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In this week's issue...
This week’s update shares details on two new – but very predictable – policy developments. At the federal level, several business advocates filed a lawsuit in federal court this week challenging the U.S. Department’s new overtime rule. And in Raleigh, the NC Senate and NC House of Representatives have continued their longstanding tradition of disagreeing about the details of the state budget, potentially delaying their investment of $1 billion in additional state revenue until later this year. We also share details of state legislation on taxes and wearing masks in public places.
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Lawsuit Filed in Federal Court Challenging DOL Overtime Rule
On Wednesday, several businesses and business associations filed a lawsuit in a federal court in Texas challenging the final overtime rule from the U.S. Department of Labor. The new overtime rule specifies that most employees earning less than $58,656 per year will soon be entitled to overtime compensation, regardless of whether they are currently classified as executive, administrative, or professional (white-collar) workers.
Under FLSA, employers, including nonprofits, must pay employees one-and-one-half times their regular rate of pay for all time worked in excess of 40 hours in any work week. However, workers are exempt from this overtime pay requirement if they:
- Are paid at least the minimum salary level under DOL regulations (currently set at $684 per week or $35,568 per year);
- Are paid on a salary basis; and
- Exercise job duties that are classified as exempt under FLSA (which means administrative, executive, or professional job duties for most nonprofit positions).
The new rule raises the salary threshold in a two-step process over the next eight months:
- The salary threshold goes up from the current level of $35,568 per year to $43,888 per year ($844 per week) on July 1, 2024. This is essentially adjusting the salary threshold from the 2019 rule for inflation since it maintains the current methodology of setting the threshold at the 20th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South).
- The salary threshold then goes up to $58,656 per year ($1,128 per week) on January 1, 2025, which is the 35th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South).
Under the new rule, the salary threshold will be automatically adjusted for inflation every three years, beginning on July 1, 2027 to re-set it at the then-current 35th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South), which is the same methodology used to set the salary threshold on January 1, 2025.
The lawsuit, which was filed in the same court that stopped a similar 2016 overtime rule from taking effect, argues that DOL exceeded its authority in implementing the significant increase in the salary threshold scheduled to take effect on January 1, 2025. Because the first phase of the increase in the salary threshold is set to take effect in just over five weeks, it is possible that the court could rule quickly on the case. DOL is likely to defend the overtime rule in court, so it could take months before nonprofits and others know for certain which, if any, parts of the final rule will ultimately take effect. While the case is pending in court, nonprofits may still want to do their due diligence assessing the impact of the higher salary threshold(s) on their employees. The Center has offered two resources to help nonprofits better understand this new rule, its potential impact on North Carolina nonprofits, and compliance options for nonprofit organizations:
- An updated analysis of the final overtime rule and its likely impact on North Carolina nonprofits, concluding with 15 compliance options and eight next steps for nonprofits to take now to be ready to adapt to the significantly higher salary threshold in eight months.
- A webinar recording that provides more information on FLSA and the new overtime rule and to answer nonprofits’ questions.
The Center will keep you posted on the status of this pending litigation and how it may impact when or if the new overtime rule ultimately takes effect.
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Legislative Leaders at Impasse on State Budget
Over the past several weeks, legislators have been working behind closed doors on the details of adjustments to the state budget for FY2024-25, which begins on July 1. State revenue is projected to be about $1 billion higher than was forecast a year ago when legislators approved the original version of the state budget for the upcoming fiscal year. Legislators have many options for how to spend this money, including helping ease the looming “child care cliff”, fully funding the Opportunity Scholarship program, increasing pay for public school teachers and state employees, and providing earmarked appropriations for a variety of nonprofits and local governments.
This week, legislative leaders indicated that the NC Senate and NC House of Representatives have significant differences in their priorities for the state budget, so they may not be ready to finalize the budget by early to mid-June as originally intended. If legislators are unable to agree on a final budget by July 1, the budget that was enacted last year will remain in place until legislators approve a revised budget. It also could mean that the NC General Assembly’s short session, which began in late April, could continue well into the summer or fall.
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NC House of Representatives Rejects Bill to Reinstate Ban on Masks in Public Spaces
On Wednesday, the NC House of Representatives voted not to agree to a recently-approved Senate bill (H.B. 237) that would prohibit people from wearing masks on public property in North Carolina, even if they are wearing the mask to protect their own health or safety or the health and safety of others. The North Carolina criminal code has included the ban on wearing masks in public places for more than 70 years. However, at the height of the COVID-19 pandemic in 2020 when public health officials recommended that people wear facial coverings in public places, the NC General Assembly amended the law to create an exception allowing people to wear masks for public health purposes.
The new Senate bill would remove that public health exception. Several nonprofits have spoken out against the bill, noting that it could endanger people with disabilities and other immunocompromised North Carolinians. The House is seeking to reinstate an exception to allow people to wear masks in public for health reasons. A House-Senate conference committee will now try to come up with a final version of the bill.
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Free Webinar on Improvements to Federal Rules for Nonprofit Grants
Last month, the federal Office of Management and Budget (OMB) released its major rewrite of the Uniform Guidance, the set of common rules governing most federal grantmaking to charitable nonprofits. The reforms correct longstanding challenges in the government grants process that have limited nonprofit effectiveness, discouraged qualified organizations from seeking and performing under federal grants, and wasted billions of dollars and countless hours in needlessly complex application and reporting requirements. Of particular note, the revised Guidance raises the de minimis indirect cost rate that governments using federal funds must pay to every grantee to 15% (up from 10%), removes multiple barriers to accessing federal grant funding, mandates streamlining and simplifying of Notices of Funding Opportunities (requests for proposals), and raises the Single Audit threshold to $1 million (from $750,000). The changes go into effect on October 1, 2024. The National Council of Nonprofits has a helpful resource highlighting the key provisions affecting charitable nonprofits working with governments at all levels.
To help your nonprofit better understand the new rules, the National Council of Nonprofits is also hosting a free webinar, OMB Uniform Guidance: What the Updates Mean for Nonprofits, on Thursday, May 30 from 3:30-4:30 p.m. Register now.
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NC House Committee Passes Tax Legislation
On Wednesday, the NC House of Representatives unanimously passed a bill (H.B. 988) making a wide variety of changes to state tax laws. Most of the provisions of the bill were technical and clarifying changes that should not directly affect charitable nonprofits. Two provisions in the bill could impact some nonprofits:
- The bill would provide for automatic extension of state income tax returns when the Internal Revenue Service (IRS) grants an extension of the corresponding federal returns. Under current state law, individuals, businesses, and nonprofits are required to ask the NC Department of Revenue (DOR) for extensions of their tax filing deadlines. For nonprofits that have unrelated business income and file Form 990-T with the IRS, this change would mean that any extension of their 990-T filing deadline would automatically apply to their state corporate income tax filing.
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The bill would make a slight change in sales tax laws for marketplace facilitators (e.g., Amazon or eBay) that are required to collect and remit sales tax on sales made through their platforms. Nonprofits generally don’t need to collect and remit sales tax and goods and services sold through these marketplace facilitators. The current North Carolina law requires marketplace facilitators to handle sales tax if they have either: (1) $100,000 in gross sales in North Carolina; or (2) more than 200 individual transactions in North Carolina each year. The bill would change this to make the threshold simply $100,000 in gross sales. It is unclear whether this change would affect any marketplace facilitators that nonprofits use for selling goods or services.
The bill now moves to the Senate for consideration.
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Nearly 450,000 North Carolinians Have Health Coverage Through Medicaid Expansion
According to the most recent data from the NC Department of Health and Human Services (DHHS), more than 447,000 North Carolinians have enrolled in health care through Medicaid expansion since it became available in December, with about 1,000 more people enrolling every day. DHHS estimates that about 150,000 additional North Carolinians may be eligible for coverage under Medicaid expansion. Almost all potential Medicaid expansion enrollees receive services from nonprofits, so it is important for nonprofit organizations to spread the word about Medicaid expansion eligibility and the application process.
The DHHS website includes basic information on eligibility for Medicaid coverage, details of costs and coverage, and free materials to help nonprofits provide clear and accurate information about Medicaid and Medicaid expansion to their clients and communities. Please share this information widely, especially with clients who may now be eligible to apply.
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