The Fair Labor Standards Act (FLSA) was enacted in1938 by President Franklin D. Roosevelt. The federal statute introduced the 40-hour workweek, established a national minimum wage, guaranteed “time-and-a-half” for overtime in certain jobs, and prohibited employment of minors in certain dangerous jobs.
In 2014, President Obama directed the Secretary of Labor to update the overtime regulations to reflect the original intent of the FLSA, and to simplify and modernize the rules so they’re easier for workers and businesses to understand and apply. The Department of Labor (DOL) has issued a final rule that will put more money in the pockets of middle class workers—or give them more free time.
When the FLSA was enacted, the annual salary threshold required, in order to be exempt from overtime pay, was $30 a week. Inflation over the years has eroded the value of the current threshold, and with the DOL’s focus on building a stronger middle class by addressing workers’ wages, skills, safety, and retirement, the new annual salary threshold is $47,476, or $913 a week, effective December 1, 2016.
The new minimum salary threshold of $47,476 will have a significant impact organizationally, financially, and culturally on Rensselaer. A preliminary estimate of the estimated annual cost to increase the salaries of various employees in exempt positions who are earning less than this new salary threshold is $2.5 million. These positions may include, but are not limited to, postdocs, admissions counselors, financial aid professionals, advancement professionals, recruiters, student advisers, athletic coaches, and mid-level academic and administrative managers and supervisors. The estimated annual salary cost of $2.5 million does not include an additional 30 percent for benefit cost.
The new minimum annual salary threshold of $47,476 will have no impact on faculty and instructional academic staff whose primary duties are teaching, and they will remain exempt regardless of their salaries; graduate students whose primary duty is teaching or serving as a teaching assistant also fall under the FLSA’s professional teaching exemption. Graduate and undergraduate students who are engaged in research under a faculty member’s supervision in the course of obtaining a degree are not considered to be in an employment relationship with the Institute; and students who are participants in a bona fide educational program and who serve as resident advisers in exchange for reduced room and board charges or tuition credit similarly are not considered to be in an employment relationship with the Institute.
As we contemplate the financial costs of this new provision of the FLSA, the options are to raise the salaries of those current exempt employees to the new minimum salary threshold; to reclassify exempt positions to non-exempt, which will allow the employee to become eligible for overtime pay for hours worked over 40 per week; and to adjust work schedules to minimize overtime cost.
The organizational and cultural impact will include, but not be limited to, determining work hours of employees who will be reclassified from exempt to non-exempt; determining start, end, break and meal times; working with employees and managers who have never been required to record their start, end, meal and break times; determining who will have remote access; altering current salary structures to reflect the new salary threshold; adjusting the salaries of other jobs to address salary compression; providing career opportunities to employees to move into entry-level managerial and professional positions; and maintaining a competitive advantage in the recruitment and retention of top talent.
Curtis N. Powell, M.S., SPHR, SHRM-SCP
Vice President for Human Resources