September 2016 Meeting: Exempt and Non-exempt Employees: Finding the Right Staffing and Compensation Strategy for your Organization

Date: September 29, 2016

December 1, 2016, the new DOL regulations governing non-exempt employee compensation go into effect.  We first reviewed these changes last May.  We decided to dive in deeper and review how our employees should be classified as well as how well we apply the exempt duties test in each of our organizations.

How does one analyze and develop a solid staffing and compensation strategy around exempt and non-exempt employees?

The presentation began with a quick overview of FLSA overtime requirements, focusing on the 2004 regulations & the duties tests for the categories of white-collar employees exempt from overtime, namely: executive, administrative, professional, outside sales, and computer professionals. To qualify under the “professional” category, a job needs to require an advanced degree beyond a bachelor’s (such as an MD, JD, etc.), reflected in its scope and level of responsibilities. There was discussion about when a master’s degree would qualify. We were cautioned that the “administrative” exemption has been prone to misuse. To qualify for this exemption, an employee needs to exercise independent judgment and discretion with respect to “matters of significance,” such as strategy, establishing budgets, hiring & firing…. The category does not, for example, usually extend to administrative assistants. It might, however, be appropriate for a CFO or Finance Director, even one without an M.B.A.  The duties and extent of independent authority and discretion are determinative.

This was followed by a summary of the Department of Labor’s new regulations for overtime eligibility, which go into effect December 1, 2016. The most immediately obvious of the changes are higher salary thresholds for overtime exemption and the “highly compensated employee” test. To be considered for exempt status, an employee will need to draw a salary of at least $913 per week ($47,476 annually), a threshold more than double the current cutoff. In addition, the employee would need to pass the duties test–as described above–which remains unchanged. The annual salary threshold for highly compensated employees, who are automatically exempt from overtime rules, will rise to $134,004. The new rules also set forth a mechanism for the thresholds to be adjusted every three years, and include provisions for counting certain bonuses and incentive pay as part of qualifying salary.

There are two important features of the new $913 threshold. First, an employee must earn at least $913 every week, not merely on average over the course of the year. Secondly, the floor applies to the employee’s actual salary, not prorated for hours worked. Whether an employee works 20 hours a week or 40, she must earn $913/week or more to meet the new salary test.

Up to 10% of the salary counting toward the minimum can take the form of nondiscretionary bonuses, incentive pay, and commissions. To qualify, any such compensation must be paid out at least quarterly. An annual discretionary bonus, for example, would fail to qualify on two counts.

There was some discussion about the nonprofit exemption for organizations and individuals. It does not cover the vast majority of cases, because to apply, both the Massachusetts organizational test and federal enterprise or individual tests must be met. The individual test is quite restrictive, due to a broad interpretation of “interstate commerce.”

To comply with the new regulations, an employer might consider a number of options regarding employees who currently earn less than $913/week, including:
Raise salaries to meet or exceed the threshold
Is someone earning close to that amount already?
Are they earning bonuses or commissions that get them close?
Would they otherwise be logging a large amount of overtime hours?
Reclassify them as non-exempt, and pay time-and-a-half for overtime
Are they earning well below the threshold?
Would raising their salaries result in problematic pay compression?
Are they unlikely to log overtime?

Organizations are adapting by reclassifying employees as non-exempt, but adjusting wages so that employee’s total pay, including overtime, would stay about the same.

It was noted that non-exempt salaried employees may still be paid on a salaried rather than hourly wage basis, as long as they are paid overtime wages for any hours over 40 per week and agree to the arrangement. So an employee who works variable hours can be a salaried non-exempt employee so long as the overall salary satisfies minimum wage for all hours worked and hourly overtime would be applied when the hours worked exceeded 40. However in that case, it would be strongly advised to obtain a written agreement from the employee (such as acceptance of an offer letter) specifying that they are to be paid on a salaried basis.

Above all, these new rules are an excellent opportunity to clean house: do a thorough audit of actual current job duties and job descriptions; track hours worked; review policies on work hours, scheduling and telecommuting; etc. If you need to change your compensation structure or policies, the DOL rules will serve as a concrete starting point for communicating changes to employees.

 

Presenter: Elizabeth Levine, Esq. has significant non-profit experience and will lead a discussion of these and related issues.  Counsel in Goulston & Storr’s litigation practice, her practice focuses on proactively counseling employers with respect to personnel policies and other employment law related matters as well as defending organizations in litigation.

June 2016 Meeting: What Story Do Net Assets Tell About Your Organization and How to Explain it to Your Board

Net Asset classifications are unique to nonprofit organizations and frequently management and board members do not have the financial literacy skills to interpret this information.  The senior finance staff member is often the only one available to educate the ED and the Board. It can be particularly challenging with board members that only have experience in the for-profit sector. The net asset classifications can provide insight into an organization’s revenue mix, available capital, overall financial condition, and ultimately, stability and sustainability.  Ed Mulherin from Ecratchit explained the unrestricted, temporarily restricted, and permanently restricted net asset classifications that appear on nonprofit financial statements, how to interpret this information, and provide some tips on how to explain it all to your Board.  Edward M. Mulherin, CPA, Esquire is Founder & CEO of eCratchit.  Ed has over 30 years of experience providing accounting and business consulting services to a variety of clients. In 2001, Ed founded eCratchit, which provides web-based bookkeeping and accounting services.  Ed has been the Virtual CFO for dozens of companies over the past 10 years providing strategic financial thinking, consulting on issues of cash flow, nonprofit sustainability; short and long term financial planning, banking and financing issues.
It is very important for the Management and Development teams of an organization to have a firm understanding of the concept of what net assets mean and how to explain it to the Board of Directors.  Net assets are comprised of Unrestricted Assets, Board Designated Reserves, Temporary Restricted Assets, and Permanently Restricted Assets. When a donor give funds to an agency, those funds will be classified as 1) unrestricted; 2) temporary restricted; or 3) permanently restricted, which can be set up as an endowment. Board designated funds can be restricted or unrestricted. When looking at the Statement of Activities in the Financial Statements, you should focus on the unrestricted column.  You should also do a monthly Actual to Budget statement, showing the variance between the two.  The Temp Restricted column on this Statement shows funds that are not currently available but it demonstrates strength for future periods. Over time, the temp restricted column will go up or down, depending on whether you receive new funds or bring existing funds into the operating fund.   Temporary Restricted Funds are those funds restricted by the donor to spend for a specific purpose or program or restricted to a certain time period.  According to Ed Mulherin, a good rule of thumb is to release funds from Temp Restricted  “early and often – get it out of Temp Restricted,” otherwise it can get stuck in the category.  If you are not sure whether you can bring certain temp restricted funds into operations, ask your auditor.  However, another rule of thumb is “don’t release it if you have not received it yet.”
On many occasions, the Development Team and the Finance Team are not aligned on terminology and goals when categorizing and managing funds.   The two teams need to be on the same page as to what temp restricted means, how the funds are handled, and when they can be released into operations.   Finance and Development should reconcile monthly in the following areas:  pledges, temp restricted, and unrestricted operating revenue.   As mentioned earlier, Board Designated funds can be restricted or unrestricted.  Sometimes it is a matter of form over function – the fact that the funds are Board designated informs the reader of the financial statements that the Board has acted to limit the use of the funds and this might also appeal to certain funders.
Establishing the appropriate level of reserves funds for you agency depends on a number of factors.  It depends on the size of the organization, the volatility of your funding, and the ability of your agency to raise funds quickly.  A good rule is to have at least 6 months s’ worth of opera ting reserves on hand at all times.  You can use temp restricted funds as working capital, but you need to have sufficient funds to cover for its use this way. Finally, it is very important to have a strong balance sheet. When management, the Board, or interested parties look at your balance sheet, they get a good sense of how the organization is doing by looking at the Net Assets line.
 Edward M. Mulherin, CPA, Esquire is Founder & CEO of eCratchit.  Ed has over 30 years of experience providing accounting and business consulting services to a variety of clients. In 2001, Ed founded eCratchit, which provides web-based bookkeeping and accounting services.  Ed has been the Virtual CFO for dozens of companies over the past 10 years providing strategic financial thinking, consulting on issues of cash flow, nonprofit sustainability, short and long term financial planning, banking and financing issues.

May 2016 Meeting-Are You Prepared to Comply with New Proposed FLSA Overtime Regulations?

In 2015, the Department of Labor announced a proposed change to overtime regulations that will limit the number of white collar workers who will qualify for exemption from the overtime requirement.  Although the implementation of the regulations has been postponed until 2016 or 2017, businesses should begin to consider how the regulations will impact their pay practices.  We will discuss basic concepts of overtime and exemptions, with a focus on the anticipated changes.

 

Presenter: ANDREA E. ZOIA is an associate with the firm Morgan, Brown & Joy LLP.  Ms. Zoia represents employers in a variety of labor and employment matters.  Her litigation experience includes defending employers in a wide range of workplace claims including employment discrimination, retaliation, wrongful discharge, breach of contract, and wage and hour class actions.  Ms. Zoia is a graduate of Boston College and Northeastern University School of Law.  She is a member of the Labor and Employment Section of the Boston Bar Association.

Below, please find the link to Morgan Brown and Joy’s website with the seminar materials.

http://morganbrown.com/news/news.php?id=435
Link to the Department of Labor’s guidance on the new regulations.  Note that this has its limitations and only addresses application of federal law (and not the Massachusetts overtime requirements):

https://www.dol.gov/whd/overtime/final2016/

 

Article about the topic:

The Federal Fair Labor Standards Act (FLSA) requires that Non-Exempt employees be paid at an overtime rate for worked performed in excess of 40 hours per week.  States also have their own standards, but they must comply at a minimum with the Federal Standards.  Massachusetts standards use the FLSA provisions. The FSLA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, and professional employees (white collar employees). To qualify for the exemption, a white collar employee generally must:
1. Be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the salary basis test);
2. Be paid a minimum specified salary (the salary level test); and
3. Primarily perform executive, administrative, or professional duties, as defined in the federal regulations (the duties test).
Highly-compensated employees (HCEs) who are paid total annual compensation of a minimum specified amount and meet certain other conditions are also deemed exempt from the FLSA minimum wage and overtime pay requirements.

Job titles never determine exempt status. Receiving a particular salary, alone, does not indicate that an employee is exempt. Rather, in order for a white collar exemption to apply, an employee’s specific job duties and earnings must meet all of the applicable requirements provided in the regulations. Keep in mind that when both the FLSA and a state law apply, the employee is entitled to the most favorable provisions of each law.

In 2015, the Department of Labor announced a proposed change to overtime regulations that will limit the number of white collar workers who will qualify for exemption from the overtime requirement.  Although the implementation of the regulations has been postponed until 2016 or 2017, businesses should begin to consider how the regulations will impact their pay practices.  Andrea discussed basic concepts of overtime and exemptions, with a focus on the anticipated changes.

Andrea recommended that employers start off by assuming that all employees are non-exempt and if you have a policy that states that employees are not to work over 40 hours per week, then make it clear, and stick to it.  If nonexempt employees do work over 40, even though you have a policy, you have to pay them OT.   Under the new regulations which take effect on December 1, 2016, there are still “White Collar” exemptions from the OT provisions of the FLSA.   The three categories of “white collar” exemptions are: executive employees, administrative employees, and professional employees.  Executive employees must be paid on a salary basis and their primary duties must be managing the company or a segment of it, directing the work of at least 2 other full time employees and must have authority over those employees.    Administrative employees also must be paid on a salary or fee basis and their primary duty must be the performance of office or non-manual work related to management and must be able to exercise discretion and independent judgment in regard to matters of significance.  Professional employees must be paid on a salary or fee basis and must perform work that requires an advanced knowledge or degree in science or leaning or requires specialized skills in a recognized field of artistic or creative work.   The “duties test’ for determining if a certain employee is exempt or non-exempt will not change under the new regulations.  The change is, under the old rules, to be exempt, you had to meet the duties test, be paid a guaranteed amount (salary or fee) and make at least $455 per week or more to be EXEMPT.  Under the new regulations, you have to meets the duties test, make a guaranteed salary or fee, If you do not meet this salary level, then you are non-exempt and are subject to the Overtime provisions of the FLSA.  Adjustment to the salary limited will occur again on January 1, 2020, and then automatically every 3 years.

Andrea mentioned that determination of exemption under the “duties test” is where most of the litigation takes place.   She also highly recommended that we have all employees fill out timesheet, so there is documentation of hours worked in case litigation does occur.   Penalties for violating the FMLA are severe and the statute of limitations for violations is 3 years.

April 30 – Going Paperless: What You Need to Know

Presentor: Anne Healy, Director of Finance & Administration, at Match Education
Anne has many years of experience as the CFO at various organizations. She shared her experience with paperless solutions that help tame and organize the back office.  She also provided information about several applications used for this purpose, including DocuSign, salesforce, bill.com, and tallie.

Anne Healy, Director of Finance & Administration, at Match Education, shared her experience with paperless solutions that help tame and organize the back office.  Anne has many years of experience as the CFO at various organizations, including Rosie’s Place.  She also provided information about several applications used for this purpose, including DocuSign, Salesforce, Bill.com, and Tallie.
Anne stated that many organizations are trying to get out using paper for the AP function – heading toward a paperless finance operation.  She first spoke about bill.com, which can be used to pay to process invoices and receivables electronically.  It is easy to use and synchs with Quickbooks.  The bill.com files can be uploaded into some accounting systems in CSV format. Bill.com allows you to store AP files and vendor files in their system and it can be used to issue w-9s to vendors.  You can set up a schedule of monthly bills for payment.  You can see all bills outstanding, who has approved the invoice for payment, where it is being charged, and when payments are made.  You can easily separate the duties of paying bills and the ability to input bills into the system. You can have your vendors send their invoices directly to your bill.com account and a manager can approve them for payment. You can just give the bill.com file to your auditors when they review your AP operations.
Tallie is a program that can be used to reimburse employees and to pay your AMEX accounts.  You can upload picture of receipts and it syns with Qucikbooks. Approvers can be set up centrally and documentation is easy to save.
You can use DocuSign to sign your documents – digital signature are now well-accepted in business.   You can cc. others that need to know and filing is easy.
Anne stated that she uses Salesforce to store her organizations personnel files.  It can also be used for program tracking.  It is easily customizable and access and settings can be set up.  For all of the electronic payment, storage, and signing programs, security is very important.  You have to be very careful about deciding who get access and implementing and enforcing the correct and secure settings.

Presentation can be found here: NPFMhandoutpaperless

March 2016: Retirement Plan options for a Non Profit: What you should consider and the questions that you should ask!

Ann Corey from Angell Pension Group presented about:

– 401(k) versus 403(b) – what are the differences?

– ERISA versus NON ERISA 403(b) Plan…what does that mean?

– Changes to the 403(b) landscape – now a world of compliance and fiduciary responsibilities, and answer your questions about handling your organization’s retirement plans.

Materials from the Presentation:

403(b) Presentation 03302016 403bv401k_2016 Sample Fiduciary Calendar 2016

403b versus 401k

Sample Fiduciary Calendar 2016