The Fair Labor Standards Act (FLSA) is a federal law that mandates minimum wage and overtime pay for many employees. This law was designed to protect employees by assuring that employers pay eligible employees at least minimum wage for all hours worked and overtime for any hours worked over 40 per week.
Although few congregations are covered enterprises, employees of most congregations are likely to be individually covered – and therefore entitled to minimum wage and overtime pay – if they are
engaged in interstate commerce, the production of goods for commerce, or activities closely related and directly essential to the production of goods for commerce. Examples of these
activities include making/receiving interstate telephone calls, mail, or electronic communications; shipping materials to another state, ordering and/or receiving supplies from out of state; and
transporting people to another state. Most congregational staff are individually covered by the FLSA, given the broad interpretation of interstate commerce.
Employees whose jobs are governed by the FLSA are either “exempt” or “nonexempt.” Nonexempt employees are entitled to overtime pay. Exempt employees are not. (Think of it this way: the
employer is exempt from having to pay overtime to exempt employees.) Employer record-keeping is required for both classifications but is much more stringent for nonexempt employees.
For most employees, whether they are exempt or nonexempt depends on:
(a) how they are paid (the “salary basis test”),
(b) how much they are paid (the “salary level test”) and
(c) what kind of work they do (the “duties test”).
To be classified exempt, an employee must meet ALL THREE tests.
The Ministerial Exception
There is an ecclesiastical exemption, commonly called the ministerial exception, from coverage under the FLSA as well as comparable state laws. This means that even if they meet the enterprise or individual coverage definitions, ministers are typically exempt from the FLSA requirements. For FLSA purposes, ministers are defined as employees who regularly perform essential religious duties. Thus, some of our employees who are not titled
ministers can fall under this exemption provided that they spend a significant amount of time performing “essential religious duties.” In other words, their responsibilities must require them to be
“involved in the active practice of our faith.”
The U.S. Supreme Court in 2012 held that it depends on a “totality of the circumstances.” Hosanna-Tabor Evangelical
Lutheran Church & Sch. v. EEOC, 132 S.Ct. 694 (2012).
Note that the ministerial exception is applied based on job responsibilities only.
Generally, jobs within congregations that might fit one of the exemptions will be in the Executive, Administrative, or Professional areas. There are additional exemptions, so if you have other
specialized employees, such as computer professionals, you may want to dig more deeply into the FLSA job duties requirements for exemptions.
The executive exemption requires that:
• the employee’s primary duties must include managing the congregation;
• they must supervise the equivalent of two or more full-time employees (not volunteers); and
• they must have the authority to hire and fire (or have significant input into that decision)
The administrative exemption requires that:
• the employee primarily performs office or non-manual work directly related to the management of the congregation; and
• they regularly exercise independent judgment and discretion regarding matters of significance to the congregation
The professional exemption requires that:
• the employee’s primary duties include performing work that requires the application of advanced knowledge;
• this work must be intellectual and require the exercise of discretion and judgment;
• the work must be in a recognized field of science or advanced learning;
• the knowledge must come from extensive and specialized instruction offered over a long period, and
• if the profession is creative (e.g., music, art) the work must be characterized by imagination, creativity, originality, or exceptional talent.
If any of your existing employees need to be reclassified, now is an excellent time to do it. The FLSA Compliance Guide or the Fair Labor Standards Guide walks you through a process to check for compliance and has links to additional resources.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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