Churches let out a sigh of relief when an increase to the federal minimum wage of $15 an hour was omitted from the third COVID Relief Bill.

Currently, the federal minimum wage is set by the Fair Labor Standards Act (FLSA) at $7.25 an hour, but states have the option of setting their own minimum wage as long as it is equal to or higher than the federal minimum wage. And many states have a plan to increase incrementally to $15 an hour anyway over the next few years.

Not only that, but the overtime exemption for salary workers was raised to $35,568 annually ($684 per week) in 2020, dramatically impacting churches and those organizations in the non-profit sector.

In order to help churches prepare and to proactively think through their payroll banding, I will explore the potential impact of these increases on church salaries in this two-part series.

State-level increases are coming

As mentioned, many states have a plan to increase incrementally to $15 an hour over the next few years.

For example, Florida voted to approve Amendment 2 this past November 2020, which will incrementally raise the statewide minimum wage to $15 by September 2026. California has already been on the path to $15 by 2023 for years. Overall, half of all US states made changes in 2020: 21 states raised their minimum wages and 4 states passed new laws.

Because churches, unlike businesses, cannot raise prices to meet increasing overhead demands, they will be forced to adjust their budgets or increase their development efforts with contributors. But that is difficult work that may not be achievable by every church who needs to find more funds to survive.

I predict that these increases will force churches to adapt in several ways. They may split what were once full-time salaried roles into hourly and part-time positions. They may need to cut back on benefits. Churches may also try to adapt by relying more heavily on high level volunteers and/or asking full-time employees to perform several jobs at once.

Two headaches

A rising minimum wage has the potential to create two headaches for churches. Churches will need to both pay higher salaries to exempt employees in order to escape rising overtime requirements, and, at the same time, increase hourly wages in order to meet rising federal or state minimums. Additionally, under the surface of these initial headaches lies the challenge of making compensation equitable across the entire organization as “entry-level” salaries rise.

The current federal overtime requirement means that churches must pay overtime to non-exempt employees making less than $684 a week or $35,568 a year, even if those employees are considered full-time/salaried. And some states, like California, have an even higher minimum salary threshold. In a similar way, churches are required to pay non-exempt employees at least the federal minimum wage or their state minimum wage if it is higher.

Currently, the FLSA applies to non-exempt employees, meaning employees who are not exempt from overtime pay requirements. Churches should investigate and learn about both federal and state overtime exemption requirements and how they apply to each type of employee at their church.

• Explore the intricacies of employee exemption and FLSA requirements visit ChurchLawandTax.com.

As I will discuss in my follow-up article, there is confusion over whether ministerial staff (who are licensed or ordained and therefore qualify for a housing allowance) are subject to these labor laws.

The short answer is that these employees fall under the “ministerial exemption”—i.e., these kinds of pastors are exempt from the FLSA and churches are permitted to pay them less than the salary exemption requirements.

Potential impacts

Over the next several years increases in both the minimum wage and overtime exemption requirement will impact churches across the country.

One of the roles that may be in the most danger is the youth pastor. For years—through my work on the Youth Pastor Compensation Survey—I have predicted a decline in salaried, exempt youth pastors. This is because youth pastor work traditionally involves the overseeing and leading trips, camps, and overnight events that necessitate working more than 40 hours a week. Furthermore, youth ministry often involves relational hours in evenings with students and families above and beyond traditional office hours. To date, churches have not tracked these overtime hours on time-cards for their youth pastor. That may soon change.

I will explore the potential impact of these rising salary requirements on staff members, using youth pastors as a case study, in my subsequent article.

• Read Part 2: Crisis Ahead? A Case Study on Minimum Wage Headaches