Must Churches Pay the Minimum Wage to Child Care Workers?

A federal court issues an important clarification.

Reich v. Miss Paula’s Day Care Center, Inc., 37 F.3d 1191 (6th Cir. 1994)

Background. Many churches operate child care centers during the week, and nearly every church has some form of child care during worship services. Must churches pay the minimum wage to persons who work in either capacity? A related question is whether or not churches must pay “overtime” compensation (“time and a half”) to employees who work more than 40 hours per week. If churches must pay the minimum wage and overtime pay, are there any exceptions? What about volunteer workers and self-employed individuals? Is there a difference between preschool and child care? These are questions that church treasurers often ask. A recent federal appeals court ruling directly addresses many of these questions.

Facts of the case. A child care center in Ohio provides custodial care for very young children. It has 12 employees and has grown to care for more than 60 children. Children attending the center range in age from “infants and toddlers” to those between ages three and six. Many of the children’s parents are low-income, working mothers or college students who are hard-pressed to pay for child care. Unlike pure babysitting services, the center provides the children with daily activities designed to produce mental stimulation and enrichment. The center has been able to remain affordable by paying its staff less than the federal minimum wage.

The federal Department of Labor notified the center that it was a “preschool” subject to the federal minimum wage law, and ordered it to pay $18,000 in back wages to employees who had been receiving salaries below the minimum wage.

The federal minimum wage and overtime law (the “Fair Labor Standards Act”) applies to workers employed by “an enterprise engaged in commerce or in the production of goods for commerce.” Federal law defines this term to include a “preschool, elementary or secondary school … (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit).” The child care center argued that it was not a “preschool” but rather was a child care institution, since its program was primarily custodial in nature rather than educational.

The court’s decision. The court ruled that workers at the child care center were covered by the minimum wage law. It referred to a publication of the Department of Labor that defined the term preschool as follows:

A preschool is any enterprise … which provides for the care and protection of infants or preschool children outside their own homes during any portion of a 24-hour day. The term “preschool” includes any establishment or institution which accepts for enrollment children of preschool age for purposes of providing custodial, educational, or developmental services designed to prepare the children for school in the years before they enter the elementary school grades. This includes day care centers, nursery schools, kindergartens, head start programs and any similar facility primarily engaged in the care and protection of preschool children. Publication 1364.

In other words, there is no distinction between a preschool and a child care center. Both are included within the definition of the term “preschool,” even child care centers that provide custodial services and little if any education. The court also noted that the child care center in this case provided far more than custodial services.

The court made the following additional observations:

  • Other court rulings. It referred to two other federal appeals court decisions addressing the same issue. One court found that child care centers came within the definition of a preschool and were subject to the minimum wage law, while the other court reached the opposite conclusion.

Key point. In fact, a number of other federal courts have addressed this issue, and most have concluded that child care centers are preschools and their workers are entitled to the minimum wage. For more details, see the Special Report entitled “Must Churches Pay the Minimum Wage?” which is available from Church Law & Tax Report.

  • Professional babysitting services. The court pointed out that even if it agreed that a purely “custodial” child care center is not a “preschool,” this would not relieve the center from the minimum wage requirements since it would then meet the definition of a “professional babysitting service” which is covered by the minimum wage law.
  • Professional worker exception. The court suggested that the center’s best defense against coverage under the minimum wage law might be to stress its educational mission and then argue that its workers are “professional” employees who are exempted from the minimum wage requirements. The court observed that “we have not been asked to decide whether the quality of preschool learning experiences that [the center’s] staff members provide rises to a level that could bring those employees under the [law’s] exemption for those who work in a professional capacity. We therefore leave that question for another day.”

Key point. Department of Labor Publication 1364 states: “Employees employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools) … are exempt from the minimum wage and hours provisions of the Act. While preschools engage in some educational activities for the children, employees whose primary duty is to care for the physical needs of the children would not ordinarily meet the requirements for exemption as teachers. This is true even though the term “kindergarten” may be applied to the ordinary day care center. However, bona fide teachers in a kindergarten which is part of an elementary school system are still considered exempt under the same conditions as a teacher in an elementary school.”

  • 999 points of light. The court conceded that the center was on a tight budget, and that forcing it to pay minimum wage (and $18,000 in back pay) would probably put it out of business. It dismissed this result by noting: “It frequently is the effect, and even the underlying purpose, of a statutory scheme like [the minimum wage] to destroy low-wage operations that are brought within its coverage. If that is the government’s intended social policy, this court is not authorized to stand in its way.”

Relevance to church treasurers. What is the relevance of this ruling to church treasurers? Consider the following points:

1. Preschools. The Act specifies that church-operated preschools are enterprises engaged in commerce. Accordingly, they are subject to the minimum wage and overtime compensation requirements.

Key point. The courts have rejected the claim that subjecting church-operated preschools to these requirements violates the constitutional guaranty or religious freedom. However, all of these cases occurred prior to passage of the Religious Freedom Restoration Act. For more details, see the Special Report entitled “The Religious Freedom Restoration Act,” which is available from Church Law & Tax Report.

While a few federal courts have concluded that the term preschool does not include child care facilities that are primarily custodial rather than educational in nature (and that are not regulated or licensed by state law), other courts have rejected this interpretation of the law. It is the position of the Department of Labor that the term preschool includes child care facilities that are primarily custodial in nature. Accordingly, churches that operate preschools or child care facilities should recognize that the federal government will consider the employees of such facilities to be covered by the minimum wage and overtime pay requirements of the Fair Labor Standards Act. Prudence would dictate that churches follow these requirements with respect to such employees.

2. Uncompensated nursery workers and Sunday School teachers. What about workers in a church nursery that is open during worship services, or workers in a church’s Sunday School? Many churches operate a nursery for a few hours one day each week or month as an accommodation to mothers (often called “mothers day out”). Must churches pay workers in these programs the minimum wage? Clearly, if the workers are volunteers who work a few hours each week or month with no expectation of compensation, they are volunteers who are not covered by the federal minimum wage law. The Supreme Court has noted that while the definition of an employee is broad, it does have limits. For example, “an individual who, without promise or expectation of compensation, but solely for his personal purpose or pleasure, works in activities carried on by other persons either for their pleasure or profit, is outside the sweep of the [minimum wage law].” Further, Department of Labor Publication 1364 specifies that “[i]ndividuals who volunteer their services, usually on a part-time basis, to a preschool not as employees or in contemplation of pay are not considered employees within the meaning of the Act.” A Department of Labor attorney confirmed this understanding in a telephone conversation with your editor. The same rule would apply to volunteer Sunday School teachers.

3. Compensated nursery workers. Many churches pay their nursery attendants a fee for their services. It would be difficult to argue that such persons are not employees, and accordingly they would be entitled to the minimum wage if they perform services for an enterprise that is engaged in commerce. Is a church such an enterprise? No court has addressed this question. Remember, however, that the definition of an enterprise engaged in commerce includes church-operated preschools. Further, the Department of Labor in its Publication 1364 sets forth a very broad definition of preschool. Whether this definition is broad enough to cover church nursery workers is not clear at this time. A Department of Labor attorney informed your editor that compensated church nursery workers are covered by the federal minimum wage law. Until the federal courts provide clarification, churches must recognize that nursery workers who are compensated for their services may be covered by the federal minimum wage and overtime pay requirements. This apparently is the position of the Department of Labor. Future clarification of this issue of course will be published in this newsletter.

4. Elementary and secondary schools. The law specifies that church-operated schools are enterprises engaged in commerce. Accordingly, they are subject to the minimum wage and overtime pay requirements. The courts have rejected the claim that subjecting church-operated schools to these requirements violates the constitutional guaranty or religious freedom.

5. Adjustments. Preschools and churches that are covered by the minimum wage and overtime pay requirements can adjust their liability in a variety of ways. For example, they can reduce the number of hours worked each week; prohibit all unauthorized overtime work (however, they must also ensure that workers in fact do not work overtime, since an employer who “prohibits” overtime will be required to pay overtime compensation to employees that it “allows” to work more than 40 hours each week); reduce hourly compensation (but not below the minimum wage); reduce fringe benefits; or take credit for all indirect and noncash payments made on behalf of employees.

6. Required records. All employers having employees covered by the federal minimum wage and overtime pay requirements must maintain records documenting covered employees’ wages, hours, and the other conditions and practices of employment. Included are payroll records, employment contracts, pension plans and other employee benefits, and worktime schedules. If an employer intends to claim credit for noncash payments, it must maintain records documenting the value of such payments.

7. State law. Church treasurers must recognize that many states have enacted their own versions of the Fair Labor Standards Act. It is imperative to review the potential application of state minimum wage and overtime compensation laws to church workers.

8. Penalties. Penalties may be imposed for violations of the federal minimum wage law. Employers who violate the minimum wage or overtime pay requirements are liable to their employees for the amount of the unpaid minimum wage or the unpaid overtime pay, and “an additional equal amount as liquidated damages.” In addition, employees who are not paid minimum wage or overtime compensation can collect the reasonable cost of their attorney’s fees in suing the employer. Employers who “willfully” violate the minimum wage or overtime pay requirements of the Act are subject to a fine of up to $10,000 for each violation. A 2-year statute of limitations applies to the recovery of back wages except in the case of willful violations, in which case a 3-year statute of limitations applies.

This article originally appeared in Church Treasurer Alert, March 1995.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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