The Problem
At a time when the cost of higher education is being criticized, the federal government argues that raising the wage level for exemption from overtime rules is necessary to:
- Correct excluding workers who are not “bona fide” executive, administrative, or professional workers from the definition of workers who are required to receive overtime.
- Eliminate workers now required to work what may be considered oppressively long hours while receiving minimum pay. They argue this results in standards of living that fail to promote good health, efficiency, and general well-being.
- Prevent employers from exploiting the current law that allows them to take advantage of millions of workers who should be receiving overtime pay.
College and university finance leaders argue that the proposed adjustment will:
- Only serve to increase costs and, therefore, push tuition pricing up at a time when it is important to eliminate tuition pricing pressures.
- Diminish the morale of some workers who make the switch because their salaried positions were held in high esteem. They argue that an hourly position does not hold the same professional status that a salaried position holds.
- Make some jobs virtually impossible to accomplish with a high level of quality in limited hours if they are under strict rules about hours worked.
Current Proposal
Under the proposed Fair Labor Standards Act (FLSA), the salary level that is exempt will increase from $35,568 (set by the Trump administration) to roughly $55,000 annually, making millions more workers overtime eligible. That final salary figure would then update every three years to adjust for changes in the labor market.
Estimated Impact on Higher Education
The U.S. Department of Labor (DOL) reported receiving more than 33,000 comments arguing for and against this proposal. An extended legal battle seems possible. What are the likely reactions from college and university leaders? At least four reactions appear possible:
- Mass reclassification of traditionally white-collar employees, particularly at Institutions with fewer resources and/or in areas with lower cost of living, could take place.
- Since hourly pay and nonexempt status is appropriate for certain jobs, it is not appropriate for all jobs (such as live-in resident directors and PhD researchers), so job performance may suffer because it will take more effort than they can afford to complete certain tasks in limited hours.
- Reclassification will adversely impact employee flexibility, career advancement, and morale.
- The proposed minimum salary level may also trigger mass job and department restructuring, which could ultimately result in layoffs.
As part of a College and University Professional Association (CUPA)-HR survey1, it was reported that 61% of institutions said they anticipate reductions in their workforce if the salary threshold is raised to the level proposed in the Notice of Proposed Rulemaking (NPRM).
A review of some public comments about the proposed legislation indicates that schools of all sizes and in all sectors will be affected. Some institutions reported potential additional costs of $6 million per year.
What Happens Next?
In its semi-annual regulatory agenda (published on December 6, 2023), the DOL set April 2024 as a release date for this rule. However, that release date is optimistic given the large volume of public comments that require responses.
As always, there is broad uncertainty about where the final rule will land. Many higher education HR and finance managers are hoping for a compromise on the final overtime threshold.
For more information on higher education rule proposals, please reach out to a professional at FORVIS.
- 1“The CUPA-HR 2023 Higher Education Employee Retention Survey,” cupahr.org, September 2023.