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This new rule will make more salaried employees eligible for overtime pay. Find out if your employees will be exempt under this new guidance.

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Revised FLSA Rules Retain Special Exemptions for Higher Education

  • 5/27/2016

The Fair Labor Standards Act of 1938 (FLSA) established, among other things, the 40-hour work week and federal minimum wage. It also mandated the payment of overtime to most employees for hours worked in excess of 40 hours per week at a rate of time and a half, except those meeting the law’s specific exemptions. 

Changes to the overtime rule were released on May 18, 2016, and while not as high as originally proposed, the annual salary for employees eligible for overtime pay will change from $23,660 ($455 per week) to $47,476 ($913 per week). This significant increase could leave many employers with additional costs or fewer staff — two concerning options when many employers are already working to reduce expenses. 

Determining overtime eligibility 

In order to qualify employees as exempt, they must meet three tests: 

  1. Salary basis test: salary must be fixed and predetermined, and cannot fluctuate with quantity or quality of work. 
  2. Salary level test: salary must meet the minimum salary threshold (currently $23,660, with the transition to $47,476 later this year). 
  3. Job duties test: duties must meet all of the executive, administrative, or professional duties tests as defined in the regulations (commonly known as the white-collar exemption). 

While the salary level increase opens the base of employees eligible for overtime, the job duties test remains the most subjective. This test is also the most scrutinized when interpreting terminology significant to employee classification and whether the employee would be exempt under FLSA. Because the FLSA is designed to protect employees, the rule’s exemptions are meant to be narrowly defined to prevent employers from misclassifying employees to avoid overtime pay. 

Built-in exemptions limit higher education overtime pay 

The FLSA has built specific exemptions into its regulations for many employee groups, including those in higher education. Specifically, the FLSA listed these four higher education employee groups exempt from minimum wage and overtime protections: 

  1. Bona fide teachers: those whose primary duties are to teach, tutor, lecture, or instruct. 
  2. Coaches: those whose primary duties are to teach or instruct students in a sport (not including those whose primary duties are to recruit athletes). 
  3. Graduate and undergraduate students: those employed as researchers, resident advisors, and other positions in the course of obtaining a degree or in exchange for room and board. 
  4. Academic administrative personnel: department heads, advisors, counselors, and those that help run higher education and interact with students outside of the classroom. These employees must be paid, at minimum, the entrance salary for teachers at their institution to meet the exemption. 

The following groups need to meet the three tests to be considered exempt from overtime pay: 

  • Nonacademic administrative employees (admissions staff, recruiters, etc.) 
  • All other salaried employees (those whose employment is not unique to the higher education industry) 
  • Postdoctoral researchers (those whose primary duties are not teaching) 

The new rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new salary threshold. However, employers are prohibited from offering comp time in lieu of cash payment for overtime hours, with the exception of public sector employees in most state and local government agencies, including public higher education institutions. Each state has specific rules governing wage and hour laws, so be sure to check your state’s requirements. 

How we can help 

While the new rule is not effective until December 1, 2016, you will need to learn how the FLSA rules will affect your organization. We can help you evaluate your employee groups, current duties and job descriptions, salary levels, and current overtime pay to determine what changes might be necessary to comply with the new laws, while still maintaining costs at an acceptable level.