The Department of Labor is raising the Minimum Salary to be an Exempt Employee from $35,568 to $43,888 by July 1, 2024 and to $58,656 by January 1, 2025. How will this huge 65% increase in the Minimum Salary effect churches?
The Ministerial Exception
The Department of Labor has their own definition of a minister separate from the IRS’s definition. This is not clearly defined and seems to have been pieced together through various court rulings. Here’s the basic criteria:
- Religious Institution: Is the employer a religious institution? Churches obviously meet this criteria, but other places that employ pastors, such as hospitals or nursing homes, would not.
- Primary Duties: No matter if the person is licensed or ordained, their duties have to be religious in nature such as teaching and preaching, conducting worship, evangelizing, or church governance.
If an employee works in a Religious Institution and their Primary Duties are religious, they would be exempt from the both the Minimum Wage and Minimum Salary. This means your pastor, youth pastor, children’s pastor, and worship leader are all likely exempt.
Employees to be Concerned About
Here are the employees that may be salaried but are likely not covered by the Ministerial Exception:
- Office Manager: Although this person is usually exempt because of their administrative duties, most will not meet the salary test any more.
- Tech Coordinator: Many churches now employ at least a part-time tech person to make sure everything runs smoothly on Sunday morning. Even part-time employees must meet the Minimum Salary to be Exempt…no prorating.
- Executive Pastor: Although this person may be licensed or ordained, their primary duties are related to management…not ministry.
For these employees, if they meet the Minimum Salary, great! Nothing needs to change. For those not meeting the Minimum Salary, they will be nonexempt. They will have to track their hours. Even if you still pay the employee a salary, you will have to track the hours to ensure they are making minimum way and being compensated for overtime.
Example of how things could go bad
Let’s say a First Church employees Alice as the Office Manager and pays her a salary of $2,500/month ($30,000/year). Alice is a nonexempt employee because she does not meet the Minimum Salary test. The church board and Alice agreed to the terms Alice will usually average 30 hours/week and have a flexible schedule. Alice and the church never record hours.
As time goes by, Alice starts taking advantage of the flexibility and usually puts in closer to 20 hours/week. The church board decides to fire Alice because of this. Alice is not happy so she decides to contact the Department of Labor to file a complaint because usually three times per year she worked over 40 hours in a week without additional compensation.
The Department of Labor conducts a thorough investigation. It doesn’t matter that the church board had documentation showing how often Alice worked only 20 hours per week because that is not part of the Fair Labor Standards Act (FLSA). They focus in on those handful of times where Alice had text message or saved emails showing how she worked extra long to prepare for Easter or Christmas Eve or the Annual Meeting. This is unpaid overtime which is covered by FLSA.
The Department of Labor forces First Church to pay the estimated overtime to Alice plus penalties to teach them a lesson.
Useful Links
- Dakotas UMC Exempt vs Nonexempt Guide: https://jctaccounting.com/wp-content/uploads/2024/05/FLSA_Determining_Excempt_Status.pdf
- DOL Announcement of Rule Change: https://www.dol.gov/newsroom/releases/whd/whd20240423-0
- Final Rule Change: https://www.dol.gov/agencies/whd/overtime/rulemaking
- Legal challenges (SHRM): https://www.shrm.org/topics-tools/employment-law-compliance/legal-challenge-overtime-rule-likely
- Exempt vs Nonexempt (Paychex): https://www.paychex.com/articles/payroll-taxes/whats-the-difference-between-exempt-and-non-exempt-employees
- State & Federal Minimum Wages: https://www.patriotsoftware.com/blog/payroll/what-is-minimum-wage/