On May 18, 2016, the Department of Labor (DOL) issued the long-awaited final version of its amendments to the Fair Labor Standards Act’s (FLSA) overtime and exemption regulations. The final version differs in some ways from the proposed regulations. It will have significant administrative and budgetary impacts on institutions of higher education.
Key Changes & Differences Between Proposed Regulations and Final Regulations
The new regulations:
- Raise the salary level test for most exemptions to apply from $455 per week ($23,600 annually) to $913 per week ($47,476 annually). This new salary level is based on the 40th percentile of earning of full-time salaried worked in the lowest-wage Census Region, currently the South. The new salary level is different than the proposed regulations, which indicated that the salary level would rise to $970 per week ($50,440 annually).
- Raise the total annual compensation requirement for highly compensated employees (HCEs) from $100,000 to $134,004. This annual compensation level is based on the 90th percentile of full-time salaried workers nationally. This amount of annual compensation is different than the proposed regulations, which indicated that the total annual compensation requirement for HCEs would rise to $122,148.
- Establish a mechanism for automatically updating the salary and compensation levels every three years to maintain levels at the 40th and 90th percentiles and to ensure that they continue to provide useful and effective tests for exemption. This structure is different than the proposed regulations, which indicated that the automatic updates would occur on an annual basis. The first three-year automatic update will be effective on January 1, 2020.
No Changes to Primary Duties Tests
The new regulations do not change the primary duties tests for any exemptions to apply. This is a welcome non-amendment, as DOL had hinted that it might amend these tests when it asked for comments on them despite not including any changes in the proposed regulations in July 2015.
When Do the Amended Regulations Go Into Effect?
December 1, 2016. This date provides some relief to colleges and universities, as DOL had indicated that the effective date would be in September 2016.
Guidance Specific to Higher Education
Likely as an acknowledgment of the diverse and unique employee classifications at institutions of higher education, DOL also issued two guidance documents specific to higher education along with the final regulations. These guidance documents can be found here and here. In large part, these documents recite and synthesize previous DOL guidance regarding the employee classification and exemption status of various positions at colleges and universities (e.g., graduate research assistants, residential assistants, athletic coaches, etc.). Some options for responding to the changes to the salary level tests and ensuring compliance are also offered, including:
- Raise salaries to maintain exemption;
- Pay current salaries, with overtime after 40 hours;
- Reorganize workloads, adjust schedules, or spread work hours; and
- Adjust an employee’s wages to reallocate it between regular wages and overtime so that the total amount paid remains largely the same.
What this Means for You
Many colleges and universities have already commenced their FLSA compliance analyses in anticipation of these amendments. Now that the new regulations have been finalized, it is time to ramp up those efforts. While the effective date of December 1 provides additional time when compared to the expected September date, it will be here before you know it. Overarching steps your institution should be taking include developing a compliance strategy and creating a plan for communicating the sweeping changes to your campus community.