Colleges Predict Tuition Increases, Layoffs Under Proposed Overtime Rule

Colleges and universities are warning they might have to raise tuition or lay off staff in response to a Biden administration plan to extend overtime eligibility to millions of U.S. workers, including thousands in higher education.

That’s according to their public comments on the Department of Labor’s proposal to raise the income cutoff for overtime pay by 55 percent. The administration and its supporters say the rule change is needed to ensure that lower-paid salaried workers receive fair compensation.

More than 33,000 comments were filed in response to the administration’s plan, which the higher education industry opposes, by last week’s deadline for weighing in. The change would expand overtime eligibility to 3.6 million salaried workers across all sectors of the economy, including those on college campuses, who tend to be lower paid and work inconsistent schedules.

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Currently, salaried employees who work in an “executive, administrative, or professional capacity” and make more than $35,568 per year are exempted from receiving overtime pay when they work more than 40 hours in a week. The Biden administration wants to raise the cutoff to at least $55,068, though the Department of Labor has indicated that the final rule could have a higher threshold of $60,209, depending on Census earnings data.

In higher education, admissions officers, counselors and advisers, student affairs professionals, administrative staff, athletic trainers, and some research positions are most likely to be affected by the rule change. Faculty members and nonfaculty workers focused primarily on teaching wouldn’t be affected because of a teaching exemption in federal labor law.

If the proposed rule is finalized in its current form, institutions will have to either pay exempt employees more money to push them above the threshold or shift affected employees to an hourly pay rate and create processes to track their hours.

Colleges and universities said that could mean millions more in expenses and cuts in services to students, and many told the department they aren’t sure where they’ll get the money to pay for it without raising tuition or seeing an influx of money from state legislatures, which is unlikely. They want the Biden administration to either walk back the proposal, seek a lower threshold or, at the least, phase in the increase over time. Institutions are calling for at least 180 days to adapt to any change in the overtime threshold; the Labor Department is currently planning to put the rule into effect 60 days after it’s finalized. Before that happens, officials have to review and respond to all the comments before issuing a final rule.

House and Senate Republicans joined higher ed groups and institutions in urging the department to reconsider the change. “This proposed rule would have a devastating impact on America’s small businesses, nonprofits, colleges, universities, and other employers who have fought so hard to recover from President Biden’s failed economic policies,” the Republican-led House Education and Workforce Committee wrote in its comment.

‘Untenable’ Cost Increases

A range of colleges and universities and their representatives—from community colleges to small, private institutions to larger publics—spelled out in their comments how the rule change would squeeze their budgets.

For example, Lipscomb University, a private institution in Nashville, Tenn., with fewer than 5,000 students, said the change would affect more than 175 employees and cost nearly $400,000 to implement. Bellevue University in Nebraska said about 17 percent of its employees fall below the salary threshold and would become eligible for overtime. Raising their salaries to keep them exempt would be “untenable,” Bellevue wrote, costing up to $683,000 in the first year.

Larger universities also said they’re worried about the impact of the proposed rule. More than 900 employees across the University System of Maryland would become eligible for overtime under the rule, it said. Raising the salaries of employees at Ohio University to the proposed threshold would cost $6 million a year, the university said.

“Public higher education institutions are already navigating a complex financial landscape, where it is not possible to keep pace with generally inflationary cost increases,” wrote Ohio University president Lori Stewart Gonzalez. “It makes it all the more challenging to absorb this additional fiscal charge while maintaining quality standards in the pursuit of their educational missions.”

The National Association of Independent Colleges and Universities cited a recent survey that found 75 percent of its members are “very concerned” about the proposal, and nearly 40 percent expected to have to lay off employees if the change is made.

“The pressures from the pandemic are not over for our students,” NAICU wrote, “and therefore, not over for us or our [members’] institutional budgets.”

Detrimental Change or Needed Protections?

The Biden administration’s effort builds off an ultimately unsuccessful 2016 attempt during the Obama administration to raise the overtime threshold to $47,476. That move, which the higher education industry also opposed, was blocked by a federal judge before it went into effect. The Trump administration later raised the threshold in 2019 from $23,660 to $35,568.

If Biden administration’s version of the rule takes effect as proposed, the vast majority of affected employees in higher education would be reclassified as hourly instead of having their wages increase, the College and University Professional Association for Human Resources (CUPA-HR) wrote in its 20-page comment, co-signed by more than 50 other higher education groups.

“This mass reclassification would be to the detriment of employees, institutions, and students,” CUPA-HR wrote. “Employees would face diminished workplace autonomy and fewer opportunities for flexible work arrangements, career development, and advancement with no guarantee of increased compensation.”

The association argued that the Department of Labor should wait until inflation has cooled and employers have a better understanding of post-pandemic realities before raising the threshold. Because the salary cutoff increased in 2020, CUPA-HR argued that it’s too soon to make another adjustment.

“As nonprofits and public entities, institutions would not be able to absorb the increased costs that come with higher salaries for exempt employees, expanded overtime payments, and other labor and administrative costs associated with transitioning traditionally exempt employees into nonexempt status,” CUPA-HR wrote. “In the face of these costs and challenges, institutions would need to both reduce services and raise tuition, to the detriment of students.”

Labor unions and worker advocacy groups such as the American Federation of Teachers and the National Employment Law Project back the overtime rule change. They argue the rule would provide relief to those who work too many hours without additional compensation and struggle to make ends meet.

The National Employment Law Project, an advocacy organization that supports workers, said that both public and private operations have been understaffed, relying on employees considered managers to perform work duties that aren’t exempt from overtime pay.

“For example, NELP has been informed about a 38-year-old ‘assistant director’ at a public university in North Carolina,” the group wrote. “Her job duties include helping students navigate financial aid applications, registering them for classes, helping them apply to graduate schools, and finding resources to help them purchase things like books or food. She is not a manager[;] she makes a salary of approximately $40,000 a year and works 45-50 hours a week, with no added compensation for any hours over 40.”

NELP pointed out that four states—California, Colorado, New York and Washington—have overtime salary thresholds that are higher than the current federal minimum. “The experiences of the states with overtime thresholds comparable to or higher than the department’s proposal suggest that the proposal will be manageable for employers,” NELP wrote.

An anonymous university employee from Missouri who works in human resources supported the rule change. “My salary is $35,600, which is $32 above the current salary threshold,” the commenter wrote. “Businesses and organizations, private and public, are abusing the exemptions to underpay their employees. Much like other commenters, I am also expected to work more than 40 hours a week especially around payroll processing times.”

The employee added that they regularly work through lunch. “The salary minimum should either be increased, as proposed,” the commenter wrote, “or the rules governing exempt definitions should be reevaluated so those of us who have no choice but to agree to a salary far below what we’re worth or what we contribute can be fairly compensated.”

Stifling Research?

Raising the salary threshold also could hamper research, said several institutions, including the University of Tennessee at Knoxville. If more money from federal grants goes to pay overtime or higher salaries, they contended, that would leave less funding available for the actual research.

“Institutions will either train fewer graduate students, or more graduate students will have to self-fund their education through loans—a financial burden that is already too high, as dropping enrollment numbers demonstrate,” the University of Tennessee wrote in its comment.

The Association of Public and Land-grant Universities agreed, saying that while many postdoctoral and research staffers fall under the proposed salary threshold, making those employees hourly and subject to overtime would limit their ability to conduct research.

“Many tests run in laboratories take hours to conduct and must be performed in precise conditions,” APLU wrote. “Researchers cannot rush to complete tests once they have begun and cannot sacrifice adherence to safety standards to complete tasks within a given period. Additionally, the quality of academic research depends upon timely, detailed, and often spontaneous collaboration with scientists from across the world. Limiting the opportunities for collaboration will cause research, and therefore the future of our nation, to suffer.”

But not all commenters felt that the changes would hinder research. The American Society for Biochemistry and Molecular Biology wrote that the rule change would better protect postdoctoral researchers from being paid unfairly and provide “significant financial relief” to those earning below $55,068. The society did, however, recommend giving universities two to three years to adjust to the higher salary threshold.

“The proposed rule is necessary to ensure the sustainability of the biomedical research enterprise and to ensure a better quality of life for the next generation of researchers,” the society wrote. But it added that “Considering the stagnant scientific research budgets, an abrupt change in salary requirements for postdocs could have a negative impact on the scientific workforce pipeline and add further burden [to] already stressed scientific research budgets.”

The View From One University

At the University of Dayton, more than 300 employees are exempted from receiving overtime pay because they make less than $55,000. Raising their salaries above the threshold would cost about $2.2 million a year, according to the university’s detailed comment on the proposed rule.

“As a non-profit entity with a carefully managed operating margin, UD simply does not have that $2.2M to spare,” the university wrote.

That figure doesn’t include raising the salaries for employees who are currently above the threshold. Dayton and other institutions said those increases would be necessary to ensure that senior staff members continue to earn more. Dayton officials said raising those salaries to avoid wage compression would cost at least $1 million. Depending on the final threshold, Dayton officials estimated that it could cost a total of $4 to $5 million per year to keep up.

In a move that could make matters worse for institutions’ bottom lines, the Biden administration is planning to automatically increase the wage threshold every three years. The increases would be based on the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region, which is currently the South.

“Such an automatic increase is akin to forcing institutions of higher education to write a blank check for the unknown future,” Dayton officials wrote.

Even if the university didn’t raise salaries, it argued, reclassifying employees as hourly and eligible for overtime “would wreak a different kind of havoc.” Dayton said it would have to grapple with spikes in wages when employees work longer hours during the academic year—or cut services that those employees provide.

Like other universities, Dayton said that making employees hourly would feel like a demotion to those individuals. “They will be forced to track their time in a way unfamiliar—and unappealing—to them,” the university wrote. “They will lose flexibility. And they may feel as though their hours worked are constantly ‘watched,’ since a supervisor will need to make sure lunch hours are respected, etc. Such an impact is not mere conjecture; when the university was forced to reclassify employees by January 1, 2020, to comply with the prior increase in salary threshold, the university experienced this negative impact on morale firsthand.”

With student enrollment projected to decrease and fewer tuition dollars coming in for Dayton and other similarly situated universities, Dayton officials wrote that the timing of the proposed overtime expansion “could not be worse.” Other commenters connected to higher education predicted similar consequences to the financial hit.

“The ultimate result of the proposed threshold increase is that UD students and the greater Dayton community will suffer,” the university wrote. “The funds UD will need to meet the new salary threshold must come from somewhere; necessarily, UD will be forced to retrench across the institution, meaning it will have to spend less on student-facing programming and also community investments.”