Show Me The Money! The New FLSA Overtime Standards
Over the next six months, employers will be scrambling to comply with the new overtime standards released by the U.S. Department of Labor on May 18, 2016. The new rules double the threshold for overtime exemption among salaried workers from $23,660 to $47,476. Some employees are saying “show me the money” in anticipation of making more money under this structure, while institutions of higher education, some of the largest employers, are saying “show me the money” in anticipation of expending additional costs in compliance. What is the saying? You can’t squeeze blood from a turnip?
Higher ed will be faced with unique challenges in compliance with these new standards. Contemporaneous with the release of the new rules, the Department of Labor issued a guidance for higher ed in an attempt to address these issues. While much of what is contained in this guidance is not new, institutions are still left scratching their heads as they delve into analyzing positions and placing them within the new framework.
As your institution works its way through reclassification, remember that nothing is all bad or all good. There is no question that complying with the new requirements will cost universities money in an environment where universities are already under enormous budgetary constraints. This new law does, however, provide an opportunity for institutions to clean up areas that have likely needed attention for some time. Also keep in mind that the new law comes with an automatic salary update every 3 years, meaning that institutions are best served spending the time and money now to comply.
In undertaking this evaluation, some considerations for institutions:
Nowhere is salary inversion more prevalent than higher education. The typical scenario is two employees with the same job description but different salaries. One is paid $46,000 and the other is paid $50,000, for example. The first employee has been with the institution for 25 years, the second, two years. In order to recruit the second employee and meet market demands, the salary for the position had to increase. Situations like this, often called salary inversion, lead to employment litigation. The new rules provide institutions with the opportunity to engage in a self-critical analysis of the position to make changes where necessary, without creating litigation backlash. Some questions to consider in the analysis: Is this a position that typically works over 40 hours a week, or is it one that routinely works 9 to 5, 5 days a week? Does it make more sense to increase the salary of the first employee, or move both employees to hourly which could have the effect of decreasing the second employee’s salary? The bottom line, whatever tweaks are necessary, make them with respect to the position, not the person, and capitalize on this opportunity to have the new regulations as a basis for the change thereby avoiding raising legal red flags.
Flexible workweeks are still an option. As stated by the DOL Wage and Hour Division:
“The Act applies on a workweek basis. An employee’s workweek is a fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods. It need not coincide with the calendar week, but may begin on any day and at any hour of the day. Different workweeks may be established for different employees or groups of employees.”
Many employees in higher education do not fall under the teaching exemption, but do fall under the salary threshold and work outside of a traditional workweek. These employees work well after 5:00 pm and/or on weekends. Employees in the area of student affairs are a good example. Consider flexible work hours and workweeks for these employees, perhaps setting their hours from 10 to 6 or their workweek as Tuesday through Saturday. In setting flexible work hours and/or workweeks, HR will need to sit down with these employees to ensure the new structure truly fits their work schedule. Creativity, time and collaboration will be necessary to find the right balance. The bottom line, flexibility in work hours and workweeks is a viable approach that should be utilized by institutions to mitigate additional overtime obligations.
Remember that compensation outside of actual dollars can still be considered in the salary threshold. Employees in residence life are a good example of this. If the institution is providing room and board, or other similar stipends, those values are considered a part of the employee’s salary. While it is typically not applicable to the majority of employees in the education setting, bonuses can also be considered as part of the salary level (see the athletics discussion below). The bottom line, positions that on their face may dictate a transition from salaried to hourly may, in fact, meet the salary threshold.
Entrance Salary Rule
Employees that assist in running the institution and interact with students outside the classroom are subject to a special salary threshold that does not apply to salaried employees outside of higher ed. Examples of these employees are listed by the DOL as department heads, academic counselors, advisors and intervention specialists. (As an aside, intervention specialists are not counselors in the traditional sense who work in the counseling center.) The special salary threshold means that those personnel are not eligible for overtime if they are paid at least as much as the entrance salary for faculty at the institution. The bottom line, there is no specification on which entrance salary can be utilized which allows institutions to use the entrance salary of the lowest faculty (art versus business perhaps) in setting that salary threshold.
Blue-Collar vs. White-Collar
Concerns have already arisen for salaried employees who are now going to be paid hourly, with many considering it a demotion. Some employees view being an hourly or “blue-collar” worker as being less-than a salaried employee or a “white-collar” worker. As a result, this reclassification may be seen as a demotion. In reality, many of those moving from salaried to hourly stand to make more money. Their value to the institution, of course, is also unchanged. Thus, be sure to make the message clear to employees subject to the transition, up front, that being labeled as salaried or hourly is not a reflection of their value to the institution.
Conversely, many salaried employees believe that they will move to hourly and are anticipating a large pay increase as a result of overtime. Given some of the exemptions for higher ed this many not be the case for those positions, resulting in frustration when things do not play out as expected. The bottom line, considering and anticipating these scenarios up front can help institutions in crafting responses to these delicate scenarios.
Institutions will have to grapple with whether the teaching exemption applies to certain employees in athletics. This exemption applies to coaches and assistant coaches “if their primary duty is teaching, which may include instructing athletes in how to perform their sport.” The good news is that many coaches will fall under this exemption. In addition, at many institutions coaches are subject to bonuses, unlike other positions on campus, and those bonuses can be a consideration in the salary threshold. (Up to 10% of standard salary level can come from non-discretionary bonuses and incentive payments paid at least quarterly.)
The regulations go on to state that “[i]f, however, their duties primarily include recruiting athletes or doing manual labor, they are not considered teachers.” So, the bad news, certain positions may not fall under this exemption opening up a litany of potential overtime pay. The bottom line, utilize this time to realign positions and refine job descriptions and duties within athletics to diminish the need to expend any additional costs.
Public universities or colleges may still off-set the cost of overtime by offering compensatory time in lieu of cash. Bottom line, if your institution utilizes comp time, be sure to state it up-front with employees through employee handbooks, policies and procedures.
Many more scenarios will reveal themselves for higher ed in meeting the new salary threshold. Experts anticipate employers expending millions of dollars in compliance and potential litigation ensuing as a result of disgruntled employees. Involve legal counsel early and often in sifting through your institution’s employee structure and transitioning positions. As the saying goes, an ounce of prevention is worth a pound of cure.