Ministries and the FLSA
By Donn C. Meindertsma
The federal Fair Labor Standards Act (FLSA) guarantees most U.S. workers a minimum wage and overtime pay. Failure to comply with FLSA requirements can lead to investigations and enforcement action by the Wage and Hour Division (WHD) of the U.S. Department of Labor, as well as to lawsuits by under-compensated employees. In our March newsletter, we noted that the "ministerial exception" exempts churches and church-affiliated organizations (which we refer to simply as churches below) from certain federal employment laws. Below we address whether the FLSA applies to churches.
The FLSA only Covers Employees
As a threshold matter, keep in
mind that the FLSA only covers employer-employee relationships. It does not apply to an employer's arrangements with contractors, nor does it cover volunteers who don't expect to be paid. But, of course, most churches do have employees, and the WHD has noted there is no special provision in the FLSA that precludes an employer-employee relationship between a church and individuals who perform work for it. Indeed, while the FLSA and its implementing regulations create numerous exemptions to the minimum wage and overtime pay obligations, none of those exemptions is for churches.
What Employees Are Covered by the FLSA?
There are two ways in which the FLSA might apply to employees of a ministry.
Enterprise Coverage: If a ministry is an "enterprise" under the FLSA, all its employees are covered by the law (unless exempt for other reasons). The FLSA broadly defines enterprise to encompass any “related activities performed . . . by any person or persons for a common business purpose.” Religious groups come together for a common purpose, of course; but is it a “business purpose”? In ordinary parlance, churches are ministries or charities, not businesses. For that reason, the WHD has said that “enterprise coverage does not apply to the charitable, educational, religious or similar activities of private nonprofit organizations."
Note that the foregoing quote
does not focus on the nature of the organization (e.g. religious), but on the type of activities the organization carries out. A single organization can be involved in both charitable and commercial activities. Accordingly, a church's commercial activities--say, a church runs a bookstore--may constitute an enterprise. Still, the commercial activities of a church are unlikely to constitute an enterprise due to a monetary threshold in the FLSA. FLSA enterprise coverage applies only when commercial activities generate at least $500,000 in annual revenues. (Offerings and contributions do not count toward that threshold.) Most churches do not engage in such extensive commercial activity.
Different rules may very well apply to
church affiliates. Under the FLSA, some organizations are deemed enterprises even if they do not meet the revenue threshold and even if they are run by churches, denominations, or other religious or nonprofit groups. For example, preschools, daycare centers, and hospitals are considered "enterprises" under the FLSA. Nonetheless, certain workers in these types of organizations may qualify for other exemptions from FLSA obligations.
Individual Coverage: Even if a church is not an enterprise, the FLSA might apply to some or all of its employees. The test is whether and to what extent a particular worker’s job duties involve interstate commerce. Here, interstate commerce is very broadly defined--it means far more than
transporting goods across state lines. Accordingly, as a practical matter, most workers engage in interstate commerce regardless of whether they work in a commercial or charitable organization. For example, a church administrative assistant who routinely emails out-of state parishioners may be engaged in interstate commerce. The same is true of a church custodian who recurrently orders supplies to be shipped to the church from out-of-state.
The WHD has provided some guidance on individual coverage (although it is not the most helpful): According to the WHD, if an employee, as a regular and recurrent part of his duties, uses the mail, telephone, or other interstate communications tools in obtaining or communicating information or in sending or receiving messages, or ordering goods or
services, he is an employee directly engaged in the work of interstate communication and is covered by the FLSA.
For practical purposes, churches should assume that their employees are covered by the FLSA. Churches may, of course, analyze whether employees in certain jobs meet the interstate commerce requirement, and small, rural, and strictly local organizations are more likely to have employees who are not covered by the FLSA.
Exemptions for Otherwise FLSA-Covered Workers
Assuming that the FLSA applies under either the enterprise or individual coverage tests just discussed, many ministry workers might otherwise be exempt from the minimum wage and overtime pay obligations. First,
certain ecclesiastical leaders are effectively exempt from the FLSA. This is not because the FLSA has a provision that exempts them, but because for FLSA purposes they are not considered "employees," so the requisite employer-employee relationship is absent. Guidance by the WHD states: “Persons such as nuns, monks, priests, lay brothers, ministers, deacons, and other members of religious orders who serve pursuant to their religious obligations in the schools, hospitals, and other institutions operated by their church or religious order shall not be considered to be ‘employees.’” (Note: this exemption is nor to be confused with special rules that apply to clergy under federal tax laws.)
Second, the FLSA exempts most executive, administrative, and professional workers from the minimum
wage and overtime pay requirements. If an employee fits into one of those three exempt categories, and the employee receives a fixed salary of at least a certain amount (see sidebar), the FLSA pay requirements do not apply. These exemptions are too detailed to cover here but, as a general rule, the more discretion an employee has in terms of how he will carry out his work responsibilities, the more likely he will be exempt. For example, a large church might have a Human Resources staff consisting of an HR manager who develops and implements benefits and policies (and thus uses judgment and discretion) and one or two aides (who essentially carry out assignments as directed by the manager and exercise relatively little independent judgment). In many instances, the HR manager will be an exempt employee, but the HR staffers likely are non-exempt.
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The FLSA is a complicated law. The WHD has issued guidance and detailed regulations interpreting the law but even so, where lines should be drawn can be murky. Assuming a church is not an enterprise, FLSA coverage must be determined on an employee-by-employee basis. As noted, the presumption should be that employees are covered by the FLSA, because employers risk substantial monetary liability if they fail to pay minimum wage, fail to keep FLSA-required employment records, or fail to pay time and a half pay for overtime.
Please let us know if you have any
questions about this information.
This summary is provided as an informational tool. It is not intended to be and should not be considered legal advice, and receipt of this information does not establish an attorney-client relationship.