Higher Education Becomes ‘Poster Child'for Overtime Rule Concerns

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By Ben Penn

July 19 — Opponents of the Labor Department's overtime rule argue that it holds particular disadvantages for colleges and universities, but supporters say the criticism is receiving more attention than it deserves.

“I think that the extent of the impact on institutions of higher education is probably less than some of the rhetoric would suggest,” Kate Andrias, a labor law professor at the University of Michigan, told Bloomberg BNA.

“But that said, the rule does substantially increase the salary level requirement” for overtime pay “and that will likely have a significant impact on postdocs,” said Andrias, who was associate counsel to President Barack Obama when the administration was considering the controversial rulemaking.

The regulation (RIN:1235-AA11) provides an estimated 4.2 million additional employees access to time-and-a-half wages when working more than 40 hours per week. By doubling the annual salary threshold to $47,476, below which workers are eligible for overtime pay, the change is expected to primarily benefit workers in industries such as retail, hospitality and restaurants. The rule was finalized in May and becomes effective Dec. 1.

Employer associations representing those sectors and multiple others have lobbied the administration and Congress to reconsider the rule. But the one community whose criticisms have gained the most traction is higher education, if the words of lawmakers now trying to thwart the rule are any indication.

Universities Still Garner Respect

Members of Congress, mostly Republicans, have said the overtime rule forces tuition increases on students at a time when college affordability and student debt are already a problem. Lawmakers in both chambers are using the tuition-increase argument as they push several bills that would either soften the rule’s impact or block it altogether.

That higher education is receiving an elevated role in the discussions is no surprise to Chris Tilly, a labor economics professor at UCLA.

“Part of the reason that higher education works as a poster child for the opposition is that some universities have been outspoken against” the rule, “and universities, unlike a lot of large institutions, are relatively well-respected at this time,” Tilly said. “On the whole, people tend to think, `Hey, American universities really are the best in the world, and that's something we need to be proud of.'”

The Capitol Hill spotlight on colleges and universities should come with the understanding that “of course higher education is not representative of the bulk of workers who would be affected by this rule,” Tilly added. “The bulk are going to be out there in the private business sector. So in that sense, higher education is one small window into a much larger phenomenon.”

Higher education institutions have legitimate anxieties about this regulation regardless of what share of the affected employers they represent, Frederick Hess, director of education policy studies at the American Enterprise Institute, told Bloomberg BNA.

“There's some number of institutions that operate on very thin margins, so it's certainly possible depending on” employees' current salaries “that the added costs both of moving folks up and then of having to move people above them up so you don't get undue wage compression” could even lead to a small number of schools forced to shut their doors, Hess said.

Colleges Shift from Lobbying to Compliance

Dozens of college and university administrators have warned the White House about the unwieldiness of applying the Fair Labor Standards Act’s overtime requirements to postdoctoral researchers and other mid-level salaried employees. Compliance can't occur without tuition hikes, layoffs or service cuts, the higher education officials, flanked by their trade group representatives, said at meetings during the lead-up to the rule's publication.

The DOL eventually unveiled a rule without a postsecondary education carve-out. But the agency did issue guidance clarifying how the FLSA contains existing exemptions for all employees whose primary duty is teaching.

Some higher education advocates, upon learning that they would not be exempted, are now assuming that any bill to curtail the regulation would be vetoed. They are shifting their attention away from lobbying.

Instead, the focus is on helping members determine how to respond ahead of the looming effective date, Peter McDonough, vice president and general counsel of the American Council on Education, told Bloomberg BNA.

Schools such as Stanford University and Princeton University, where McDonough was once general counsel, won’t struggle to find room in their budgets to offer raises or begin counting overtime hours to pay time-and-a-half, he said. Yet elsewhere, “many if not most” of the student life and admissions jobs “are paying less than $47,000,” he said.

That has many schools “trying to figure out how to keep their doors open—how to start in September with something approaching a balanced budget,” McDonough added. These campus administrations are now assessing “whether they can literally afford to pay these people” for overtime hours or a raise above the threshold “or are they better off figuring that they need to lay these people off before the school year begins.”

Two Leading Compliance Options Emerge

The DOL guidance lays out several compliance options for higher education employers, such as allowing some public universities to provide comp time in lieu of overtime wages. It’s too soon to determine which response will become most popular, but one university management attorney said early signs point to two leading solutions.

“What I’m seeing more than any other option is that universities, particularly among employees whose salary is not close to the threshold, are simply placing more restrictions on employees’ ability to work overtime and policing hours so that heretofore exempt employees who are now non-exempt do not work over 40 hours in a week,” Joseph Tilson, chair-elect of the Wage and Hour Defense Institute, told Bloomberg BNA.

“In situations where salaries are close to the threshold, I’ve seen some universities simply increasing the salary in order to maintain their exempt status,” added Tilson, who is chair of the labor and employment department at Cozen O’Connor PC. He represents most major universities in the Chicago area.

Postdocs Only Part of Equation

Postdoctoral fellows, who conduct research after they’ve completed their doctoral studies, have dominated the conversation surrounding the intersection of the DOL rule and higher education. Postdocs typically earn about $45,000 per year, but in rural areas the salary can be much lower.

This means the new regulation makes thousands of them newly eligible for time-and-a-half wages. And demanding lab schedules make postdocs prone to working many overtime hours.

The National Institutes of Health, which funds many of the fellows through grants, has vowed to raise the amount of available dollars in accordance with the rule changes. But questions remain about the fellows relying on other funders.

ACE’s McDonough said that postdoc wages are a major issue, but he noted that these employees only exist in a small minority of the nation’s 4,000 postsecondary institutions. A far larger share of campuses are affected by resident life and admissions office workers, he said.

Data from the DOL’s Bureau of Labor Statistics show that 11,290 residential advisers were employed at colleges, universities and professional schools in 2015, earning an average wage of $30,670 per year.

White House Mulled Higher Ed Exemption

The world of academia is no stranger to presidential administrations. Cabinet members commonly hail from top university posts and return to them after serving the president.

In the case of the overtime rule drafting, this brought the affordability concerns for colleges and universities immediately to the fore.

At one point, White House officials mulled carving out an exemption or applying an extended phase-in for higher education institutions, Jordan Matsudaira, the White House Council of Economic Advisers’ chief economist during the rule’s drafting, told Bloomberg BNA.

“Those were certainly ideas that were bandied about” and “given pretty full consideration,” said Matsudaira, now an assistant professor at Cornell University.

Matsudaira said he and other White House economists studied previous state law revisions to overtime salary thresholds and found little negative affect on higher education workers and minimal if any tuition hikes.

The administration took “a very careful look at this issue and determined that the impact on higher education institutions will be very limited,” the DOL said in a statement provided to Bloomberg BNA July 19. “On the whole, higher education institutions will not be unduly affected. Only 3.4 percent of all workers in colleges, universities and junior colleges (who are subject to the FLSA) will be affected by this rule. And only 0.5 percent are both affected and usually work overtime.”

The higher education sector's overall wage increase in response to the rule will represent 0.02 percent of payroll and 0.01 percent of revenues, the department said.

College Trade Group Leads Lobbying Push

Even as the American Council on Education steps away from the issue on Capitol Hill, one of its ally trade associations—the College and University Professional Association for Human Resources—is still pressing for congressional action on the overtime rule.

CUPA-HR’s Chief Government Relations Manager Josh Ulman has coordinated the overall higher education advocacy response before and after the regulation’s release, other trade associations told Bloomberg BNA. Ulman is a former labor policy director at the U.S. Chamber of Commerce and heads his own lobbying shop, Ulman Public Policy and Federal Relations. His firm represents a range of private business sectors in opposing the overtime rule. He also co-directs a multi-industry business coalition formed to resist the DOL regulation.

Both CUPA-HR and Ulman declined Bloomberg BNA’s interview request. Instead, Ulman sent an e-mail that cited the results of a CUPA-HR survey showing 88 percent of its members “felt DOL should take a more measured approach to raising the salary level” for overtime exemption.

A Compliance Trade-Off

ACE, which represents 1,600 college and university presidents, still welcomes the continued publicity higher education draws from opponents of the overtime change.

“It's critically important that attention remain on” what is a “unique challenge in the higher education environment,” McDonough said.

The full story of how the regulation plays out among his members won't be told until the DOL's enforcement approach is seen in the higher education setting, he said.

“I don't think this is the kind of change that will in and of itself be catastrophic by any means,” Hess, of the conservative think tank AEI, predicted. “But I do think that there are going to be some real trade-offs that the Department of Labor just never really accounted for.”

To others, the emphasis on higher education is still a distraction from the real perks of the overtime rule.

“Those who oppose the increase in the threshold are less likely to want to focus on that really important benefit that inures to low-wage workers who have been unfairly not receiving overtime,” said Andrias, the former Obama attorney. “I think that the rule also shows sensitivities to the needs of higher education institutions and that some of the concerns have been overstated.”

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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