With the recent injunction, the new Fair Labor Standards Act overtime rule changes have been stopped—at least, for the moment. Many experts believe it's a temporary pause and the law will eventually be implemented with modifications.
Since the law was supposed to take effect in December, many companies and nonprofits made changes in their organization to reclassify salaried employees who were making less than $47,476.
Besides the day-to-day logistical changes for tracking time and determining overtime eligibility, the cultural fallout for nonprofits has been significant for some organizations.
Am I Being Demoted?
For many salaried employees, the switch to being a “time clock puncher” is viewed as a demotion. While technically that's not the case, many exempt employees view the detailed tracking of their time as an annoying and inefficient use of their time. There's a sense that the organization is acting like Big Brother monitoring their every move rather than valuing their contributions regardless of how much time it takes. This has led many reclassified employees to feel that they've been reduced in status. It's a feeling that can impact their commitment to the organization.
You Mean I Have to Stop Working on This Grant?
With the reclassification to hourly, any time after 40 hours in a week (or, in California, 8 hours in a day) must be paid as overtime. Nonprofits need to closely monitor labor costs against their grants. Overtime pay has a compounding impact of the labor cost's burn rate towards a fixed grant amount. Often times, an employee will have to abruptly stop spending time on a grant or project so as not to overspend.
Besides impacting the ability to achieve objectives on a given grant, psychologically this impacts your employees because they can't work longer to complete a project. Many people join nonprofits because they're passionate about the mission more than pay—they would rather put in the necessary time to achieve the mission without worrying about how it affects pay. Now as an hourly employee, extra work without overtime is illegal and the employee must be compensated.
Maintaining a Culture of Mission
These are just two examples of how reclassifying exempt employees to non-exempt has impacted nonprofits. Assuming the overtime law does get resurrected, there will likely be other implications for these organizations—including increased spend on technology and legal counsel to ensure compliance.
In the end, more detailed time tracking to grants has financial and reporting benefits. But for organizations that have made the changes, this transition has also had cultural repercussions. These impacts need to be managed to maintain morale and allow employees to continue helping those they serve.