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Overtime rules weigh on nonprofit sector

As businesses adjust to new rules on overtime pay, nonprofits are making their own calculations – a complicated exercise based on the sector’s limited finances.

“For some manufacturers and maybe some businesses that are doing well in the for-profit sector, this is maybe an annoyance – they figure out a way to do it, and they move on,” said Gregory Miller, president and CEO of Penn-Mar Human Services, which serves individuals with intellectual disabilities. It’s based in Freeland, Md. and Springfield Township, York County.

But the new law poses more difficulties for nonprofits funded by donors and grants.

“It’s not like you can go back to them and say, ‘OK, we complied with the law, now give us the amount of money that we need to comply.’ It just doesn’t work that way,” Miller said.

Miller is among the nonprofit executives facing a Dec. 1 deadline to comply with the new federal overtime regulations. Among other changes, the rules will double the salary level, from $23,660 to $47,476, under which workers working more than 40 hours a week must be paid overtime.

Miller fears the impact on nonprofits.

“There’s not a person here I work with whose salary I think is worth less than $47,476,” Miller said. But that isn’t the point, he added: “The point is, if we’re funded to pay that $25,000, what do we do?”

Changes in pay, hours expected

Overall, businesses are expected to cope with the rules by having fewer employees or fewer full-time ones; by raising salaries for people just below the $47,476 level; or by reclassifying those who are now salaried and putting them on an hourly basis.

Nonprofits are doing much the same.

Miller said Penn-Mar will boost salaries for employees who now earn close to the $47,476 threshold. Those not close to the level will be reclassified as hourly, and the agency will monitor their overtime, he said.

“Taking a salary up by over 100 percent, with no additional resource to fund, that is where an organization like Penn-Mar and folks who do the type of things that we do are really finding themselves challenged,” continued Miller, 53, who has led Penn-Mar since 2012. It has 500 employees and a $28 million budget.

The executive director of Pennsylvania’s nonprofit association predicts the new rules will impact nonprofits “at least as much as the for-profit sector” and perhaps more.

“There will be an increase in costs for nonprofits, between the impact of the budget impasse and the new overtime regulations,” said Anne Gingerich of the Harrisburg-based Pennsylvania Association of Nonprofit Organizations.

Nonprofit employees make up around 15 percent of the state’s workforce, she said.

While she can’t predict how much the new law will boost expenses, she heard of one nonprofit that expects an 8 percent hike in salaries and benefits.

The higher costs come as demand for services grows. In 2015, Pennsylvania nonprofits reported an 87 percent increase in demand, Gingerich said.

“The reality is, until we can catch up with the salaries, we may need to reduce services for a period of time,” she said. “But that’s just speculation.”

Miller guesses that small nonprofits heavily dependent on fundraising could be threatened by the new rules.

“If you’re fund-raising a $35,000 position, and you now have to fund-raise a $48,000 position, that’s a pretty big deal,” he said. “If your organization’s budget is only $100,000 or $200,000 a year, to go out and try to raise that additional money, I could see that being a challenge for them.”

The new rules may affect staffing models,  but they won’t affect commitment levels.

“While some positions may need to be converted from salary to an hourly equivalent, our focus is to retain our valued and committed workforce and continue to engage our community with an exceptional experience with the arts and sciences,” said Ashlee Hurley, director of marketing and sales for Harrisburg’s Whitaker Center for Science & the Arts.

David O'Connor
Dave O'Connor covers York County, manufacturing, higher education, nonprofits, and workforce development. Have a tip or question for him? Email him at [email protected].

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