Is your nonprofit subject to the Fair Labor Standards Act (FLSA)? Because nonprofits fall into a special category, the answer isn’t a simple yes or no. Fortunately, the Department of Labor has provided guidance in this area. In brief, says the DOL, there are two ways in which an employee can be covered by the Fair Labor Standards Act and therefore entitled to its protections: enterprise coverage and individual coverage.
The FLSA generally applies to employees employed by any business with an annual gross volume of sales made or business done of at least $500,000. A nonprofit is a covered enterprise if it engages in ordinary commercial activities that result in sales made or business done, such as operating a gift shop or providing services for a fee.
How to determine coverage
In determining whether a nonprofit organization is a covered enterprise, the DOL will consider only activities performed for a business purpose. Charitable, religious, educational or similar activities of organizations operated on a nonprofit basis, where such activities are not in substantial competition with other businesses, do not result in the organizations being considered covered enterprises. For a nonprofit organization, enterprise coverage applies only to the activities performed for a business purpose. It doesn’t extend to the organization’s charitable activities.
The DOL gives as an example a nonprofit animal shelter that provides free veterinary care, adoption services and shelter for homeless animals. These are charitable activities. In addition, the shelter provides veterinary care for a fee to customers. These are commercial activities. If the revenue generated from the organization’s commercial activities is at least $500,000 in a year, the employees engaged in the commercial activities are protected by the FLSA on an enterprise basis. Employees of the organization’s charitable activities are not covered on an enterprise basis since those activities do not have a business purpose.
So, if the nonprofit doesn’t meet the $500,000 floor, it’s definitely off the hook? No. Employees may still fall under the FLSA, says the DOL, “if they are individually engaged in interstate commerce or in the production of goods for interstate commerce, or in any closely-related process or occupation directly essential to such production.” This includes making and receiving interstate telephone calls, shipping materials to another state, and transporting persons or property to another state. Any employee who spends a substantial amount of time on such tasks should be considered a covered employee.
Volunteers are generally not covered by the FLSA. However, individuals may not volunteer in commercial activities run by a nonprofit organization, such as a gift shop. Volunteers should not displace regularly employed workers or perform work that would otherwise be performed by regular employees, even when they are otherwise paid for it. Likewise, paid employees of a nonprofit cannot volunteer to provide the same type of services to their nonprofit organization that they are employed to provide.
Consultant and former nonprofit manager Alison Green, in her Ask a Manager blog, explains that “[e]mployees of a nonprofit can legally volunteer for their employer if it’s work that’s different from their normal job. For example, a graphic designer could volunteer at the ticket booth at an event, but that same graphic designer can’t volunteer to design flyers for the organization.”
This is an overview of a complex series of regulations. Nonprofits, every bit as much as for-profit companies, should work with competent advisers to make sure they are compliant.