DOL’s proposed rule
Under existing federal law, to be classified as exempt from overtime under the so-called “white collar" executive, administrative, or professional FLSA exemptions, an employee must meet three requirements: (1) satisfy a “duties test” (i.e., have and perform certain white collar job duties); (2) be paid on a salary or fee basis (as opposed to an hourly basis); and (3) be paid at least $684 per week ($35,568 a year). If an employee is “highly compensated,” meaning that the employee earns at least $107,432 a year, the employee may also be considered exempt under a relaxed version of the duties test.
The current compensation thresholds for white-collar exempt status were put in place January 1, 2020. On September 8, 2023, DOL published a Notice of Proposed Rulemaking (NPRM) in the Federal Register, proposing to increase the white-collar pay threshold to $1,059 per week ($55,068 per year)—a 55 percent increase over the current threshold. Notably, DOL acknowledges that the amount could be considerably higher—over $60,000 per year— if and when the proposed rule is finalized, since the amount will be pegged to then-current wage information from the Bureau of Labor Statistics. The proposed rule would also raise the highly-compensated employee compensation threshold to $143,988—a 34 percent increase over the current threshold.
In addition, the NPRM provides for automatic updating of the white-collar compensation thresholds every three years based on then-current wage data. This means that, for the first time, the dollar thresholds will increase in the future without the benefit of notice-and-comment rulemaking.
Implications for higher education and next steps
DOL’s proposed rule has significant implications across industry sectors. DOL estimates that 3.6 million employees currently classified as exempt will be affected, requiring employers either to raise their pay to meet the new thresholds or begin paying them overtime. Remote, hybrid, and other flexible work arrangements that have become more commonplace since the COVID-19 pandemic may prove difficult to maintain for employees newly classified as non-exempt, given timekeeping requirements and employer policies limiting after-hours work for non-exempt personnel.
The proposed rule, if adopted, will uniquely impact the higher education community in multiple ways. On one hand, pre-existing exemptions for bona fide teachers—including professors, adjuncts, and coaches primarily engaged in instruction—and academic administrators remain unchanged under the NPRM, as employees in these roles need not meet the salary test that applies under the white-collar exemption test described above. But many nonacademic administrators, other white-collar personnel, and certain researchers (including post-docs who do not have teaching as their primary duty) may become newly eligible for overtime. It is important to bear in mind that employees at colleges and universities often have lower salaries and better benefits (such as tuition remission) than their counterparts in other sectors. Because the white-collar compensation thresholds do not take such benefits into account, the proposed rule will likely impact a significant percentage of the higher education workforce and thus prove especially costly to higher education employers. Those costs will likely be felt not only in reduced benefits for employees but also in adjustments to tuition, fees, and opportunities and benefits available to students within and outside of the academic setting.
Higher education employers may also face employee morale issues. Non-exempt employees often have less autonomy and flexibility than exempt employees. For example, non-exempt post-docs desiring to work extra hours in the lab to advance their careers may be forbidden from doing so under policies requiring prior approval for non-exempt after-hours work. As a result, employees in roles traditionally classified as exempt may view reclassification as a demotion.
For these and other reasons, higher education associations lobbied strongly against significant increases to the white-collar pay thresholds proposed by DOL during the Obama administration and are expected to raise similar concerns with respect to the current NPRM. (The Obama administration’s final rule was struck down by a federal court in 2016 before it went into effect; legal challenges to DOL’s current proposed rule, if it becomes final, are also possible.) Colleges and universities may also wish to submit comments in the current rulemaking in order to educate DOL as to the likely impacts of the proposed rule on their own institutions. Comments are due November 7, 2023.
Higher education employers should also begin considering how they will respond to the proposed rule if and when it becomes final. Please see our prior post on the NPRM, which includes practical suggestions for analyzing the likely impact of the rule on your organization and compliance options.
For assistance with submitting comments to the NPRM and/or preparing for potential compliance, please contact an author of this alert or the Hogan Lovells lawyer with whom you regularly work.
Authored by Barry Burgdorf, William Ferreira, Stephanie Gold, George Ingham, and Amy Kett.