We’ve been expecting this particular overtime rule adjustment for over a year now. Finally, on May 18, President Obama published the final rule and officially increased the new minimum salary requirement. While the minimum has been lowered from a previously suggested $50,000+ annual pay to $47,476, this increase is still over twice the current effective minimum threshold to qualify as overtime-exempt. This change goes into effect on December 1, and could profoundly impact your employees’ compensation.
Here, then, are four basic questions from private-independent schools on how the new rule might affect the school community—as a supplement to advice from your school’s legal counsel, of course!
1. Does this rule change impact private schools?
Consult your school’s lawyers, of course, but it’s safest to assume that yes, it does.
If your school is structured as a for-profit entity, it automatically falls under these regulations. The rules for schools that are nonprofit organizations are a little different. According to the National Council of Nonprofits, 10 states and the District of Columbia—Alaska, District of Columbia, Illinois, Maine, Maryland, Massachusetts, Missouri, New Jersey, New York, North Carolina, and Ohio—automatically make these federal regulations apply to all employers, including nonprofits.
Not only that, but any nonprofits that “engage in ordinary commercial activities” like running a gift shop would fall under these regulations. Any schools that charge tuition—thus participating in “commercial activities—could fall under this stipulation.
2. Which employees are NOT affected by the change?
According to management expert Alison Green, any currently exempt employee making more than $47,476 in salary annually is not impacted. Also, any currently nonexempt employee—that is, who currently qualifies for overtime pay of time-and-a-half—making less than $47,476 is also not impacted.
Certain professionals like lawyers, medical doctors, and teachers are still automatically exempt from overtime pay, no matter their salary.
3. Okay, so which employees ARE affected by the change?
Anyone who is not a teacher, lawyer, or doctor AND makes less than $47,476 in wages yearly BUT is currently exempt from overtime pay according to the previous rules will be affected. That means that they currently meet the “white collar professional” test qualifications for exemption, but—as of December 1st—will not be making above the salary minimum to qualify as exempt from overtime.
This segment potentially includes:
- Facilities staff, including groundskeepers, security officers, and cafeteria workers
- Administrators and officers in various school offices
- Secretaries, assistants, and database administrators
- In-house specialists like IT personnel and marketers
4. How do we address the new regulations with the minimal possible financial expense to the school?
This question is best directed to your school’s legal counsel, to ensure you’re not arbitrarily reclassifying folks in such a way as to accidentally discriminate in an effort to balance the budget. However, there are three basic ways your school can “deal with” the new minimum salary requirement for overtime exemption:
- Affected employees’ compensation remains the same, but their time must be tracked to avoid overtime payments. Their work weeks can be limited to 40 hours. Any outside “work” like checking work email or phone calls must be logged in a time-tracking system to ensure fair compensation (and possible overtime). Note that employees cannot waive their rights to collect overtime pay for work performed.
- Moving forward, you may choose to reduce your employees’ hourly pay to compensate for the time-and-a-half overtime they’ll now be paid. Legally, you may not retroactively reduce your employees’ wages. In the next contract, however—and with enough notice given—you may adjust your compensation to account for the anticipated overtime work of the various positions. (Remember, overtime pay must be paid for any after-hours events or communications they’re expected to have within the community if employees are nonexempt and have worked more than 40 hours in a given pay period.) If you decide to go this route, then consulting your school's lawyers is an absolute must!
- You can give your employees a raise to elevate their pay above the minimum salary requirement for exemption. Depending on how close their current salaries are to the new minimum and how much overtime their job requires, this may be a financially sound decision for your school’s budget.
Your school has until December 1, 2016, to figure out how to best comply with the new salary exemption minimum. You’ll want to consider both the budget side of this new regulation, as well as employee morale. If you choose to raise the salary of certain employees to be above the exemption minimum, for example, but keep your teachers’ salaries stagnant, you may be creating a compensatory imbalance that might boil over in years to come—despite the cultural expectation that employees shouldn’t discuss compensation with coworkers.
The new regulations bring with them a sense of urgency, as well. While your school has five months to formally enact the compensatory regulations, your employees may feel adrift and lost if plans are not made well before then. You might consider developing your school’s approach to the new regulations this summer, and present them when faculty and staff return during Orientation (even if the new policies won’t go into effect until December 1).
During any time of turmoil and change is when leadership is most sorely needed. While these regulations aim to correct conditions in historically underpaid positions with high hours and responsibility, they also present an opportunity for you and your fellow administrators to demonstrate your skills as thoughtful and innovative leaders to your entire school community.
Additional ISM resources:
The Source for Private School News Vol. 15 No. 4 An Update to the Overtime Salary Rule Change: Nonprofits and Small Businesses Fight for More Time
The Source for Business Managers Vol. 14 No. 3 Ask ISM's Health Care Reform Specialist: Salary Minimums
The Source for Private School News Vol. 14 No. 5 FLSA Proposed Overtime Changes May Have Ramifications for Private Schools
Additional ISM resources for Gold Consortium members:
I&P Vol. 37 No. 3 The Fair Labor Standards Act: Getting Overtime Right
