FLSA Overtime: How, When and Why to Prepare

February 16, 2016

Sponsored by

PartnerOrganizations

The following organizations have joined us in presenting this webinar.

PartnerOrganizations

The following organizations have joined us in presenting this webinar.

Sharon Thomas, George Mason University

John Whelan, Indiana University

Carolyn Wong, Sibson Consulting

Ricardo Coronado, Tarrant County College

District

Jennifer Donnelly, Sibson Consulting

Heather Murray, Gonzaga University

Linda Peltier, Edison State Community

College

Presenters

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Jennifer DonnellyVice PresidentCarolyn WongSenior Consultant

Brief Overview of Proposed FLSA Regulations, Initial Concerns, and Potential Impact on Higher Education

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The Fair Labor Standards Act (FLSA) is a federal law that governs whether or not employees receive overtime pay. President Obama tasked the Department of Labor (DOL) with updating the FLSA regulations in early 2014. Proposed regulations were released in July 2015 with the primary change of raising the salary threshold that generally determines who is eligible for overtime pay.

Introduction

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Proposed FLSA Changes Timeline*

July 6

Changes proposed to FLSA

September 4 Mid-Late 2016

Grace Period

Comment period ends

Labor department review ends

Early 2016Fall 2015

Labor department review begins

Potential Release of Final Regulations

TBD

After the DOL publishes the annual increase to the salary threshold, organizations have 60 days to comply

before the new threshold becomes effective.

* Timeline indicated above is proposed and subject to change.

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Comparison of Current vs. Proposed Changes

* Proposed threshold for 2016 set at 40th percentile of earnings for all full-time salaried workers

Minimum Salary Threshold

Job Duties Test

Highly Compensated

Workers (HCW) Test

No changes released as of July. However, discussion around potential change to

limit amount of time exempt employees could perform

non-exempt work

Exempt status set at $122,148 (90th percentile

of weekly earnings)No changes proposed

in duties required

For exempt status, the employee’s primary duty

must still be administrative, executive, professional,

or related to outside sales

Exempt status at $100,000/year

Must partake in office or non-manual work and perform

at least one administrative or professional duty

$970/week or $50,440/year*

PROPOSED

$455/week or $23,660/year

CURRENT (Since 2004)

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• Salary threshold of $50,440:− Is seen as too high and has significant impact on

higher education− Does not account for regional differences and areas

with lower cost of living

• Definition of salary threshold (40th percentile) does not match historic trends

• 60-day implementation period is too short:− May conflict with institution’s budget planning

process− Will be challenging for institutions to

plan and administer changes, and balance competing priorities strategically

• Unique positions in higher education make it challenging to meet the demands of any changes to the FLSA regulations

• Effect on part-time exempt employment is unclear

Concerns About Proposed Changes

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What portion of your exempt population do you expect will be impacted by the proposed salary threshold?

Less than 10%About 25%About 50%More than 50%

Poll Question

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Potential Impact of Proposed Changes

Large financial impact due to salary increases for exempt employees, new overtime payments, hiring of additional staff, costs associated with layoffs, and benefit reclassifications

Significant Financial Costs

Changes may affect salary equity, ability to recruit and retain top talent, career paths and development opportunities, succession planning, and employee engagement and morale

Organizational and Cultural Challenges

Modifications of internal processes/structures/systems may be needed to accommodate the significant number of employees moving from exempt to non-exempt status. These may include the job description process, organizational structure, workload distribution, timekeeping procedures, and compensation and benefits policies

Modification of Processes/

Structures/Systems

Significant change will require timely, tailored communication from Senior Management and HR to ease employee anxiety and stress. Comprehensive training and education for managers and leaders across the institution will be critical to ensure compliance. A focus on change management will be important for successful implementation

Need for Change Management,

Communication and Training

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Research

Specific Functional Area Considerations

Academic Positions

Admissions, Athletics, Development

• Positions that spend a portion of time teaching/ instructing students may be subject to classification changes under the proposed regulations (adjunct faculty, teaching assistants, etc.)

• Institutions may need to consider changes to their academic strategy, overall faculty structure, and faculty workload/course load as a result of the regulations

• Positions that require significant travel, irregular hours, or fluctuating seasonal demands will be affected by proposed changes (admissions counselors, athletic coaches, development officers, etc.)

• Institutions will need to accurately track and capture all work hours for these positions, while balancing and controlling for overtime costs

• Research professional salaries, particularly those funded by grants, are typically below the proposed minimum threshold level

• Institutions may see a decrease in research positions and/or grant funding as limited funds are used to increase employee salaries above threshold level

• Research professionals have flexibility and autonomy in conducting their research. Reclassification and/or compensation restrictions will likely change how they conduct their work and lead to a loss of flexibility, productivity, innovation, teaching, and discovery

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What can you do now?

• Identify employees that earn salaries in the $23,660 to $50,440 range and conduct an analysis of:− Costs to bring employees to minimum salary threshold− Overtime hours actually being worked− Wage compression issues− Benefit cost changes

• Review organizational structure and work with functional leaders to discuss how to modify and manage structure, jobs, staffing levels, and career advancement/growth opportunities given changes

• Examine current compensation structure to determine effect of reclassification of employees

• Review relevant policies (e.g. compensation and benefits, timekeeping, classification process, etc.) and make revisions where needed

• Begin to develop training strategies to ensure compliance

• Assess time and attendance processes, work flows and systems and develop plans to revise processes to support effective roll-out and administration of changes

• Assess and monitor climate and engagement of employee population

Considerations and Preparation for Upcoming Changes

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Which of the potential areas of impact is the greatest concern for your institution?

Financial CostCultural ChallengesProcesses/SystemsChange Management

Poll Question

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Sharon ThomasWorkforce Planning Manager

Preparing To Do the Work

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George Mason’s Cost Estimates

1 hour overtime per week

5 hours overtime per week

Post Docs 90,036$ 32,230$ 161,151$ Research Faculty 419,016$ 106,255$ 531,277$ Administrative Faculty 135,306$ 57,290$ 286,452$ Professional Faculty 1,038,887$ 143,849$ 719,245$ Staff ($45,855 & above) 422,067$ 241,323$ 1,206,618$ Staff ($45,854 & below) N/A 111,265$ 556,322$ Total 2,105,312$ 692,212$ 3,461,065$

Estimated Annual Costs (excluding fringe)

Exempt Employee Type

Increase salary to $50,440 to remain

exempt

No salary increase, change to nonexempt & overtime estimates

George Mason University is a public university in Fairfax VA; top Carnegie research ranking; 34,000 students; 4,000 full time faculty & staff

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George Mason’s Concerns

• Post Docs & Research Faculty– Postdoctoral fellowships – Nature of research work– Grant funding

• Coaches– Scheduling differences when

sport is in/out of season– Self-generated funding

• Support Staff– State limitations – Compression– Uncertain overtime

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Heather MurrayAssociate Director of Human Resources

Strategy

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FLSA = UFO

Gonzaga University is a private, Jesuit institution, non-research and non-union with slightly over 1,400 faculty and staff• GU-HR’s approach

– UFO = Un-Funded Obligation

• Scope of evaluation:– Efficiencies—where can we best

utilize technology services and recognize changing nature of work

– Consider additional headcount or something must give

– Consider salary increase to threshold to remain exempt classification—with a formal position re-evaluation and only if cost is manageable

– Change position’s classification to non-exempt and incur the potential OT

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Impact Analysis

• Do not lose sight of intent of the law• Long-term impact—inflating market data• Find balance between work expectations

and quality of life• OT is a controllable expense• Set policy on what constitutes

reasonable OT

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Strategies

• Leadership position = no adjusting description or competencies without a formal evaluation to FLSA criteria and benchmark against survey data

• Committed to appropriate OT funding—HR partnering with Finance to create a centralized contingency– Formula = 2x of last year’s

OT spend– Intent is to manage the $$$

and maintain culture alignment based on University’s mission

• Policy revision—actively discussing potential policy implications– Vacation accrual rates– Travel policy

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Strategies continued

Educate, Educate, Educate

• Create a holistic education effort • Develop training for supervisors and individual contributors

across all areas on campus

• Hold open meetings• Present at departmental

meetings

• Establish tone of sharedresponsibility

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Does your college or university have different benefits or perks for exempt and non-exempt employees?

YesNo

Poll Question

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John WhelanAssociate Vice President and Chief HR Officer

Morale

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MoraleIndiana University is a public research university with 114,000 students and 23,000 faculty and staff members on eight campuses• Identify changes to impacted employees

– Pay, work schedule, benefits, perceived status, career concerns, certifications, etc.• Assess emotional reactions or impact to morale

– What are the most sensitive issues?• Communicate

– Lead rather than react– Explain facts and rationale, but empathize– Caution—audience is more

than just impacted employees– Role for more than just

compensation person(s)• Avoid unnecessary

complications – If possible, decisions should not be strictly financial

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In which area of your institution do you anticipate the biggest impact to occur?

Student Affairs/ServicesAdministrativeAthleticsAdmissionsOther

Poll Question

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Linda PeltierExecutive Director of Human Resources

Community College Challenges

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Addressing the challenges of the new OT regulations

Edison State Community College is a two-year public institution with 143 faculty and staff serving 2,700 students• Are your job descriptions up-to-date to include current exempt or

non-exempt status?– In 2009 Edison implemented a new grade/salary structure which has enabled

us to keep our job descriptions up-to-date

• Which positions are going to be impacted?– At Edison, the areas impacted the most are the coordinators/directors of:• Financial Aid• Student Affairs/

Admissions

• Athletics/Student Life• Library• IT

• Marketing• Human Resources

• What about the budget and preparing for our July 1st fiscal year?– The lowest annual salary of employees impacted in this group is $34,657– The new regulations will impact 26 of our 47 professional/technical

employees, elevating our non-exempt number from 31 to 57– No, our budget cannot accommodate increasing their annual salaries to

meet the new threshold!

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How To PrepareEstablishing a plan

• In assessing the positions, some will only be impacted during high enrollment times and at the start of each semester. We will control some of this through flex time. Other positions like our Director of Financial Aid, Director of Athletics/Student Life, and IT positions will have more of a budget impact due to the necessity of working overtime– Tracking OT hours will be foreign and cumbersome for these employees– Supervisors will need to estimate the projected OT hours/costs to be presented

during their budget planning process

• Taking into consideration the total compensation package, it is not an option for our budget to add positions. It is more feasible to pay the overtime. The challenge will be to assure that it is applied consistently across campus

• Strengthen our policies and procedures to make sure that employees know the specific guidelines for working overtime. One of the primary focuses will be on reading and responding to e-mails after hours and on weekends

• Change is not easy, therefore, communication and training is going to be essential with accountability being an important piece

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Ricardo CoronadoAssociate Vice Chancellor for Human Resources

Community College Challenges continued

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FLSA Salary Exemption Pay Level

Tarrant County College is a comprehensive two year institution with over 50,000 students across six major campuses• Current Salary Range Level for Exempt Employees

– Lowest Class Code (Pay Grade 15) for Professional Staff including part-time– Lowest Class Code for 12- month Continuing Education Instructors– Exempt Pay Starts at $46,792

• New Proposed Min. Salary for Exempt Employees– New Min. Exempt Pay will increase to $50,440

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FLSA & Pay Implications

• Budget implications for salary and fringe benefits. Estimated Cost: $305,552, not including new hires coming in (Class Code 15 - 96 FT and 45 PT)

• May cause salary compression and pay equity issues with the class code (pay grade and salary ranges) above it. Estimated Cost: $126,665 – 36 FT and 10 PT

• This will impact a small number of our full-time 12-month Continuing Education Instructors. Their pay is significantly lower than the new threshold of $50,440. Estimated Cost $176,655 – 20 FT and no part-time impacted

• Tarrant County College is fortunate to have positioned itself to have a higher annual salary for all of its salaried, exempt employees than most of the other community colleges. We are in a highly competitive market, able to pay, and have maintained a good market position. Total Estimated Cost: $608,872

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John WhelanAssociate Vice President and Chief HR Officer

Compliance

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Compliance—Issues • We already do this, what’s the

big deal?• FLSA classification normally determined

before employees are hired into role– Supervisors and employees understand

expectations and work parameters (mostly…)

• Switching existing employees from exempt to non-exempt may mean big changes– Work schedule, 9-5, cell phone, emails, tracking

hours, etc.– Need to do more with less– Technology makes this a greater challenge

• May be perceived “Lose – Lose” by supervisor and employee– Temptation to ignore

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Compliance—HR Role

• Educate supervisors and employees– Start with basics – how OT works, tracking time, comp time, etc.– Employee can’t opt out of OT pay (we know this, but now it may be

tested more than ever)– Impact to the institution if not compliant

• HR has opportunity to be“strategic partner”– Workforce planning– Coaching– OD

• Plan to do audit and course correct if necessary (before DOL decides to!)

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How likely are you to take action to prepare for the proposed FLSA regulation changes in the next 4 – 6 weeks?

UnlikelySomewhat LikelyLikelyVery LikelyDefinitely

Poll Question

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Questions/Answers

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FLSA Overtime: How, When and Why to Prepare

February 16, 2016

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