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Business and Policy Areas
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FLSA Changes Will Pack a Financial Punch

August 10, 2016

By Karla Hignite

Among the NACUBO 2016 Annual Meeting sessions in Montreal last month garnering great interest from attendees was the topic of "Fair Labor Standards Acts (FLSA) Changes," and for good reason. The Department of Labor's proposed new overtime rules, set to take effect Dec. 1, 2016, changes the threshold at which an individual employee qualifies as a salaried worker exempt from overtime pay requirements, and the new rules would further impose an automatic increase of the minimum salary amount every three years. The potential impacts for colleges and universities, no matter the institution type or size, are significant.

According to session co-presenter Laurita Thomas, associate vice president for human resources for the University of Michigan, doing nothing would raise her university's estimated additional overtime costs by more than $30 million. And, the financial impact to the university would be well above that figure if the institution were to simply move all affected workers above the annual threshold of $47,476. In total, University of Michigan leaders must make determinations about the wage levels and classifications of approximately 2,500 of the university's 45,000 employees.

Small institutions likewise are at risk. At Presbyterian College, Clinton, South Carolina, about 59 of the institution's 285 faculty and staff currently earn salaries below the new wage threshold, according to session co-presenter Susan Maddux, vice president of finance and administration. During their presentation, Thomas and Maddux shed light on the importance of getting in front of the impending changes. To help leaders prepare, they offered suggestions for evaluating budget implications, crafting compliance and communication strategies, and assessing potential impacts on employee morale and productivity. Detailed below are some of the insights they shared. (Note: Members can stream this session via NACUBO's website. See sidebar, "FLSA Resources.")

CONSIDERATIONS

Positions in question can span a range of titles and responsibilities, including academic and non-academic administrators, academic advisors, admissions counselors and recruiters, student life professionals, residence directors, financial aid administrators, advancement professionals, postdoctoral fellows, and athletics coaches and trainers. Among the many considerations for college and university leaders are how to address part-time or partial-year employment, salary paid to an employee by multiple sources, how to treat student workers and employees who telecommute or have other flexible work arrangements, and so on. Practices that require scrutiny include timekeeping and managing travel time and comp time. Approaches must include effective and systematic tracking to ensure that employees are paid accurately. Leaders will also likely want to engage in new strategies for structuring how work is done and for better managing workload. Alternate staffing solutions can, among other things, help avoid overtime and comp time.

In whatever manner that institution leaders move forward, a major concern for many will be how to deal with salary compression. For instance, a decision to move affected employees above the threshold may create wage inequity for others. Doing nothing, or not communicating how you plan to make compensation adjustments for others, can negatively impact employee morale and productivity, caution the presenters.

Other tricky issues that require attention include benefits related to compensation. For instance, do your exempt and non-exempt employees accrue vacation at the same rates? If not, you will need to reconcile these differences if you decide to transition some of your employees to an exempt status, notes Thomas. Beyond the top priority of complying with the new rules, other important goals for institution leaders should include avoiding unnecessary changes to existing systems that might result in administrative burden, keeping trustees and other stakeholders updated on direct and potential impacts, and mitigating negative ripple effects resulting from any decisions you make.

STEPS AND STRATEGIES

For all the work that must be done to comply with the new rules, a good first step is to consult with legal counsel and form a steering group and implementation committee. Identifying issues, reviewing job descriptions and duties, and calculating overtime costs and impacts of wage increases for each affected employee and department will no doubt require ample time and attention, note Thomas and Maddux. Exacerbating the challenge is that this won't entail a one-size-fits-all solution. Each affected position, job title, and job classification must be reviewed to determine what is in the best interests of employees and the institution. In addition to raising salaries above the threshold, other strategies to consider include moving to more non-exempt status and job codes, incorporating dual job codes, and finding alternate staffing solutions.

Thomas suggests leaders consider moving forward with salary program adjustments they were already planning to put in place that could resolve gaps for at least a portion of your affected employee population. Input from others is crucial. At Presbyterian College, HR met with every office on campus to discuss implications, notes Maddux. She suggests reaching out to other institutions in your area to see how their leaders are resolving these issues.

Recognize that employees will need time to adjust to the changes. At Presbyterian College, leaders decided to start early, requesting that all staff begin clocking in and out through the institution's performance payroll system. Making this part of everyone's routine can keep any one group of employees from feeling singled out, notes Maddux. This head start is not only providing "practice" to employees, but is also helping supervisors and managers get a better handle on what hours everyone is actually working and get in the routine of managing workload, notes Maddux.

The institution also plans to implement its changes beginning November 1, a full month ahead of the new rules taking effect. This will not only provide the institution a better sense of the budget impact, but will also give employees a head start in making any adjustments to variations in pay and pay periods. Leaders must understand that even something like a change in pay cycle can impact employees with regard to bills and other obligations in their personal lives, says Maddux.

COMMUNICATION

In addition to ensuring compliance, a top priority for the University of Michigan is to effectively communicate the changes to all employees and other stakeholders. Clear communication is essential, notes Thomas. Bottom line, employees need to know that they and their work are valued regardless of any changes to their status, she adds. The university developed a website that leaders are populating with a running list of responses to questions as they receive them from employees.

Once plans are approved, another substantial effort will involve training supervisors to manage workload in their respective areas and ensure non-exempt employees are using tracking systems correctly, says Thomas. Providing guidance memos to supervisors and managers and equipping them with FAQs and other information they can share with their employees will reinforce any communication coming from top leaders about the rules and how implementation decisions were made. At the micro level, providing a tailored communication package or letter for each affected employee that provides specifics about the changes made to his or her position can help head off confusion and mitigate anxiety, adds Maddux. Some may need training with regard to new procedures for tracking time, and so forth.

Despite their best efforts to get in front of the new rules, institutions will likely have some employees who experience a loss of morale due to a change in their status. Any inequity or perceived inequity among employees resulting from compensation and classification changes should be addressed sooner rather than later. One important component of this is to reiterate that you are ultimately trying to provide a better work-life balance for everyone, say the presenters. This can go a long way toward mitigating negative impacts on employee morale and productivity.

Karla Hignite, editorial consultant to NACUBO, is editor of NACUBO's HR Horizons; e-mail: karlahignite@msn.com

FLSA RESOURCES

NACUBO is working closely with CUPA-HR and other higher education associations to help member institutions assess and comply with the new FLSA overtime rules. Here are several resources to help your institution's leaders get up to speed on the rules.

For additional details or queries, contact: