DOL Proposal for New FLSA Overtime Threshold Will Likely Affect Many NC Nonprofits

On Wednesday, the U.S. Department of Labor (DOL released new proposed regulations on the salary threshold under the Fair Labor Standards Act (FLSA). The proposed regulations would increase the salary threshold for overtime pay by nearly 55% over the current level. The Center anticipates that this change would affect thousands of North Carolina nonprofits.

Currently, FLSA requires employers, including nonprofits, to pay their employees at least $7.25 per hour and to pay employees one-and-one-half times their regular rate of pay when they work more than 40 hours in a workweek. Employees are exempt from the FLSA overtime pay requirement if they:

1. Are paid on a salary basis (meaning they are paid the same amount each week regardless of how many hours they actually work);
2. Are paid at least $684 per week ($35,568 per year); and
3. Exercise job duties that are classified as administrative, executive, or professional.

The proposed new rule would raise the salary threshold for exempt employees from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year). If the rule were to take effect, this would mean that nonprofits with exempt employees with salaries between $35,568 per year and $55,068 per year would need to either increase these workers’ salaries or pay them one-and-on-half times their regular rate of pay when they work more than 40 hours in a workweek.

The proposed rule also would raise the compensation level for highly compensated employees (subject to less-detailed duties tests) from its previous amount of $107,432 to $143,988 annually. The Center’s experience is that very few nonprofit employees meet the “highly-compensated” standard, either because their salaries are below the threshold or because their job duties meet the tests for administrative, executive, or professional employees (meaning they are subject to the basic three-part test for FLSA exemption).

The proposed regulations make no changes to the duties tests for administrative, executive, and professional employees. However, in addition to raising the salary threshold to $55,068 per year, the proposed regulations would create a process to automatically increase this threshold every three years. This would effectively force nonprofits to regularly increase compensation of their exempt employees to keep up with the higher salary threshold.

Practically, the proposed overtime rule would have two major implications for nonprofits:

1. Many nonprofits would have increased labor costs and/or would need to cut back on the hours that many staff work. This change could cause significant financial challenges for nonprofits sand could exacerbate the nonprofit workforce shortage crisis (see the second item in today’s Nonprofit Policy Update for more details).
2. Many people who receive services from nonprofits and would be subject to being reclassified as non-exempt would be paid more and/or would work fewer hours than they currently do. This change could help complement the work of many nonprofits.

The Center has posted its preliminary analysis of the proposed regulations and their potential impact on nonprofits. The analysis includes practical solutions for how nonprofits can adapt to a higher salary threshold while still complying with federal law. The Center is still analyzing salary data on North Carolina nonprofits to gain a better sense of how many organizations in our state will be affected. We plan to include that data in the public comments that we will submit to DOL this fall on the proposed rule.

Nonprofits and others have 60 days to submit public comments. After DOL receives and reviews these comments, it could make some changes to the proposed regulations before issuing final regulations. It is likely that the new salary threshold will ultimately take effect sometime in 2024.

New Report Highlights Policy Solutions to Address the Nonprofit Workforce Shortage Crisis

On Wednesday, the National Council of Nonprofits released a report with details on the nonprofit workforce shortage crisis. The report is based on a national survey of more than 1,600 nonprofits that was conducted in April. About three-fourths of nonprofits responding to the report said they had job vacancies this spring, and more than half reported having more vacancies now than before the COVID-19 pandemic.

The report highlights several public policy solutions that could help nonprofits recruit and retain employees including:

1. Addressing challenges that nonprofits experience with government grants and contracts;
2. Improving tax incentives for charitable giving;
3. Strengthening the Public Service Loan Forgiveness program; and
4. Increasing access to – and support for – affordable child care.

The nonprofit workforce shortage crisis appears to be particularly acute in North Carolina. The state-specific report for North Carolina found that 81.0% of nonprofits reported having job vacancies this fall, compared to 74.6% nationally. In response to the ongoing nonprofit workforce shortage crisis, the Center continues to advocate for a wide range of state and federal policy solutions that will help nonprofits operate more effectively, save money, and have stronger tools to recruit and retain paid staff and volunteers.

DHHS Pushes Back Start of Medicaid Expansion in North Carolina

This week, the NC Department of Health and Human Services (DHHS) announced that it will have to delay the start of Medicaid expansion in North Carolina. DHHS had worked out a plan with the federal government to begin Medicaid expansion on October 1, as long as it had authority to do so by the end of August. This spring, legislators and Governor Roy Cooper agreed on a law (H.B. 76) giving DHHS authority to begin Medicaid expansion once a state budget for FY2023-24 is in place. Legislators had expected to finalize the state budget in June, but House and Senate leaders are still negotiating several key provisions and don’t expect legislators to vote on the budget until at least the week after next.

Medicaid expansion will provide health coverage for about 600,000 North Carolinians in the health coverage gap who have incomes too high to qualify for Medicaid but too low to receive health care subsidies under the Affordable Care Act marketplace. DHHS Secretary Kody Kinsley explained this week: "The delay tragically results in hundreds of thousands of people not being able to access care when they may need it most. Nearly half of the people eligible for expansion would be automatically enrolled in full coverage on day one. Each month of delay costs the state hundreds of millions of dollars flowing into communities across North Carolina to support care and treatment for people and help keep providers’ doors open."

Medicaid expansion has been a major policy priority for the Center and hundreds of other nonprofits for more than a decade. As we explained in a Care4Carolina blog post last summer, the Center strongly supports Medicaid expansion because it would support the work of charitable nonprofits by:

1. Complementing the work of many nonprofits that provide services to North Carolinians who don’t currently have adequate health coverage;
2. Providing health coverage for some employees of nonprofits that don’t offer group health plans and whose salaries leave them in the health care coverage gap; and 
3. Providing payment for some types of Medicaid-eligible services that nonprofits currently provide to clients for free.

Center Plans to Submit Comments to U.S. House Committee on Nonprofits’ Election-Related Activities

Two weeks ago, the U.S. House of Representatives Ways and Means Committee published a “request for information” about “political campaign intervention” by 501(c)(3) charitable nonprofits and 501(c)(4) social welfare organizations. Federal tax law prohibits 501(c)(3) nonprofits from engaging in partisan election-related activities like endorsing or opposing candidates for public office or making financial contributions to political campaigns. However, longstanding guidance from the Internal Revenue Service makes clear that 501(c)(3) organizations can participate in nonpartisan voter registration, voter education, and get-out-the-vote work.

The Ways and Means Committee’s request for information seeks feedback on a series of questions, which focus on:

1. Whether there is a need to update definitions and guidance on nonprofit “political campaign intervention;”
2. Potential new reporting requirements for nonprofits on their election-related activities, potentially including new reporting on permissible nonpartisan voter engagement activities of 501(c)(3) nonprofits;
3. Identification of tax-exempt nonprofits whose voter engagement work or other programs and services that have the effect of favoring one candidate or political party;
4. Information about the influence of foreign nationals on the election-related programs of 501(c)(3) or 501(c)(4) organizations; and
5. Specific examples of 501(c)(3) nonprofits that have misused donor funds in ways that benefit nonprofit executives or are inconsistent with donors’ intent.

While the committee’s request for information letter seeks information about activities of tax-exempt nonprofits that benefit any candidate or political party, the letter concludes with several examples of nonprofits’ election-related activities that the committee chairs suggest have benefitted Democratic candidates.

Comments are due to the Ways and Means Committee by next Friday, September 8. The committee is accepting comments by email at: waysandmeansRFI@mail.house.gov. The Center plans to respond to the committee next week with comments that will highlight that:

1. The rules on permissible nonpartisan election-related activities for 501(c)(3) are already quite clear. Nonprofits have access to plenty of information about these rules, both in the form of formal guidance from the IRS (e.g., IRS Revenue Ruling 2007-41) and in the form of free, user-friendly materials from the Center and other partners (e.g., the Center’s answers to common questions about nonprofits and elections and many great resources from Nonprofit VOTE).
2. The vast majority of 501(c)(3) nonprofits that engage in election-related activities do so in a nonpartisan way with the intent of maximizing voter participation in their communities and without expectation that their activities will benefit particular candidates or political parties.
3. While there is not a need for additional reporting by 501(c)(3) nonprofits on their election-related activities, the American public would be well served by greater transparency of donors to 501(c)(4) organizations (which are permitted to spend money on partisan politics and are not required to report their donors on their Forms 990).

Take Action: Help People Connected to Your Nonprofit Maintain Medicaid Coverage

During the COVID-19 pandemic, Congress created a temporary exemption (known as continuous coverage) from annual Medicaid recertification rules that normally require Medicaid recipients to provide verification of their income, family size, and other information to ensure they remain qualified. The Medicaid continuous coverage provision ended on April 1, and the NC Department of Health and Human Services (DHHS) began the process of recertifying Medicaid beneficiaries in North Carolina in June. Medicaid recipients need to contact their local Division of Social Services (DSS) office to ensure that it has their current contact information. While the process isn’t difficult, many North Carolinians stand to lose their Medicaid coverage if they don’t contact their local DSS office. Recent data suggests that a significant number of North Carolinians are losing their Medicaid coverage for “procedural reasons.” Your nonprofit may be able to help others in your community maintain their coverage by providing clear information to the people you serve.

DHHS originally projected that as many as 300,000 North Carolinians – many of whom receive services from nonprofits – could lose their Medicaid benefits if they don’t recertify. Many of these North Carolinians may have begun participation in Medicaid during the pandemic and may be unfamiliar with the recertification process. According to data from DHHS, in June and July alone, more than 68,000 North Carolinians lost their Medicaid coverage, including about 60,000 people who lost coverage for “procedural reasons.” Based on these trends, it’s possible that far more than 300,000 North Carolinians will ultimately lose coverage through this review, the vast majority for preventable “procedural” reasons. Some of the people losing their Medicaid coverage may qualify again once Medicaid expansion begins in North Carolina, but they will still have a gap in coverage for at least the next few months.

Your nonprofit can help make sure that the people you serve keep their Medicaid coverage by sharing information with them about the recertification process and the need to confirm their contact information with their local DSS office. Three nonprofits – The Charlotte Center for Legal Advocacy, Pisgah Legal Services, and Legal Aid of North Carolina – recently launched NCMedHelp.org to answer questions about NC Medicaid services, including eligibility determination. The website has direct links to each county’s DSS office and information about legal help and health coverage options for people who have lost their Medicaid coverage through this process.

Nonprofits Are Important Messengers about Obtaining Free IDs for Voting This Fall

In April, the NC Supreme Court issued a decision reinstating a 2018 law that requires North Carolinians to show photo identification when voting in elections. Many nonprofit organizations have expressed concerns that the voter ID law could make voting more difficult for many people served by nonprofits, particularly seniors, people with disabilities, and low-income citizens. Voter ID requirements will go into effect for this fall’s municipal elections. That means that many North Carolinians who don’t have a current photo ID will need to obtain one in the coming weeks to be able to vote in this fall’s municipal elections.

Nonprofit organizations have historically been among the most effective messengers for educating the people they serve about what steps to follow in order to vote because nonprofits are trusted by the people they serve. Nonprofits often serve people who don’t have photo IDs, so it is important for nonprofit organizations to share resources for getting free photo IDs with the people they serve. The NC State Board of Elections (NCSBE) recently explained that voters without photo IDs have two options for obtaining free photo IDs:

1. The NC Department of Motor Vehicles (DMV) offers free photo IDs that can be used for voting. Carolina Demography recently posted information about the 116 DMV offices in the state and the number of voters living in the vicinity of each of these sites.
2. Voters also can obtain free photo IDs from their county board of election. NCSBE explained this week that voters will simply need to provide their name, date of birth, and the last four digits of their Social Security number, and have their photo taken to get these IDs.

For more information, check out NCSBE’s 10 facts about photo IDs for voting. The Center will continue to share information about how your nonprofit can help people in your community understand voting rules as we get closer to this fall’s municipal elections. 

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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 priorities and agenda, or contact David Heinen, Vice President for Public Policy and Advocacy, for more information.