On 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. Employees earning salaries below the threshold will be eligible for overtime pay. The threshold is pegged to the 40th percentile of earnings for full-time, salaried workers in the lowest-wage Census Region (currently the South). The regulation also establishes automatic increases to the threshold every three years, beginning on Jan. 1, 2020.
This new rule is the result of an executive order issued by President Obama in 2014— as part of administration efforts to increase wages for low- and middle-income workers—calling for significant changes to the salary threshold provisions FLSA used to determine eligibility for overtime.
The first FLSA regulations were issued in 1938, and have been updated only seven times since their inception. The most recent update was in 2004, when the $23,660-per-year threshold for a full-year worker was established.
Higher Education Input
DOL issued a notice last summer of proposed rulemaking, which called for increasing the minimum weekly salary to the 40th percentile of weekly earnings for full-time, salaried workers, based on the Bureau of Labor Statistics (BLS) data. The proposed minimum salary threshold would have been $970 per week, or approximately $50,440 annually, for 2016.
The final 2016 rule lowered the proposed threshold to $47,476, but did little to address the specific concerns of colleges and universities across the country. Last fall, NACUBO joined 17 higher education associations in drafting a letter urging DOL to (1) lower the proposed salary level for nonprofit employers, and (2) phase in the new salary level over time to allow employers and employees time to make all necessary planning, budgeting, and systems preparations.
The higher education associations stated, “We agree that an increase to the minimum salary threshold is due and that DOL must update the salary levels and regulations from time to time to ensure the exemptions are not abused,” but argued that the proposed minimum salary threshold was simply too high. Many institutions reported to NACUBO that there will be significant disruption as campuses modify their human resources policies and switch employees from monthly to biweekly payrolls. Others expressed concerns that some starting base salaries will be managed downward, or jobs could be eliminated, thus not helping those the federal government intended to help.
DOL ultimately issued a fact sheet and a 13-page document with guidance specifically addressing the impact on colleges and universities. The documents, available on the DOL website, provide supplemental explanatory material, but largely restate current, existing exemptions.
Unique to Colleges and Universities
The new overtime changes will affect employees at most institutions of higher education. There are no major changes to current law, but new supplemental guidance from DOL comments on the special circumstances faced by institutions of higher education.
- 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.
- 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 individuals’ duties primarily include recruitment or manual labor, they are not considered teachers and thus are not overtime exempt.
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.”
NACUBO will share additional information about the new regulations in NACUBO Current, on its website, and at the NACUBO 2016 Annual Meeting.
New Cash Management Rules Effective July 1
The Department of Education’s revised cash management rules, with a few exceptions, go into effect July 1. In the newly released “Cash Management Questions and Answers,” ED addresses common questions and concerns from universities on this issue.
Several new cash management regulations impact all colleges and universities participating in Title IV federal student aid programs. Institutions will face additional requirements if they offer bank accounts to students through agreements with financial institutions, or use third-party servicers to process Title IV credit balance refunds.
The revised rules require institutions to keep all Title IV funds in federally insured, interest-bearing accounts, including their Perkins Loan revolving fund. Other types of investment accounts are no longer an option, and the institution must ensure that Title IV funds are not included in nightly cash sweeps to uninsured accounts.
Schools also must comply with a new rule that restricts the ability of an institution to include charges for books and supplies in its tuition and fees, unless certain conditions are met. For colleges and universities seeking to establish arrangements where bulk rental or purchase of textbooks is included in tuition and fees, the Q&A document stresses that schools must have a process that allows students to opt out, and must reduce tuition and fee charges for those students by an amount that reflects the institution’s per-student cost of the books.
These rules apply to charges included in the tuition and fees for which Title IV funds may be applied automatically. They do not apply to charges for books and supplies that are not included in allowable charges (for which the school must obtain the student’s authorization to pay with Title IV funds).
On May 12, the Department of Education issued a new document addressing questions related to the regulations. The Q&A document largely reiterates earlier guidance and further illustrates the differences between Tier One (T1) and Tier Two (T2) arrangements, provides additional information about student choice menus, and responds to general concerns.
Regarding Tier Two arrangements, for instance, the Q&A document states, “Any account that can be linked to a student ID will be considered at minimum, to be an account under a T2 arrangement.”
RESOURCE LINK NACUBO, with assistance from TMS, has developed a checklist to assist institutions in complying with the Department of Education’s revised cash management regulations. The checklist and a comprehensive library of additional resources, including a summary of the regulations, can be found on NACUBO’s “Debit Cards and Campus Banking Products” Web page.