Department of Labor’s Proposed “Overtime Rule” Will be Costly and Potentially Disruptive for Higher Education Institutions

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Department of Labor’s Proposed “Overtime Rule” Will be Costly and Potentially Disruptive for Higher Education Institutions

Nov 28, 2023

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The comment period for United States Department of Labor (“DOL”) proposed rule to raise the income cutoff for overtime pay to at least $55,068 (currently it sits at $35,568) expired on November 7, 2023. DOL will now review all the comments before finalizing its rule. The DOL along with labor unions and other pro employee groups assert that the proposed rule is necessary to provide relief to the many employees who often work more than 40 hours in a week without additional compensation and help those employees struggling to make ends meet. Many employers, including colleges and universities, fear that if the proposed rule goes into effect as written, it will lead to detrimental changes for both employees and students.

As the overtime rule currently stands, salaried employees who work in an executive, administrative or professional capacity, and earn more than $35,568 are exempt from eligibility for overtime pay. (Generally, overtime pay is not less than time and one-half the employee’s regular rate of pay for any time worked beyond 40 hours in a workweek.) Raising the income eligibility to $55,068 would significantly expand overtime eligibility to 3.6 million salaried workers across all industries including higher education. Higher education positions such as admissions officers, counselors, student advisers, administrative staff, are mostly likely to be impacted by the proposed rule by becoming eligible for overtime pay.

It is estimated that the DOL’s proposed overtime rule would cost colleges and universities between $300,000 and $2,200,000 in the first year just to raise the salary of currently exempt employees above the proposed threshold of $55,068. This estimated increase does not include increasing the salaries of those employees who are currently above the proposed threshold in order to retain these employees and ensure that senior staff are being paid accordingly. 

If the DOL’s overtime rule goes into effect as proposed, higher education institutions state that financial pressure will force them to consider other options including, but not limited to, reclassifying the affected employees as nonexempt and paying them overtime when they work more than 40 hours in a workweek, staff layoffs, and tuition increases. Additionally, higher education administration will be burdened with implementing additional systems and programs to track the newly reclassified employees’ hours worked leading to decreased employee flexibility and employee morale. For employees who never tracked their hours worked, completing timesheets or logging into computerized time systems could be viewed as a demotion.

Additionally, the DOL’s proposed rule includes automatic updates to the salary threshold every three years. The salary updates will be based on the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region, which is currently the South.

The final rule, as it now stands, would take effect 60 days after being published. It will likely face legal challenges, like those faced in 2016 when the Obama administration attempted to raise the salary threshold, which could delay or significantly change the proposed rule. However, higher education institutions are cautioned not to rely on potential legal challenges and continue to carefully monitor the progress of the DOL’s process and become familiar with the proposed rule and how its application will impact their institution.