Three federal regulations have recently been introduced in Washington that will have sweeping impacts on employers across the nation, including those in the charitable sector.
Grantmakers and nonprofits are all too familiar with the challenges new regulations can pose. Regulations may directly impact programs or raise management and operational costs, increasing overhead. In addition, organizations incur increased compliance costs as they seek to follow new rules. Penalties for non-compliance can be costly. Every dollar spent on compliance with regulatory changes is one dollar less to advance an organization’s mission.
As we have written, organizations are already squeezed by inflation and surges in demand for services. Budgetary pressure on organizations, especially direct service groups, will get worse with new labor regulations.
The growth of the regulatory state and the hardships it imposes on organizations helping those most in need is precisely why public policy grantmaking is important.
Here are three regulations that should be on the radars of charitable organizations:
1. Overtime rules – Just before the long Labor Day weekend, the Biden Department of Labor (DOL) proposed regulations to expand the number of workers who qualify for overtime pay. It proposes an increase to the Fair Labor Standards Act’s (FLSA) annual salary-level threshold for overtime from $35,568 to $55,068 for white-collar salaried workers. The DOL also is proposing automatic increases every three years to the overtime threshold. If enacted, executive, administrative and professional workers who clock above 40 hours at this new salary threshold will qualify for time-and-a-half pay.
The impact of this proposed rule is likely to be sweeping, affecting as many as 600,000 workers in the health care and social services sector and approximately 3.6 million workers overall. Nonprofit organizations face substantial labor cost increases if they have to pay larger salaries or reclassify employees as eligible for overtime.
2. Independent contracting rules – The DOL is expected to finalize new regulations on whether a worker can be classified as an independent contractor or an employee. Independent contractors negotiate the terms of their pay and work but are not entitled to minimum wage, overtime pay and other benefits guaranteed by the FLSA. The proposed rule would implement a multiple-factor test where the weight of each factor depends on the facts of the case and where additional factors may be relevant. The likely outcome of such an unclear and subjective standard is that fewer independent contractors would be able to retain that status.
Many organizations depend on independent workers to execute their missions: media and marketing professionals to design publications and donor solicitations, event planners to execute galas and fundraisers, delivery people to get food and supply donations into the hands that need them, human resources and accounting professionals to oversee staffing issues and financials, and many more. Often, independent contractors are needed for time-limited projects and events, not for year-round work. Under the proposed rules, many organizations would be forced to hire contractors as staff whether or not they can absorb the increased labor costs.
Independent contractors, many of whom are women seeking flexibility to balance other priorities (such as raising children, caregiving for aging parents or managing their own health issues), desire the freedom to be their own boss and work on their own schedules.
This proposal is expected to be finalized in 2023.
3. Joint-employer rule – The National Labor Relations Board has proposed a rule to change the standard for when two employers that do business together are considered to be joint employers. As joint employers, they would have to recognize each other’s collective bargaining agreements and would be liable for labor practices deemed unfair. The new rule would make it easier for a nonprofit to be deemed a joint employer with, for example, a company it subcontracts with for services. As the law firm Venable explains, “Consider, for example, a nonprofit employer that contracts with a staffing agency to fill a temporary position. While the employee might have been hired and paid by the staffing agency, she might report to management at the nonprofit, have her schedule set by the nonprofit and wear the nonprofit’s insignia on her name badge and/or business card.”
Nonprofit hospitals and hospital systems worry this would “adversely impact an already overburdened hospital field and create a collective bargaining quagmire that will harm hospitals, their patients, their employees and the communities they serve.” This proposed rule is expected to be finalized in 2023.
Legal challenges are expected that could delay the implementation of these rules. Lawsuits against regulatory action are important but occur after the fact and are not guaranteed to stop ill-advised policies from being enacted. Regulators know that entities will begin to comply before rules go into place and they are unlikely to undo changes in their operations even if the regulations are never enacted.
For this reason, donors should not shy away from supporting public policy efforts to reign in the ever-growing federal regulatory state. A critical facet of philanthropy is to fund organizations that are fighting back against new regulations, highlighting the negative impacts of proposed regulations on American households and communities and exposing the unconstitutional means by which unelected bureaucrats are advancing devastating policies.
In our Opportunity Playbook, we highlighted the Institute for the American Worker as an organization fighting for pro-labor policies that respect individual workers’ choices and freedom in the workforce. They join many others who are educating policymakers and regulators on how to ensure policies do not limit charitable organizations from serving communities.