What the New DOL Overtime Rules Will Mean for Your Nonprofit
The U.S. Department of Labor’s new overtime rules, which will make many more employees eligible for overtime pay under the Fair Labor Standards Act (FLSA), took effect December 1, 2016 — and nonprofits aren’t exempt. Even if an organization isn’t covered by the FLSA, its employees may be covered as individuals and thus eligible for overtime. Make no mistake: The new rules could have significant repercussions for the compensation of your white-collar workers — and, in turn, your ability to provide services.
The new salary-level tests for exempt workers
The final rule increases the salary-level threshold for white-collar exempt employees from $455 to $913 per week or $23,660 to $47,476 per year. White-collar employees now can only be exempt from overtime if their jobs meet certain tests for executive, administrative or professional employees, and they also are paid an annual salary of at least $47,476.
The new rule also increases the salary threshold for highly compensated employees (HCEs) from $100,000 per year to $134,004 per year. The HCE threshold is used to evaluate the fairness of contributions to an organization’s retirement plan. HCEs must receive at least the full standard salary amount — or $913 — per week on a salary or fee basis without regard to the payment of nondiscretionary bonuses and incentive payments. But such payments will count toward the total annual compensation. The standard salary and HCE annual compensation levels will automatically update every three years.
Why it matters even if you aren’t covered by the FLSA
The FLSA may apply to 1) businesses or similar entities (what’s known as enterprise coverage), or 2) individuals (individual coverage). Under enterprise coverage, the law applies to businesses with annual sales or business of at least $500,000. For nonprofits, this coverage applies only to activities performed for a business purpose (for example, operating a gift shop). Income from contributions, membership fees, many dues, and donations used for charitable activities don’t count toward the $500,000 threshold.
Under individual coverage, employees may be covered by the FLSA if they’re engaged in interstate commerce or in the production of goods for interstate commerce — regardless of whether an employee is engaging in such activities for a business purpose. For example, an employee is covered if he makes or receives interstate phone calls, ships materials to another state or regularly calls an out-of-state vendor and uses a credit card to buy food for a homeless shelter.
The impact on nonprofits
The new rule has obvious budget implications — the money to pay overtime to newly eligible employees will have to come from somewhere. Many have expressed concern that compliance with the rule will lead to the cutting of services.
In addition, according to the National Council of Nonprofits, organizations with government grants and contracts could find themselves in the position of having to cover higher labor costs than were contemplated at the time they entered into the agreements. They’ll be contractually bound to maintain services despite increased costs that might not be covered by the existing arrangements.
The new rule has some notable exceptions. The DOL has stated that teachers are exempt, as well as administrative personnel who help run higher education institutions. For example, academic counselors and advisors and intervention specialists aren’t subject to the FLSA’s overtime requirements if they’re paid at least the entrance salary for teachers at their institution. However, other types of nonprofits won’t be so lucky with their white-collar employees.
The DOL has also indicated that it won’t enforce the higher salary thresholds until March 17, 2019, for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. During the nonenforcement period, the DOL will engage in outreach and technical assistance efforts to these providers.
Consult with your financial advisor to determine your best course of action for minimizing the negative repercussions associated with the new salary-level test if the FLSA applies.
Sidebar: 4 options for compliance with the new rules
Nonprofits have several options available for complying with the new overtime rules. Your options include:
Raising salaries. For employees who meet the duties test, have salary near the new salary level of $913 per week or $47,476 per year and regularly work overtime, you can increase their salaries to meet the new threshold and maintain their exempt status.
Paying overtime above a salary. You could continue to pay newly overtime-eligible employees a salary and pay overtime for any hours in excess of 40 in a week.
Redistributing workloads. You can redistribute workloads to ensure appropriate staffing levels while minimizing overtime.
Adjusting base pay and paying overtime. You could adjust an employee’s earnings to reallocate it between regular rate of pay and overtime compensation. The revised pay may be on a salaried or hourly basis but must include overtime payment when the employee works more than 40 hours in a week.
The DOL doesn’t require or recommend any one approach.
Kristi Reale and Jim Krupienski are the newest partners at Meyers Brothers Kalicka.
As part of a strategic plan to generate new opportunities and more profound growth for the company, and also to ensure a steady flow of new leadership, the Holyoke-based accounting firm Meyers Brothers Kalicka has named two new partners — senior managers Jim Krupienski and Kristi Reale. They’ve been acting essentially as partners without that title for more than year now, and say the firm has provided them all the tools they need to succeed.
Jim Barrett says it was maybe the worst-kept secret he’d seen in quite some time.
He was referring to the granting of partner status to two senior managers at the Holyoke-based accounting firm Meyers Brothers Kalicka — Jim Krupienski and Kristi Reale. The two, who have been with the firm for 12 and 15 years respectively, and had risen through the ranks to senior manager, were told more than a year ago, in something approaching confidentiality, that they were on the track to becoming partners and would likely achieve such status so by the end of this year.
Their promotion wasn’t exactly classified information, but it certainly wasn’t broadcast loudly, said Barrett, the firm’s managing partner since 2009, adding that he made it all official in an announcement to the staff on Dec. 19.
To say that it was somewhat anti-climactic was an understatement, as evidenced by this anecdote from Reale, several days before the news was scheduled to break internally.
“Someone walked up to me and said ‘has your promotion been made official yet?’ she recalled. “It wasn’t exactly a secret, but I didn’t think everyone knew. I guess they did.”
But while the promotions may not have been as discreet as intended, they are certainly significant, said Barrett, and represent an important and in many ways unique step in the company’s efforts to grow and put in place an effective succession plan that will ensure solid leadership for decades to come.
“This was a well-thought-out component of our strategic plan,” he explained. “We have a partner who is retiring, so we have a practice need; Jim and Kristi have demonstrated all prerequisite skills to get there, and we’ve been talking to them for almost two years about how they’re on the track.
“It’s been a process that’s taken a number of years to unfold,” he went on. “We want to onboard them so they know what to expect and the know what’s expected of them; we want this to be a success for everyone.”
While Reale and Krupienski took essentially the same path to a partnership, and their resumes have many common denominators, including extensive work in the community, BusinessWest 40 Under Forty plaques (Reale in 2009 and Krupinski a year later), and a number of bylined submissions to this magazine, they arrived at MBK with different career aspirations, as we’ll see in a few moments.
But they arrived at this career moment together, and for now, they’re excited about moving into different, slightly bigger offices and having their names and bios found by clicking the ‘partners’ button on the MBK homepage. But they’re far more focused on meeting the responsibilities that some with that title and helping the firm grow at a time when doing so is certainly challenging for any financial services firm in a region that has seen little, if any, overall expansion.
For this issue and its focus on Banking & Financial Services, BusinessWest talked with the two new partners, as well as the managing partner, about the promotions and the firm’s strategic plans moving forward.
Watching Their Figures
When she first came to Meyers Brothers, P.C. in February of 2001, Reale was thinking more about staying maybe 16 weeks than the nearly 16 years it took her to reach partner.
Indeed, a veteran with seven years of public accounting work under her belt, she was hired to help during tax season on a per-diem basis, and walked in the door already thinking about what she might do next. But a funny thing happened on the way to carrying out those plans.
“I never left,” she said, stating the obvious before moving on to the more important topic — why.
“I was thinking about going into private industry, but after a couple of months at Meyers Brothers, I just loved it and decided to stay,” she explained, adding that she was hired after just five weeks of per-diem work. “It was very professional, everyone was treated well … it was just a great place to work. I looked forward to going there every day.”
When she arrived at Meyers Brothers, Kristi Reale was focused on staying 16 weeks, not 16 years, but the environment she found changed those plans quickly.
Meanwhile, Krupienski got off the elevator on the eighth floor of the PeoplesBank Building just off I-91 (the merged companies came together there in 2005) with a much different mindset.
After serving as a senior accountant at a Big-4 firm (PricewaterhouseCoopers) and then shifting gears and working as a senior auditor at the Hartford, he had made up his mind to return to public accounting. The question was where, he said, adding that through a friend he heard about an opening at MBK.
“I interviewed, liked what I heard, liked the firm, the culture, the people I met with … and felt I should throw my hat into the ring,” said Krupienski, adding that while it would be a leap to start thinking about making partner back in 2003, he allowed himself to harbor such thoughts, and before long, that became a hard goal.
“It was kind of a thought in the back of my mind — I had made the jump back into public accounting, and you generally don’t do that if you don’t have some aspirations for being partner someday,” he told BusinessWest, adding quickly that reaching this rung at a firm of that size is never a given and it would likely take much more than a decade.
“I came from a big-firm mentality,” he explained. “It’s very structured there in terms of the progression, and while this firm isn’t PricewaterhouseCoopers … things are similar in many ways.”
Those sentiments help explain how accounting firms are in many ways different from small and medium-sized law firms, said Barrett, adding that with the latter, an associate is in many cases on a partner track soon after arrival, and if they’re good at what they do, can probably expect to make partner within a certain number of years, although the number and circumstances vary widely with the firm.
In accounting, it’s different, he said, adding that law is more of a transactional business, where individual lawyers have what amounts to their own book of business and client list, while in accounting, one to 10 people could be working with the same client.
Jim Krupienski says MBK has provided him and fellow new partner Kristi Reale with all the tools they need to succeed.
When asked why both Reale and Krupienski were named partners at this time, Barrett said it this amounted to a sound business decision. Both are qualified, experienced managers, and both have the capacity to help the firm grow market share.
Elaborating, he said there are certain required skill sets for reaching the partner rung, and both certainly possess them.
“Can you serve clients?” he began. “Are you able to grow the practice — attract new clients and develop relationships with existing clients? Can you train and develop staff? These are the prerequisites, and they have them.”
By the Numbers
Beyond those required skills, Reale and Krupienski also complement each other in many ways, said Barrett, adding that while they’re both involved in auditing and accounting, or A&A as they say in this business, they have different focus areas and specialize in different sectors of the economy.
Krupienski, for example, specializes — and has written about — medical practice operation, tax planning, and retirement plan strategy, while Reale specializes in closely held businesses, business valuations, management advisory services, and business and tax planning, and has extensive experience in retail, manufacturing, construction, distribution, real estate, insurance, and other service organizations.
“We have people with somewhat similar skill sets,” said Barrett. “But they’re different enough so they can go out and not compete with each other, and complement each other in some cases.”
Meanwhile, bringing them both on as partners now is a proactive step within the company’s broad efforts within the realm of succession planning, he went on, adding that many firms, especially smaller operations, are not putting enough emphasis on creating a solid pipeline of leadership of the years to come.
Elaborating, he said that when the two firms merged, there were 13 partners, a large number that the shareholders knew would eventually be whittled down, out of necessity, through retirement. That point has been reached, he went on, and the firm needs to replace that leadership.
“Our number one strategy starting when I became managing partner was to have a succession plan,” he told BusinessWest. “And everything we’ve done subsequent to that has been to develop that plan, including an investment in technology, investment in people through training, investment in human resources; this is just the culmination of that.
“We chopped this down to a five-year program,” he went on. “And the culmination of that is to have our replacements in place. This is the first example of all those efforts coming to fruition.”
When asked if, when, and under what circumstances additional partners would be named, Barrett gave a very quick answer: “Growth of the firm.”
And there are several ways to achieve growth, he went on, listing acquisition, geographic expansion, attaining a larger piece of the existing pie, or moving aggressively and effectively if the pie should happen to become larger.
And the two partners could, and likely will, play a large role in those growth efforts.
“We’re hoping that with their respective areas of expertise — Jim in medical and pension work and Kristi with business valuation — that they’re going to bring another level of services to clients or perspective clients that will allow us to grow,” he explained.
Both partners sounded like they were up for that mix of opportunity and challenge.
“It’s taken us time to get here, we’ve gone through the needed steps,” said Krupienski. “And in terms of where we are — they’ve afforded us with every tool we need to meet those challenges — training, development, helping us get out there, supporting us with joining boards and getting involved in the community … all of that will help in terms of meeting new people, meeting new prospective clients, and meeting other associates and professionals that will develop our base moving forward.”
Said Reale, “we’ve both had a lot of training, whether it’s in our own special niche, sales training, soft-skills training, leadership training … and it’s all going to help us develop professionally. And we’ve already been essentially working as partners, just without the title, for more than a year now.”
Focus on the Bottom Line
That last point certainly helps explain why the promotion of Reale and Krupienski to partner has been the proverbial worst-kept secret.
But while the announcement on the 19th might have been anti-climactic in some ways, it was a milestone moment nonetheless.
That’s because, as Barrett noted, it represented one significant step in ongoing efforts to achieve growth and a solid leadership for the future.
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