On May 18, 2016, the Obama Administration announced final rules updating the Department of Labor’s (DOL) overtime regulations under the Fair Labor Standards Act (FLSA). The Final Rule on Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act (the “Overtime Rule”) is expected to be published on May 23 and will become effective on December 1, 2016.
DOL explains that the white collar exemption to overtime requirements was originally meant for highly-paid workers who had better benefits, job security and opportunities for advancement. Because the salary threshold has been updated only once since the 1970s—in 2004, when DOL acknowledges it was set too low—the current threshold fails to help employers identify workers who are entitled to overtime pay. A 2014 Presidential Memorandum directed the DOL to update the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards. According to a Wage and Hour Division informational webpage, DOL received over 270,000 comments to the proposed rules, published in July 2015.
Please note that NASFAA is not an expert on labor rules. This article is meant mainly as a heads up to determine whether the reader needs to pursue additional information for office budget or other considerations. Financial aid administrators should consult their appropriate institutional personnel for the impact of the final rule on their particular campuses.
The final rule increases two thresholds used to determine whether an employee in the Executive, Administrative and Professional category is exempt from payment of overtime: the standard salary level and the annual compensation for highly compensated employees.
Under the final rule, future automatic updates to these two thresholds will occur every three years, beginning on January 1, 2020. Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
A fact sheet gives guidance about the final rule specifically applicable to higher education. According to the fact sheet, special provisions in the FLSA regulations make many white collar workers at higher education institutions exempt from overtime compensation, even though they earn below the new salary level. In addition, public universities or colleges that qualify as a “public agency” under the FLSA may compensate overtime-eligible employees through the use of compensatory time off (“comp time”) in lieu of cash overtime premiums.
The guidance also addresses students in various positions; treatment differs essentially based on whether the student is in a solely educational relationship with the school, or in an employment relationship. Students who are graduate teaching assistants, research assistants, and residential assistants in bona fide educational programs (thus in an educational relationship with the school) are generally exempt from the rule, and therefore not entitled to overtime. An employment relationship, which has the potential to trigger an overtime requirement, will generally exist with regard to students whose duties are not part of an overall education program and who receive some compensation; most of these students, however, are paid hourly and are already covered by overtime rules that remain unchanged by the new rules.
Postdoctoral fellows are employees who conduct research at a higher education institution after the completion of their doctoral studies; they are not considered students because they are not working towards a degree. However, some postdoctoral fellows in the humanities also teach, and teachers will not be affected by the final rule as the salary level and salary basis requirements do not apply to bona fide teachers. The fact sheet guidance allows higher education institutions to classify such an employee as exempt from overtime under the teacher exemption if the postdoctoral fellow’s primary duty is teaching.
Postdoctoral fellows in the sciences, by contrast, often engage only in research activities and are not likely covered by the teaching exemption. The fact sheet points out that “Once the final rule is effective, higher education institutions may supplement any gap between the current salaries and the new salary level in order to maintain the exemption for these employees or will need to ensure that postdoctoral research fellows who conduct research and earn below the new salary level either do not work overtime or are paid overtime compensation for any hours worked over 40 per week.”
Publication Date: 5/20/2016