As we previously reported, the Department of Labor has now issued its long-anticipated final overtime exemption rules for white collar workers. In addition, the DOL published more detailed guidance for higher education institutions (.pdf) seeking to comply with the new obligations. As expected, the compensation adjustments mandated by the new rules require substantial effort to balance college and university budgetary constraints, workforce morale concerns, and legal compliance obligations in the next several months.

The DOL estimates that the new rule will result in approximately 35% of all current full-time, salaried workers being eligible for overtime based on their salary level alone. At the same time, increasing so many positions’ salaries to meet the new $47,476 threshold creates substantial concerns with salary compression on campus for positions already above that threshold.  To address such concerns and to minimize the need to comply with future increases of the FLSA salary threshold, many institutions of higher education are likely to seek to convert positions to non-exempt status; at the same time, they will need to address employee-morale concerns related to such a conversion and diligently manage the number of hours or methods of compensating for overtime wherever possible for budgetary reasons.

As schools determine the best approach for seeking to adjust to the new rules, the guidance issued yesterday as well as a white paper that we prepared earlier this year offer ample advice specific to higher education institutional needs and concerns.  Examples of key components of the guidance include the following:

Salary and Duties

It is essential to ensure that, for each position considered under the new rules, the duties actually performed and the salary assigned to the role both comply with the exemption rules.  Institutions need to review how to structure compensation for all positions that are currently paid salaries less than $47,476 and determine how to classify or restructure each position in the coming months.  It is important not to forget, however, about positions earning salaries above the threshold because whether the duties of such roles comply with exemption requirements is likely to be subject to increased scrutiny.

Categories of Positions Potentially Affected

The federal guidance addresses the extent to which the new rules impact many types of positions unique to higher education institutions in meaningful and potentially helpful ways, although not providing definitive answers for most examples.  Highlights from the guidance include:

Teachers (and Coaches):  Positions for which teaching is the primary duty will not be affected by the new salary threshold, because there is no minimum salary for exempt teaching professionals under the FLSA. (Note that state law on this issue may vary – consult your employment counsel.)  This includes “teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge” inside or outside of the classroom and thus may apply to professors, adjunct faculty, and coaches.  The amount of time any of these employees devotes to instruction is “relevant” but not dispositive in determining exempt status, but the guidance states that spending “more than half” of work time instructing likely qualifies for the exemption and devoting “less than a quarter” of work time likely does not.

Academic Administrative Personnel:  Positions for which the primary duties are administrative functions directly related to academic instruction or training can remain exempt with salaries below the new threshold as long as attendant salary equals or exceeds the entrance salary for teachers at the particular institution.  (Again, consult your employment counsel regarding applicable law in your state.) Positions that may qualify for this treatment are described generally to include “department heads, academic counselors and advisors, intervention specialists who must be available to respond to student academic issues, and other employees with similar responsibilities.”

Leaerned Professionals:  The new salary threshold will apply to positions with primary duties that otherwise qualify for exemption as “learned professionals” (other than “teachers” or employees practicing law or medicine).  Specific positions referenced in the guidance that will need to earn more than $47,676 to remain exempt include certified public accountants, certified athletic trainers, librarians, psychologists, and researchers.

Postdoctoral Fellows:  Postdoctoral fellow are of particular concern to many institutions because they often work long hours independently, and the guidance addresses them at some length.  Assuming that postdoctoral fellows conduct research and do not teach as their primary duty, they will need to earn salaries at or above the $47,476 threshold to qualify for the overtime exemption.  Many existing postdoctoral fellows earn less than the new threshold and are expected to be affected by the new rules.

Administrative Personnel: Administratively-focused roles that do not involve “academic” instruction or training must earn salaries above the new threshold to remain exempt.  They must also have primary duties directly related to management or general business operations and the exercise of discretion and independent judgment with respect to matters of significance.  In non-comprehensive fashion, the guidance references many specific positions that likely fit within this category (and tend to work more than 40 hours per week with some regularity), including admissions counselors, student financial aid officers, development officers, and human resources managers.

Student Workers:  Student workers will deserve detailed attention because their treatment for overtime purposes will vary.  Those paid by the hour will remain eligible for overtime, while those receiving salaries as graduate teaching assistants (who primarily teach) and research assistants (where research is related to their course of study) will generally remain exempt. Residential advisers enrolled in bona fide educational programs (receiving reduced room and board or tuition credits) are often properly classified as students rather than employees, and thus may not be subject to the FLSA’s wage and hour requirements.

Other positions that have raised questions for leaders on most campuses are not addressed in the guidance, including residence hall directors and athletic department staff (other than coaches and certified athletic trainers) who commonly work more than 40 hours per week.  Most employees in those roles are likely to be overtime eligible and deserve careful attention as schools consider position and schedule restructuring, new hourly tracking procedures, and supervisory training.

Listed Options for Compliance

The DOL’s guidance emphasizes certain logistical considerations and lists potential compliance options, including methods of reducing the financial impact of overtime compensation.  Campus leaders seeking to comply with the new rules should remember that:

• All employees paid on an hourly basis are (absent some other exemption) eligible for overtime
• Salaried employees can also be eligible for overtime (unchanged but commonly misunderstood), and
• Hours for overtime-eligible positions can be tracked in any method that results in accurate results.

On this last point, the DOL’s guidance stresses that all non-exempt employees are not required to “punch in” and “punch out” at the start and end of their shifts. Employers can, for example, have employees report their daily hours on a timesheet submitted at the end of each week or pay period. However, colleges and universities need to exercise some caution here: timekeeping methods are fine as long as the record produced is accurate. If an employee regularly reports working 8 hours each day, but can later credibly claim that an administrator knew they were in fact working additional time (after disciplinary action starts, for example), the employer can be held liable for this additional “off the clock” work.

Managerial options for restructuring compensation for positions that become non-exempt under the new rules, as listed in the guidance, includes the following:

• Raising salaries above the new threshold to avoid overtime eligibility;
• Paying existing salaries plus overtime as earned for hours in excess of 40 per week;
• Reorganizing workloads, adjusting schedules, or spreading work hours to minimize overtime hours; and
• Reallocating compensation between salary and expected overtime pay, including reducing salary “so that the total amount paid to the employee remains largely the same” (as long as weekly pay remains above applicable minimum wage rate).

The new publications acknowledge that, for certain salaried positions that earn overtime, higher education institutions can seek to reduce the rate of overtime pay by approximately two-thirds using the “fluctuating workweek method” “if certain conditions are met.” (See our discussion in this post.)

The DOL notes that public institutions can also save overtime “cost” through use of compensatory time off (“comp time”) in lieu of cash overtime payments. Any comp time must be credited at no less than 1.5 hours of comp time for each hour of overtime worked.

As colleges and universities prepare to restructure compensation arrangements to comply with the new FLSA rules, it is also important to account for three issues that are not addressed in the recent federal publications:  (1) salary compression and potential impact of FLSA-motivated salary adjustments on other groups of employees, particularly faculty;  (2) morale issues stemming from conversion of people from exempt to non-exempt status; and (3) state law requirements that may be different from federal law.

To manage all of these issues, campus leadership will need to diligently determine the extent of positions affected by the FLSA rule adjustments, set budget-informed restructuring goals, develop hourly-tracking procedures and training, and craft a carefully-tailored approach to addressing and communicating with the different groups of personnel involved.  The Department of Labor’s higher-education-specific guidance offers a useful overview to help explain why change is occurring, but, as always, communication must be customized to fit each institution’s campus culture.