Two Seismic Developments in Wage and Hour Law

By    //    Volume 23,  Number 5   //    September/October 2015

The U.S. Congress enacted the Fair Labor Standards Act (FLSA) in 1938. The act regulates wages, hours, and working conditions for tens of millions of American workers, including almost every fulltime and part-time employee on college and university campuses.

For the most part, wage and hour law is arcane and rarely poses issues that rise to the level of the board. In the last few months, however, two unexpected changes have surfaced, each significant to higher education and each visible enough to warrant this short primer on FLSA compliance.

The liveliest question under the FLSA is also the simplest: Is a particular position covered by the law or not? If the position is covered—if, using the government’s confusing double-negative construction, it is “non-exempt”—then the employer in that position cannot work more than 40 hours per week without being paid time-and-a-half for every hour above the maximum.

But if the position is not covered by the FLSA— if, in government speak, it is “exempt” from the law’s overtime provisions—then the employee is not entitled to overtime pay, no matter how many hours she or he might work. Typically, white-collar workers—executives and managers—are exempt, meaning that they are paid an annual salary rather than an hourly wage and are not eligible for overtime.

A position is exempt if it pays $23,600 per year ($455 per week) or more and the employee in that position performs “executive,” “administrative,” or “professional” duties. The $23,600 threshold has not been raised since 2004. Earlier this summer, the Obama administration proposed new regulations that would more than double the threshold, to $50,440 a year. If the proposal is adopted later this year, which is highly likely, an estimated five million exempt employees nationwide will be recategorized as non-exempts.

The impact would be particularly dramatic on college and university campuses, where many currently exempt administrative and professional employees who have never received overtime pay would suddenly be eligible. Payrolls would jump immediately and substantially. Institutions would be forced to incur the administrative cost of implementing new recordkeeping systems to track the hours of hither-to- exempt mid-level managers who have never punched a clock before.

The other significant development in wage and hour law occurred this summer when a federal appeals court in New York unexpectedly rewrote the rules for unpaid student internships. Many college students obtain invaluable job training—and in the process open doors for themselves in their quest for post-graduation employment—by accepting internships with major employers. Although interns perform “work” for the employers, they are often paid nothing.

In 2010, the U.S. Department of Labor, which administers the FLSA, formulated an almost indecipherable six-part test for determining when it was acceptable under the FLSA for an employer to offer unpaid internships. The complexity of the test and its use of inherently vague criteria—one part of the test, for example, requires the employer to demonstrate that the internship is “for the benefit of the intern”—were said to discourage employers from hiring interns and reduce internship opportunities.

On July 2, the court in New York jettisoned the six-part test and substituted a more internshipfriendly standard: Unpaid internships are legal under the FLSA, the court ruled, “if the intern and the employer clearly understand that there is no expectation of compensation… [and] the internship is conducted without entitlement to a paid job at its conclusion.” Most commentators believe that the ruling will lead to more internship opportunities for college students—but will, at the same time, create greater likelihood for exploitation of a particularly vulnerable subsector of the labor force.

My point in highlighting these two recent developments in wage and hour law is not to suggest that board members become experts in the arcana of payroll recordkeeping. It is simply to remind them that even matters as seemingly simple as paychecks are comprehensively regulated by the government. Changes in the law can have unexpected financial and educational consequences on your campus.