For Christopher L. Gardner, the looming change in the federal rule governing overtime pay “feels a little bit, like Yogi Berra would say, déjà vu all over again.” Gardner was assistant vice president for finance at Wofford College in 2016, the last time the U.S. Department of Labor set out to tweak the section of federal law that governs which workers get paid overtime for working more than 40 hours a week and which workers don’t. Now he’s chief financial officer of Wofford, a small private college in Spartanburg, S.C., and the government is changing the rule again.
But there’s a critical difference. In 2016, Gardner (no relation to this reporter) and other administrators spent months preparing for the overtime-rule change, bracing themselves for red-tape headaches and budget impacts, only to watch the proposed change fizzle. Now, with the final language of the new rule expected in April, Gardner and many other college leaders may be facing bigger headaches and more substantial budget blows.
“Institutions are on notice,” said Susan L. Deniker, a lawyer with the firm Steptoe & Johnson who specializes in labor and employment law, and colleges “need to be prepared, because this is coming around the corner quickly.”
What is the overtime rule? A section of the federal Fair Labor Standards Act says that workers who make $35,500 or less annually must be paid overtime if they work more than 40 hours a week. For salaried workers who make more than that amount, any additional hours they put in are assumed to be covered under their salary — they are considered exempt from overtime under the rule.
In 2016 the Obama administration proposed raising the threshold for being exempt from overtime to $47,000 annually from what was then a floor of $23,000. Cue alarmed college leaders. Several categories of campus employees work long hours for modest wages, including many residential- and student-life staff members and constantly traveling admissions counselors. If the rule had gone through as proposed, leaders suddenly would have had to start paying many of them overtime or to bump their pay over the threshold to keep them exempt. (All educators, including faculty members, are exempt from the rule.) After Donald J. Trump was elected president, the proposed rule change stalled. The overtime threshold was adjusted upward to its current level in 2020.
This is certainly one more financial pressure at what’s already, for a lot of institutions, a difficult financial time.
The new rule change was proposed last year. It would raise the overtime threshold to $55,000 a year, a figure that could rise to about $60,000 by the time the rule takes effect because of wage growth. (The initial threshold was calculated using 2022 data.) That’s a 70-percent increase over the current threshold, compared with a 104-percent increase in the change proposed under Barack Obama. The rule is also expected to include provisions for repeated increases every three years.
The rule is predicted to be most challenging for colleges with fewer resources and those located in mostly rural areas, such as the South, where a low cost of living can mean more salaries below the overtime threshold.
Nothing is certain until the final language of the rule is released, said Andy Brantley, president of the College and University Professional Association for Human Resources, but the magnitude of the increase and the fact that colleges may have only 60 days to comply with the new threshold means “there is significant likelihood for impact and change across the country.”
A Dilemma
The rule change presents college administrators with a knotty bureaucratic tangle. The first order of business should be to conduct an audit of all positions that could be affected by the change, Deniker said. Once the list of affected workers has been compiled, college leaders must determine whether to make some formerly salaried employees start keeping track of their hours, which could lower morale as much as it raises paperwork. Many people associate being a professional with being salaried, so college leaders must be careful to stress that “it isn’t a comment on the importance of the position or the person — it really just is a matter of the legal test,” Deniker said. When it comes to communicating about changing pay status, “messaging is going to be important.”
If workers are close to the $60,000 threshold and have jobs that would be difficult to contain to 40 hours a week, colleges may want to raise their pay until they’re over the threshold. But that may not be affordable with all workers or all positions, which will require administrators to re-examine the positions themselves. “What do those job duties entail?” Deniker said. “If we don’t increase the salary, and we keep folks at 40 hours a week, are we going to have to hire somebody else? Is it cheaper to hire a part-time person to maybe fill the gap here?”
Fortunately, many college leaders have been through all this before — when they prepared for the rule change in 2016. Wofford, said Gardner, the chief financial officer, has fewer workers below the proposed threshold now than it did eight years ago — only about 15 percent of employees over all, many of whom are already hourly, compared with about 20 percent in 2016. But the positions affected are widespread, and the solutions aren’t any easier. “It’s admission, it’s athletics, and it’s student life,” he said.
Employees who travel for work represent a particular challenge. Many of the college’s admissions counselors “are expected to spend several weeks on the road consecutively,” he said, and when evaluating those positions in 2016, “it was just really hard to imagine how they could possibly be working 70 to 80 hours in those weeks and needing to be paid overtime for significant numbers of hours.”
The Community College of Aurora, a public two-year institution in the Denver area, conducted a position audit in the run-up to the 2016 rule change, and is going through a similar process now. Aurora, like many community colleges, doesn’t have athletics or residence halls to worry about, but it does have about 80 academic-support workers, and about half of their salaries fall between the current overtime threshold and the proposed new one. Unlike private colleges, public colleges can compensate workers with comp time for overtime hours, but leaders still face a substantial dilemma.
The mechanics of adapting to the new rule present one layer of complexity. How leaders and employees adapt to it presents another. Aurora wages a “constant battle” to keep its pay competitive, said Cindy Hesse, Aurora’s vice president for human resources and personal success. That’s a particular struggle in Denver, where the cost of living is higher than the national average. Once-salaried workers could get the message that the college distrusts them by tracking their hours, she said, and raising some workers’ pay above the overtime threshold but not others’ could lead to employee dissatisfaction. That’s likely to affect retention, “and we just can’t afford that as we’re trying to serve our students.”
Competing Goals
The new overtime rule arrives at a time when college leaders are not only wrestling with worries about their work force, but are also concerned about increasingly tight budgets and the public narrative that college is too expensive and not worth the money. The new rule has the potential to make it more difficult to dispel that notion.
Whether a college opts to make particular employees hourly or raise their pay above the overtime threshold, the institution will end up paying those employees more. (It is, after all, called the Fair Labor Standards Act.) While employees deserve to be fairly compensated, “this is certainly one more financial pressure at what’s already, for a lot of institutions, a difficult financial time,” said Deniker, the labor lawyer. “This will result in increased personnel cost — I don’t think that there’s any doubt about it for all institutions.” And the overtime threshold will continue to rise every three years, by an amount determined by a formula tied to U.S. Census data on weekly earnings of full-time salaried workers.
At the Community College of Aurora, analyses project the rule will cost an additional $1.7 million in the 2025 fiscal year in an annual operating budget of about $47 million, according to Mordecai Brownlee, the president. The college may not fill some open positions or may move funds from other areas of the budget to support the additional personnel expense, Hesse said.
Gardner, the Wofford chief financial officer, acknowledged “a certain amount of frustration” over how quickly the rule will come into force. “I certainly want my people to earn a wage that is fair,” he said, “but I’m also involved in a national conversation about the affordability of higher education.” The country has experienced inflation as high as 6 percent annually during the past decade, a financial burden that has affected how far dollars will go for workers and colleges alike. If the Department of Labor had given Wofford four years to increase salaries at the college, Gardner said, it would have been possible to do so in a way that minimized the financial upheaval.
“If you’re going to throw at me a big increase in my compensation costs targeted at specific people on my campus,” Gardner said, “— again, I’m making no judgment on whether those people deserve that or not — it limits my flexibility and how I can manage all of those other pieces” of the budget. Since tuition revenue is Wofford’s primary source of financial support, he added, the result will probably be higher tuition costs for some students.
But raising tuition, like deciding what employees are paid in the first place, isn’t a given — it’s a decision that college leaders make, said Risa L. Lieberwitz, a professor of labor and employment law at Cornell University. Anytime labor costs go up, “employers generally say, ‘I will have to lay off employees, and this is going to cost us too much,’” she said. “Cost savings in any institution of higher education, whether public or private, should not be done on the backs of the employees.” While the waning of state support for higher education has helped put many public colleges in budget binds, she said, “if the employees have overtime, then they should be paid for it, if that’s what’s needed, rather than simply overworking people for too little money.”
At Aurora, said Brownlee, the president, cutting positions to make up for the higher payroll isn’t an option. “We can’t afford to cut anybody — we actually need to add more people,” he said. “The student experience cannot be at stake. We just need to figure out, then, with what we’ve been given how to make that happen.”
