The Fair Labor Standards Act (FLSA) is the federal law that sets minimum wage, overtime, and recordkeeping rules. It applies to most nonprofits, and getting it wrong is one of the most expensive HR mistakes a mission-driven organization can make. The core rule: a non-exempt employee must be paid at least the minimum wage and overtime at 1.5x their regular rate for every hour over 40 in a workweek. An exempt employee is owed neither minimum wage nor overtime, but only if the job passes all three tests at once: it is paid on a salary basis, at or above the salary threshold (currently $684 per week / $35,568 per year under federal rules as of 2026 — verify), and the actual day-to-day duties meet a recognized exemption.
The single most common nonprofit error is believing that "we put them on salary, so we don't owe overtime." That is false. A salaried worker who fails the salary threshold or the duties test is non-exempt and is owed back overtime, sometimes for years. Below we walk through coverage, the three tests, the comp-time trap, recordkeeping, and a worked example you can copy. This is general information, not legal advice for your situation — confirm classifications with an employment attorney before a hire becomes a habit.
Does the FLSA apply to your nonprofit?
Many nonprofits assume tax-exempt status means FLSA-exempt status. It does not — the two are unrelated. Coverage comes through two doors, and most nonprofit employees fall through at least one of them.
Enterprise coverage. An organization is covered as an enterprise if it has at least two employees and at least $500,000 in annual gross volume of sales or business done (as of 2026 — verify). Critically, the U.S. Department of Labor explains in Fact Sheet #14A that charitable income does not count toward this $500,000 — donations, membership dues, in-kind gifts, and fundraising-event proceeds are excluded. Only income from ordinary commercial activities (a gift shop, a fee-for-service program, a thrift store, a café) counts. So a $3M nonprofit funded entirely by grants and gifts may not be an "enterprise" at all.
Individual coverage. Even when the organization is not a covered enterprise, an individual employee is still protected if their own work regularly involves interstate commerce — making out-of-state phone calls, sending or receiving interstate mail and email, processing credit-card transactions, or ordering supplies across state lines. In practice, this sweeps in a large share of nonprofit staff regardless of organizational revenue. The DOL's elaws FLSA Advisor walks through both tests interactively.
Named enterprises. Some nonprofit workplaces are automatically covered regardless of revenue, including schools, preschools, hospitals, and residential care facilities. If you operate one of these, assume coverage.
Volunteers vs employees
The FLSA lets people genuinely volunteer for charitable, civic, or humanitarian purposes without being "employees" — but only when the service is freely given, without expectation of pay, and not displacing paid staff. You generally cannot let a paid employee "volunteer" extra hours doing the same work, and people generally cannot volunteer in a nonprofit's commercial operations (like the gift shop). See our volunteer management guide and the line between staff and contractors in employee vs independent contractor.
Non-exempt vs exempt: the basics
Every covered employee sits in one of two buckets. The default — the bucket you land in unless you affirmatively prove otherwise — is non-exempt.
| Non-exempt (the default) | Exempt | |
|---|---|---|
| Minimum wage? | Yes — at least the federal floor of $7.25/hr (as of 2026 — verify), or higher state/local rate | Not directly entitled (covered by salary) |
| Overtime? | Yes — 1.5x the regular rate for hours over 40 in a workweek | No |
| Paid by | Usually hourly, but can be salaried | Salary basis (with narrow exceptions) |
| Must track hours? | Yes — to the minute, in/out | Best practice but not federally required |
| How you qualify | No test needed — it's the default | Must pass all three tests (next section) |
Two points trip up nonprofits. First, the workweek is a fixed, recurring 168-hour period, and overtime is calculated per week — you cannot average two weeks together (e.g., 30 hours then 50 hours still owes 10 hours of overtime). Second, the "regular rate" for overtime includes more than base pay; nondiscretionary bonuses and certain stipends must be folded in, which raises the 1.5x figure. When in doubt, treat a position as non-exempt — it is the safer default and the one a DOL investigator will assume.
The three exemption tests
To classify someone as exempt from overtime under the common "white-collar" exemptions (executive, administrative, professional), the job must clear all three hurdles. Fail any one, and the employee is non-exempt — full stop.
- Salary basis. The employee is paid a predetermined, fixed salary that does not go up or down based on the quantity or quality of work, and is not docked for partial-day absences (a few narrow exceptions apply). Pay someone "salary" but deduct hours when they leave early, and you can blow the exemption.
- Salary level. The salary must meet or exceed the federal threshold of $684 per week ($35,568 per year) (as of 2026 — verify). There is also a Highly Compensated Employee shortcut at $107,432 per year (as of 2026 — verify) with a lighter duties test. Note the history below: a 2024 DOL rule that raised these numbers was struck down in court, so the figures reverted to the 2019 levels — always re-verify the current number before classifying.
- Duties test. The employee's actual job duties must primarily fit a recognized exemption — not the title, not the description, the real work. Per DOL Fact Sheet #17A: Executive = primarily manages, directs at least two full-time employees, and has hiring/firing authority. Administrative = office work directly related to management or general operations, with the exercise of discretion and independent judgment on significant matters. Professional = work requiring advanced knowledge in a field of science or learning, usually acquired by prolonged specialized study.
Where the 2024 overtime rule went
The DOL's 2024 final rule would have raised the threshold to $844/week (July 2024) and then $1,128/week (January 2025). A federal court vacated that rule nationwide in November 2024, and the standard reverted to the 2019 level of $684/week, which the DOL has continued to apply (as of 2026 — verify). Because this area moves with litigation and rulemaking, treat every figure on this page as a starting point to confirm against the current DOL overtime page.
The "salaried = no overtime" myth
Here is the misconception that drives the most nonprofit back-pay claims: "We pay them a salary, so they're exempt and we don't owe overtime." Salary is only one of three tests. A salaried program coordinator earning $40,000 who spends the day on routine intake and data entry — without genuine discretion over significant decisions — meets the salary level but fails the duties test, and is therefore non-exempt and owed overtime for every hour over 40.
Mission culture makes this worse. Nonprofits run lean, and dedicated staff routinely work 50- and 60-hour weeks during grant deadlines, events, or service surges. If those staff are misclassified, the unpaid overtime quietly compounds. When it surfaces — a disgruntled departure, a DOL complaint, an audit — the bill can be brutal.
What's at stake. The FLSA allows recovery of unpaid back wages, and in many cases an equal amount in liquidated (double) damages, going back two years (three years for willful violations) (as of 2026 — verify). One misclassified role multiplied across a team and several years can dwarf an entire program budget. There is no "we're a charity" exception, and "the employee agreed to it" is not a defense — the right to overtime cannot be waived.
The fix is unglamorous but cheap: classify based on actual duties, document the analysis, and when a salaried person is non-exempt, simply track their hours and pay the overtime. Reclassifying a stretched coordinator to non-exempt is not an insult — it is how you protect both the person and the organization. Pair this with clear roles in your job descriptions and written policy in your employee handbook, and make sure the resulting wages flow correctly through payroll and employment taxes.
Comp time, recordkeeping & state law
Comp time is usually illegal in nonprofits. "Compensatory time" — giving an employee future time off instead of overtime cash — is permitted for public-sector (government) employers under specific rules, but private-sector employers, including private nonprofits, generally may not substitute comp time for overtime pay. A non-exempt employee who works 45 hours must be paid cash at 1.5x for those 5 hours; you cannot bank them as 7.5 hours of "vacation." Even if the employee prefers comp time, and even if the overtime wasn't pre-approved, the cash overtime is still owed. (You can adjust schedules within the same workweek — sending someone home Friday because they covered an event Tuesday — because that keeps them under 40; you cannot carry hours across weeks.)
Recordkeeping is mandatory for non-exempt staff. The FLSA requires employers to keep accurate records of hours worked and wages paid. Per DOL Fact Sheet #21, that includes the employee's identifying info, hours worked each day and each week, regular hourly rate, overtime earnings, and additions to or deductions from wages. Keep payroll records for at least three years and the underlying time records for at least two years (as of 2026 — verify). In a wage dispute, missing time records are presumed to favor the employee — so good timekeeping is your best defense.
State law can be stricter — and it wins
The FLSA is a floor, not a ceiling. Many states set a higher minimum wage, a higher exempt-salary threshold, or extra overtime rules (for example, daily overtime after 8 hours in a day, or a much higher salary threshold). California's exempt threshold, for instance, is far above the federal $684/week (as of 2026 — verify). Where state law is more protective, you must follow the state rule. Always check your state department of labor in addition to federal guidance.
Worked example: overtime vs exempt
Meet Maria, a Program Coordinator at a community nonprofit. She is paid a $41,600 annual salary ($800/week). During a busy grant-reporting month she works 48 hours in one week. Her duties: scheduling volunteers, entering client data, and following established intake procedures — she does not supervise staff and does not exercise independent judgment on significant matters. Is the nonprofit on the hook for overtime?
Run the three tests:
| Test | Maria's situation | Pass? |
|---|---|---|
| Salary basis | Fixed $800/week, not docked for hours | Yes |
| Salary level ($684/wk) | $800/week is above $684 | Yes |
| Duties test | Routine, procedural work; no supervision; no real discretion on significant matters | No |
Because she fails the duties test, Maria is non-exempt — being salaried and above the threshold does not save the exemption. The nonprofit owes overtime. Here is the math for that 48-hour week:
| Step | Calculation | Amount |
|---|---|---|
| Regular hourly rate | $800 weekly salary ÷ 40 hours | $20.00/hr |
| Overtime hours | 48 − 40 | 8 hours |
| Overtime rate (1.5x) | $20.00 × 1.5 | $30.00/hr |
| Overtime owed | 8 hours × $30.00 | $240.00 |
| Total pay that week | $800 salary + $240 OT | $1,040.00 |
That's $240 of overtime in one week. Now imagine Maria worked similar weeks across two years before anyone noticed. Roughly $240/week of unpaid overtime over even 30 busy weeks is about $7,200 in back wages — and the FLSA can add an equal amount in liquidated damages, doubling it to roughly $14,400 for one employee (as of 2026 — verify). Multiply by a team of coordinators and the exposure becomes existential.
Two clean fixes. Either (1) reclassify Maria as non-exempt, track her hours, and pay overtime as above; or (2) if her job genuinely should involve management or significant discretion, rewrite the role so her real duties qualify — and confirm she's paid above the threshold. What you cannot do is keep calling her "exempt" because she's salaried.
Compliance checklist & when to get help
FLSA compliance is mostly about doing a careful classification once, documenting it, and revisiting it when roles change. Work through this before your next hire or raise.
Nonprofit FLSA compliance checklist
- Determine whether your org has enterprise coverage ($500K in commercial revenue, charitable income excluded) and which staff have individual coverage
- Default every role to non-exempt unless you can document all three exemption tests
- Confirm the current federal salary threshold ($684/week as of 2026 — verify) and your state's threshold and minimum wage, then apply whichever is higher
- Base exempt status on actual duties, not the job title — write down the analysis for each exempt role
- Track hours to the minute for all non-exempt employees, including salaried-but-non-exempt staff
- Pay overtime in cash at 1.5x — never bank private-sector comp time in lieu of overtime
- Fold nondiscretionary bonuses and stipends into the regular rate when computing overtime
- Keep payroll records 3 years and time records 2 years (as of 2026 — verify)
- Re-audit classifications whenever duties, pay, or the salary threshold changes
When to bring in a professional. An HR consultant or employment attorney is worth the fee in three situations: before you finalize a borderline exempt classification, when you suspect existing roles may be misclassified (a quiet self-audit is far cheaper than a DOL finding), and the moment you receive a DOL inquiry or a back-pay demand. The cost of a few hours of expert review is trivial next to doubled back wages across a team. Free starting points include the DOL Wage and Hour Division FLSA page, Fact Sheet #17A on the white-collar exemptions, and the National Council of Nonprofits overtime guide. For the bigger HR picture, see our hub on nonprofit HR & employment and benefits basics.
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Claim a Founding Nonprofit spot →Sources & tools
Free first
- DOL Wage and Hour Division — FLSA — The official federal hub for minimum wage, overtime, and recordkeeping rules under the FLSA.
- DOL Fact Sheet #14A — Non-Profit Organizations and the FLSA — Explains enterprise vs individual coverage for nonprofits and confirms charitable income is excluded from the $500K test.
- DOL Fact Sheet #17A — White-Collar Exemptions — Details the salary and duties tests for the executive, administrative, and professional overtime exemptions.
- DOL elaws FLSA Advisor — Interactive tool that walks you through coverage, exemptions, and overtime questions step by step.
- DOL Overtime / Rulemaking page — Current status of the salary threshold and any pending overtime rule changes — verify the latest figure here.
- National Council of Nonprofits — Overtime Obligations — Plain-language nonprofit guide to overtime duties, coverage, and classification.
Paid — optional labor-savers
- Employment attorney (wage & hour) — A lawyer who confirms exempt classifications, audits existing roles, and responds to DOL inquiries or back-pay claims. Worth it when Before finalizing a borderline exempt role, when you suspect misclassification, or the moment a DOL inquiry or claim arrives.
- HR consultant / fractional HR — An HR professional who runs a classification self-audit, sets up compliant timekeeping, and trains managers on overtime rules. Worth it when When you're growing past a handful of employees and need repeatable, documented classification and recordkeeping.
Last verified 2026-06-16. Figures and rules change — verify at the source before you act.
FAQ
Does being a tax-exempt nonprofit make us exempt from the FLSA?
No. Tax-exempt status and FLSA exemption are unrelated. The FLSA covers most nonprofit employees either through enterprise coverage (at least $500,000 in commercial, non-charitable revenue) or individual coverage (an employee whose own work involves interstate commerce, such as out-of-state calls, email, mail, or credit-card processing). Some nonprofits like schools and hospitals are automatically covered. Assume your staff are covered unless you've confirmed otherwise.
If an employee is on a salary, do we still have to pay overtime?
Often, yes. Salary alone does not make someone exempt. To be exempt from overtime, a job must pass all three tests: paid on a salary basis, paid at or above the federal threshold of $684 per week ($35,568 per year, as of 2026 — verify), and actual duties that fit the executive, administrative, or professional exemption. A salaried employee who fails the duties test is non-exempt and owed overtime at 1.5x for hours over 40 in a workweek.
Can our nonprofit give comp time instead of paying overtime?
Generally no. Comp time in lieu of overtime is allowed only for public-sector (government) employers under specific rules. Private-sector employers, including private nonprofits, must pay non-exempt employees cash overtime at 1.5x their regular rate for hours over 40 — even if the employee would prefer time off, and even if the overtime wasn't pre-approved. You may adjust schedules within the same workweek to keep someone under 40 hours, but you cannot carry hours across weeks.
What records do we need to keep, and for how long?
For non-exempt employees you must keep accurate records of hours worked each day and each week, the regular hourly rate, overtime earnings, and wage additions or deductions. Keep payroll records for at least three years and the underlying time records for at least two years (as of 2026 — verify). In a wage dispute, missing time records are generally presumed to favor the employee, so accurate timekeeping is your strongest defense in an audit or claim.