Nonprofit Compensation Strategies

When the United States Department of Labor (DOL) announced a final rule raising the minimum salary rates under the Fair Labor Standards Act (FLSA) in April 2024, many nonprofits began evaluating their compensation strategies. The rule included two increases to the salary requirement for exempt workers from $35,568 to $58,656 annually beginning on July 1, 2024, and increased again effective January 1, 2025.

On November 15, 2024, the United States Court for the Eastern District of Texas struck down the rule and in essence returned the minimum salary requirement to the 2019 level for overtime exemptions. While the court’s decision means nonprofits aren’t required to increase annual salary rates for exempt employees to ensure exempt status, there’s still opportunity to review nonprofit compensation strategies for the overall health of the organization.

Evaluate job duties

Salary is not the only factor used in determining exempt and non-exempt roles — the responsibilities of the role also matter. This is true no matter the salary threshold, and the court’s decision on the FLSA salary requirement doesn’t change how responsibilities impact exempt and non-exempt status. A good first step is documenting what each person is doing in their role and comparing it to the written job description for their position. Often, a person’s duties have changed over time, but the job description hasn’t been updated to match.

Once you have a better understanding of each person’s responsibilities, you can evaluate if you need to adjust those duties on the written job description to ensure alignment for exempt and non-exempt roles. If someone is supervising only one person, they may not meet the threshold for an exempt employee. Can you add additional supervisory duties to their role? If so, do you need to take some other things off their plate?

Understand the repercussions

Some organizations made adjustments to their exempt and non-exempt employee duties or salaries prior to the first deadline of July 1, 2024, due to the rule’s first increase of the salary rate. With the DOL final rule struck down, nonprofits need to understand that employees who were impacted by prior adjustments may have questions about what’s next for their role or their compensation. 

Anytime an organization adjusts responsibilities or changes how employees are paid, it can impact employee engagement and retention. Some employees may feel slighted by their role changing from exempt to non-exempt, as they may perceive the hourly role as being less valued by the organization. In those situations, employees may ask if they can return to a salary position, and nonprofit leaders need to be prepared for those questions.

Organizations also want to be aware of employee workloads if they reassigned job duties to ensure certain roles qualify as exempt. Adding too many things to one employee’s plate to justify their exempt status can increase employee fatigue and lead to mistakes, burnout, and increased turnover.

Track employee time

Many nonprofits already track employee time for both exempt and non-exempt employees because of grant reporting requirements.

Time tracking should be contemporaneous to help you understand how everyone spends their time. Is the employee’s day-to-day time log in alignment with their job description? Are a couple of employees overloaded in a specific area and further adjustment is needed?

Time tracking can also help you determine which roles may be working enough overtime that their annual pay hits the salary threshold to be an exempt employee, provided their duties meet the requirements as well. Again, this strategy applies regardless of the salary threshold for exempt employees.

Review compensation at least annually

When the DOL first announced the final rule, many nonprofits realized they would need to bridge a significant gap between current salaries and the new required salary thresholds.

Nonprofit turnover is high, and recent data highlights that younger generations in particular change jobs regularly to receive higher pay, better benefits, or a more supportive work environment. In addition, a recent study showed that, nationally, 22% of nonprofit workers face financial hardship and 5% are below the federal poverty line. 

When nonprofit boards review their nonprofit compensation strategies annually and adjust to stay in line with market rates to remain competitive, it can help ensure the organization can recruit and retain the employees necessary to continue their mission.

Taking a proactive approach to nonprofit compensation strategies can create many advantages for your nonprofit organization. If you need support ensuring FLSA compliance with exempt and non-exempt roles, the Nonprofit Solutions Law team can help.