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Employee or Independent Contractor, and Other Common Questions About Wage + Hour Laws

Date postedMarch 5, 2025
Posted By: Molly O'Connell Staff + Volunteer Teams,

People power nonprofit missions, and deserve fair pay for their work. Nonprofit employers are legally obligated to comply with labor laws, and have a responsibility to provide equitable compensation aligned with their organizational values and the costs of living in our communities.

Strong compensation and human resources practices can feel daunting to achieve, however. The laws are complicated (and sometimes contradictory or vague), workforce trends and expectations are constantly evolving, and many nonprofits do not have enough staff to have a designated "Human Resources" team, or even one person who is responsible for this important role. It can make it hard to keep up!

To help, this post covers some of the most common questions and topics we hear about from our nonprofit members about wage and hour laws specifically.

Please note: MANP staff are not attorneys and nothing in this post should be considered legal advice. We always recommend consulting a qualified attorney for the best guidance on your specific situation. You can find attorneys in MANP's Business Finder Directory.

First, Some Red Flag Scenarios

The following are a few too-common practices that can get organizations into trouble. 

  • Classifying a part-time executive director as an independent contractor. It is extremely unlikely that someone in this role would meet Maine’s definitions to be an independent contractor.
  • Having non-exempt employees work long hours approaching a big event or deadline without paying overtime because they will get “flex time” afterwards.
  • Scaling up by adding “independent contractors” doing routine management or administrative work.

If any of these sound familiar, or you're not sure why they are problematic, read on!

Common Questions + Topics

Which laws do nonprofits follow given that both state and federal laws address minimum wage, overtime, and other issues?

The one that provides greater benefit to the employees. In many cases, Maine’s laws set a higher bar than Federal law.

What should we pay our staff? 

Setting compensation is an art, not a science, and organizations should use multiple sources of information, including both market data and their own organizational values, to inform how compensation supports their talent attraction and retention strategies.

A minimum wage is the lowest amount a worker can legally be paid hourly. In Maine, as of January 1, 2025, it is $14.65 per hour. (Some municipalities have implemented or are considering a higher minimum wage.)

This legally mandated minimum usually falls short of what would be considered a “living wage,” a concept used to describe the amount an individual or family would need to meet basic needs.

MIT’s Living Wage Calculator describes their tool as, “a market-based approach that draws upon geographically specific expenditure data related to a family’s likely minimum food, childcare, health insurance, housing, transportation, and other basic necessities (e.g. clothing, personal care items, etc.) costs. The living wage draws on these cost elements and the rough effects of income and payroll taxes to determine the minimum employment earnings necessary to meet a family’s basic needs while also maintaining self-sufficiency.”

Nonprofits may also be interested in considering the ALICE® framework. ALICE stands for Asset Limited, Income Constrained, Employed, and a recently published study conducted by Independent Sector and United For ALICE found that in 2022, more than one in five nonprofit employees in the United States struggled financially. Five percent (5%) of nonprofit workers studied were below the official U.S. poverty level, and another 17% live in households that earn more than the Federal Poverty Level, but less than what it costs to survive in the counties where they live.

Recommended Resources:

How do nonprofits determine if someone is an employee or an independent contractor?

It can be confusing because there is a lot of gray area in the laws, and how the definitions from different entities overlap. Generally, given that Maine’s law is pretty strict, start by considering everyone you pay an employee, unless you can make a strong case that they meet Maine’s independent contractor definition.

In Maine law*, all 5 of these criteria must be met:

  • The individual has the essential right to control the means and progress of the work except as to final results; 
  • The individual is customarily engaged in an independently established trade, occupation, profession or business; 
  • The individual has the opportunity for profit and loss as a result of the services being performed for the other individual or entity; 
  • The individual hires and pays the individual's assistants, if any, and, to the extent such assistants are employees, supervises the details of the assistants' work; and 
  • The individual makes the individual's services available to some client or customer community even if the individual's right to do so is voluntarily not exercised or is temporarily restricted

*This definition references the definition of independent contractor  in the unemployment statute. 
See 26 MRSA §591(3); 26 MRSA §1043(11)(E).

PLUS, at least 3 of these additional criteria must be met.

  • The individual has a substantive investment in the facilities, tools, instruments, materials and knowledge used by the individual to complete the work; 
  • The individual is not required to work exclusively for the other individual or entity; 
  • The individual is responsible for satisfactory completion of the work and may be held contractually responsible for failure to complete the work; 
  • The parties have a contract that defines the relationship and gives contractual rights in the event the contract is terminated by the other individual or entity prior to completion of the work; 
  • Payment to the individual is based on factors directly related to the work performed and not solely on the amount of time expended by the individual; 
  • The work is outside the usual course of business for which the service is performed; or 
  • The individual has been determined to be an independent   contractor by the federal Internal Revenue Service.

It can be useful to consult an attorney to ensure you have people appropriately classified, because there can be significant financial penalties.

Recommended Resource:

What about interns?

This can get very tricky, especially if you are paying interns (which MANP supports!). Here’s a helpful resource: Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (U.S. Department of Labor)

What’s the difference - Salary vs. Hourly and Exempt vs. Non-Exempt?

These are often–and erroneously–used interchangeably. Salary versus hourly is a differentiation in how someone is paid (a flat amount versus a calculation based on hours worked.) Exempt vs. non-exempt has to do with whether the employee is entitled to overtime pay under the Fair Labor Standards Act. You can pay non-exempt employees a salary, as long as they are earning minimum wage and overtime (which will necessitate still tracking their hours).

To be exempt from overtime pay, an employee must meet BOTH a salary threshold test (how much is the person being paid), and the duties test (does the type of work being performed fit into one of a variety of exemption categories). Organizations should not make assumptions about exempt status based on job titles, but should instead carefully compare job descriptions with the exemption category definitions (not just the exemption category names).

As of the time of this post, Maine’s salary threshold is higher than the Federal threshold, and so is what Maine employers need to follow. This threshold is $42,950 (3,000 times the minimum wage of $14.65 for 2025). You cannot have a part-time employee remain exempt unless their part-time salary still meets the salary threshold.

Non-exempt employees must be paid minimum wage (local, state or federal, whichever is highest) and be paid time and a half for all hours worked over 40 hours per week (not including vacation, sick, or holidays, unless required by another policy/agreement).

Just as with the employee versus independent contractor rules, it can be very useful to consult an attorney to ensure you have people appropriately classified, because there can be significant financial penalties.

Helpful Resources:

What about "comp time"? Can we allow non-exempt employees to flex their schedules?

Danger zone! While public (government) employees are allowed “compensatory time,” nonprofit organizations are limited in how they can manage overtime. Consult an attorney.

A note about recordkeeping

In order to appropriately classify workers, and defend those classifications should you be challenged, employers should:

  • Create and maintain accurate job descriptions
  • Establish timekeeping systems and train employees (and their managers) to understand and use them correctly
  • Adopt written policies, if you do not already have them
  • Review any collective bargaining agreements or other policies which may impact payroll practices

Additional Resources for Employers + Employees

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