Key Point 8-08.01. The Fair Labor Standards Act mandates that employers pay the minimum wage, and overtime compensation, to employees who work for an enterprise engaged in commerce. There is no exception for religious organizations, but there are exceptions for certain classifications of employees.
The Act defines an enterprise as "the related activities performed … by any person or persons for a common business purpose." The United States Supreme Court has noted that this definition excludes most religious and charitable organizations to the extent that they are not operating for profit and are not pursuing a "business purpose." Tony & Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985).On the other hand, religious and charitable organizations will be deemed to be an "enterprise" subject to the minimum wage and overtime compensation requirements if they are engaged in commercial or business activities.
In 1966, Congress amended the Act to include within the definition of "enterprise" any "preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit)." The Act now provides that schools and preschools, even those operated by churches, are "deemed to be activities performed for a common business purpose."
The fact that a church school or preschool is now deemed to be an "enterprise" does not end the analysis. As noted above, the enterprise must be "engaged in commerce or in the production of goods for commerce," and the worker must be an employee. The Act defines the term enterprise engaged in commerce or in the production of goods for commerce to include an enterprise that:
(1) "has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person, and is an enterprise whose annual gross volume of sales made or business done is not less than $500,000"; or
(2) "is engaged in the operation of a … preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit)."
According to this language, church operated schools and preschools are deemed to be "enterprises engaged in commerce or in the production of goods for commerce." A "fact sheet" published by the Department of Labor states:
The amendments to the FLSA specifically extended FLSA coverage to preschools as covered "enterprises," regardless of whether public or private or operated for profit or not for profit, and without regard to the annual dollar volume of the business. As a result, all such enterprises are required to comply with applicable provisions of the FLSA.
Daycare centers and preschools provide custodial, educational, or developmental services to pre-school age children to prepare them to enter elementary school grades. This includes nursery schools, kindergartens, head start programs, and any similar facility primarily engaged in the care and protection of preschool age children. Individuals who care for children in their home are not considered daycare centers unless they have employees to assist them with the care of the children.
This language leaves no doubt that the Department of Labor interprets the term preschool to include a church operated child care facility even if the facility is primarily a custodial rather than an educational institution.