$47,000 May Become Overtime Pay Threshold… Overnight

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(May 9, 2016) Last summer, the U.S. Department of Labor released a notice of proposed rule-making (NPRM) to announce likely changes to the salary threshold for exempt status under the Fair Labor Standards Act (FLSA). The threshold currently stands at $23,660 annually. Employees making more than that amount may qualify for the white-collar exemption from FLSA overtime requirements, if they are also paid on a salaried basis and have “primary duties” that are executive, professional, or administrative in nature (known as the “duties test”). Employees who are paid below the threshold or do not meet the duties test and fail to qualify for another FLSA exemption must be paid on an hourly basis, with the attendant time-tracking that requires.

The regulations Labor originally proposed would have more than doubled the salary threshold for exempt status, setting it at $50,440 per year, with that dramatic increase to take effect within 60 days of the final regulations being released. A recent news report indicates that Labor may lower the proposed threshold to $47,000 per year, but that would still represent a 99% increase in the cutoff amount. And this jump would likely occur later this year, all at once — the Office of Management and Budget (OMB) received the regulations from Labor to review in March, which it has ninety days to complete; OMB typically finishes regulatory reviews in 30-60 days, however, so it could approve Labor’s new regulations later this month.

That means colleges and universities would have to reclassify or adjust the duties and compensation of any employees (excluding faculty) earning between $24,000 and $47,000 to accommodate the new threshold, as well as determine how to fund any associated increases in overtime pay or salary levels, just in time for the start of the fall semester. The lack of a phase-in period for such a large shift in who is considered and paid as a “white collar” employee and who isn’t poses significant fiscal and human resources (HR) challenges for virtually all colleges and universities. An NPRM response led by the association for higher education HR professionals, CUPA-HR, and supported by a broad array of higher education associations, specifically highlights this fact. Setting the new threshold without regard to regional differences in cost of living and compensation, however, is equally problematic; it will likely require the greatest adjustments to be made by institutions in the most resource-challenged circumstances.

Additional details and resources are available from CUPA-HR’s FLSA Overtime Regulations page as well as the Partnership to Protect Workplace Opportunity (PPWO) website. (PPWO is a coalition of business, nonprofit, and higher education groups pressing for changes in the proposed regulations to make them manageable.) Higher education and other communities continue to ask OMB and the Department of Labor to reconsider the scope of the pending changes as well as the speed with which organizations would have to implement them. Given the likelihood they will take effect in close to their current form, however, senior IT leaders should consider engaging their HR colleagues to assess the potential impact on their workforces as well as the possible strategies the institution will employ to manage that impact.

In closing, it is important to note that none of the groups asking OMB and Labor to revisit this issue are opposed to updating the overtime threshold — a broad consensus exists that the current level of $23,660 is significantly outdated. The communities requesting relief, including higher education and the nonprofit sector generally, have serious concerns, though, about their capacity to absorb such a large increase all at once, with virtually no time to accommodate the budgetary and personnel implications. The EDUCAUSE Policy Office will continue to work with other higher education associations to support this case and keep members informed about where the process is heading.

Jarret Cummings is director of policy and external relations at EDUCAUSE.