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More Employees Eligible for Overtime Pay Under New Federal Rule

May 18, 2016

On Wednesday, May 18, the Department of Labor (DOL) issued new regulations addressing the overtime provisions of the Fair Labor Standards Act (FLSA). The final rule, which takes effect on December 1:

  • Sets the overtime wage threshold at $913 per week or $47,476 per year, pegged to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).
  • Automatically increases the threshold every three years, beginning on January 1, 2020.
  • Recognizes graduate and undergraduate students who are engaged in research or serving as residential advisors to be in an educational rather than an employment relationship with the institution.
  • Affirms that graduate students whose primary duty is teaching or serving as teaching assistants fall under the FLSA's teaching exemption.

Webinar

The College and University Professional Association for Human Resources (CUPA-HR) hosted a 90-minute webinar on Wednesday, May 25 to discuss the new rule. NACUBO was a partnering association, among others. The webinar is now available on demand.

Background

President Obama issued an executive order in 2014 calling for significant changes to the salary thresholds used to determine eligibility for overtime of the FLSA as part of administration efforts to increase wages for low- and middle-income workers. DOL issued a notice of proposed rulemaking last summer, which called for increasing the minimum weekly salary to the 40th  percentile of weekly earnings for full-time salaried workers based on Bureau of Labor Statistics (BLS) data. The proposed minimum salary would have been $970 per week, or approximately $50,440 annually, for 2016. DOL did not propose changes to the substance of the rules or other parts of the tests it sets for determining eligibility for overtime pay.

Last fall, NACUBO joined 17 higher education associations in a letter responding to the proposed rule and outlining the concerns of colleges and universities across the country. Spearheaded by CUPA-HR, the letter detailed concerns with the proposal. Subsequent and numerous advocacy efforts amplified these concerns and illustrated the challenges the sector would face under the proposed rules.

Final Rule

DOL has posted guidance and fact sheets for businesses, nonprofit entities, and institutions of higher education on its website. Two documents in particular address the impact on colleges and universities:

Postdoctoral Researchers

Unlike research assistants who are still pursuing a degree, postdoctoral fellows engaged in research for an educational institution are considered employees and are subject to the salary level test set in the regulations. This means that postdocs earning less than $913 weekly will be eligible for overtime pay.  

Notably, Francis Collins, director of the National Institutes of Health, and Thomas Perez, secretary of Labor, jointly authored an op-ed that appeared in The Huffington Post addressing the impact of the new regulations on postdoctoral researchers. They write that NIH will increase the awards for Ruth L. Kirschstein National Research Service Awards (NRSA) recipients to levels above the new threshold. Collins and Perez also express support for increasing salaries above the threshold while recognizing that "supporting the increased salaries will no doubt present financial challenges to NIH and the rest of the U.S. biomedical research enterprise."

Athletic Coaches

The guidance for higher education institutions notes that coaches whose primary duties include instructing athletes on how to perform their sport may fall under the exemption for teachers.  However, if duties primarily include recruitment or manual labor, they are not considered teachers and thus are not overtime exempt.

Additional Highlights

In addition to setting the standard salary level at $47,476 annually for a full-year worker, the regulation raises the threshold for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004). 

Updates to both the salary and HCE levels will become effective on December 1. They will be updated every three years to maintain the levels at the 40th and 90th percentiles, respectively, to "ensure that they continue to provide useful and effective tests for exemption."

The final rules will be published in the Federal Register on May 23. As a convenience to the public, a prepublication version of the rule, as approved by the Office of Management and Budget, is being provided early. The link provided will be updated when the published version becomes available.

After further analysis, NACUBO will share additional information about the new regulations in its biweekly newsletter Current, on its website, and at the NACUBO 2016 Annual Meeting. In the meantime, please direct any questions to advocacy@nacubo.org.