Conversations

This spring, the Center is hosting a series of Nonprofit Policy Conversations around the state to bring together nonprofit leaders and local elected officials (mostly state legislators) to discuss public policy issues that are important to charitable nonprofits and the people and communities they serve. At each Conversation, the Center provides a briefing on nonprofit sector trends and potential public policy solutions and challenges for nonprofits in 2024 and beyond. Register now for Conversations scheduled for:

• Friday, May 17 from 1:30-3:30 p.m. at Pitt County Council on Aging in Greenville in partnership with Heart for ENC
• Monday, May 20 from 10:00 a.m.-12:00 noon at Foundation For The Carolinas in Charlotte

U.S. House Announces Ban on HUD Earmarks to Nonprofits

The Chair of the U.S. House of Representatives Appropriation Committee announced yesterday that nonprofits are banned for Community Project Funding in the Economic Development Initiative account (a form of earmarks) for FY2025. This would affect nonprofits that have received earmarks through the U.S. Department of Housing and Urban Development (HUD). The National Council of Nonprofits responded to the news with a Statement on Exclusion of Nonprofits from Future Housing and Urban Development Earmarks: “The discriminatory exclusion of nonprofits from future Transportation, Housing and Urban Development (T-HUD) earmarks announced this morning by Chairman Cole threatens the public’s health and wellbeing. Under this new restriction, vital funding that Members of Congress know their constituents need for domestic violence shelters, food banks in economically disadvantaged neighborhoods, youth and senior centers, affordable ready-to-build housing, and more that the public relies on nonprofits to deliver will be denied. Seeking to stop funding from going to a few groups that some Representatives may disagree with by issuing a blanket ban against funding for all nonprofits will tear away needed funding from organizations that their constituents depend on. Not only will those seeking services suffer, but removing those funds will also mean putting constituents employed by those nonprofits out of work. We urge Chairman Cole and those on the Appropriations Committee to reverse course before causing this irreparable harm to communities across the country.”

If your nonprofit has received funding through HUD earmarks in the past, you may want to consider calling your Member of Congress to tell them the impact that the loss of funding would have on the community you represent. Feel free to use this message: “Representatives know their community needs better than bureaucrats, especially in the area of HUD economic development initiatives. Community project funding to charitable nonprofits through HUD appropriations provides Members of Congress the most direct and effective way to address those urgent community challenges in their district. For the sake of our communities and the people we serve, it is imperative that the House not prohibit Members from designating Community Project Funding for important works through charitable nonprofits.”

New FTC Rule Bans Most Non-Compete Provisions in Employment Contracts and Policies

On Wednesday, the Federal Trade Commission (FTC) issued a final rule that bans employers from including non-compete clauses in their employment policies and employment contracts. Non-compete clauses prevent employees from taking positions with certain other employers for a period of time after they leave their current position. The rule has a narrow exception for senior executives with annual salaries above $151,164 who have existing non-compete agreements with their employers. Otherwise, it covers all employees, including staff of 501(c)(3) nonprofits.

The ban on non-compete clauses will take effect 120 days after it is published to the Federal Register, meaning it will likely take effect near the end of August. The U.S. Chamber of Commerce has already said that it plans to challenge the final rule in federal court. 

To ensure compliance with the new rule, nonprofits should review their personnel policies and/or contracts with employees to ensure that they do not include non-compete clauses. If your nonprofit currently requires some or all of your staff to adhere to non-competition requirements, you will likely need to revise your personnel policies and/or update your employment contracts before the new rule takes effect.

More Than 400,000 North Carolinians Have Health Coverage Through Medicaid Expansion

According to the NC Department of Health and Human Services (DHHS), more than 400,000 North Carolinians have enrolled in health care through Medicaid expansion since it became available in December, with about 1,000 more people enrolling every day. DHHS estimates that more than 200,000 additional North Carolinians may be eligible for coverage under Medicaid expansion. Almost all potential Medicaid expansion enrollees receive services from nonprofits, so it is important for nonprofit organizations to spread the word about Medicaid expansion eligibility and the application process. 

The DHHS website includes basic information on eligibility for Medicaid coverage, details of costs and coverage, and free materials to help nonprofits provide clear and accurate information about Medicaid and Medicaid expansion to their clients and communities. Please share this information widely, especially with clients who may now be eligible to apply.

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Nonprofit Policy Update is North Carolina Center for Nonprofits' weekly newsletter of state and federal policy issues that affect all 501(c)(3) nonprofits. Learn about the Center's public policy agenda or contact David Heinen, Vice President for Public Policy and Advocacy, for more information.

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