Alexis Jones: New Federal Rules Mark Cultural Shift for Many Companies by Redefining Limits for Exempt, Nonexempt Employees

Changes to the Fair Labor Standards Act (FLSA), which governs federal minimum wage and overtime pay requirements, will require many student housing management companies to re-examine the classification, pay and job responsibilities of property-level employees in order to comply with the new rules by the time they take effect on Dec. 1.

FLSA was created in 1938 to define standards for the number of hours worked in a workweek and overtime pay, requiring most employees in the United States be paid overtime pay for all hours worked over 40 hours in a workweek. That said, FLSA provides exemptions from overtime pay for those who fit specific categories defined by their job duties, not their job titles. To qualify for exemption, employees must meet two tests: a duties test and a wage test.  

The latest FLSA rule change will result in many “white collar” workers in the United States being reclassified. The rule changes only affect the wage test. What this means is that workers currently classified as “exempt” and making less than $913 per week ($47,476 annually) will likely be reclassified as nonexempt and therefore qualify to receive overtime pay under the new rules. The U.S. Department of Labor estimates the latest FLSA rule changes will raise wages by $12 billion across the United States over the next 10 years.

This ruling presents some unique challenges to student housing operators, so you will want to begin examining how this will impact your business as soon as possible. Unlike their counterparts in other segments of multifamily housing, student housing properties by their nature cater to a resident group that is infamous for keeping odd hours. Student housing properties also conduct a wide variety of resident events at times considered outside of traditional office hours yet require staffing. Under the latest FLSA changes, general managers and regional managers will have to keep that in mind when budgeting.

The challenge will be in determining how to plan for coverage with the least impact on payroll costs. Properties will have to choose between keeping staffing at today’s levels and keeping the cost of labor at today’s levels. In some instances, adding staff to minimize the cost of paying overtime is the answer but not without significant impact to how much a property is spending on labor. Conversely, keeping payroll costs at today’s levels may very well mean a diminished level of service to residents!

Here are some important steps that can help you along as you prepare to determine what changes you must make to your own organization to comply with the new rules:

1. Examine your entire payroll – both property and corporate staff – to identify anyone who was classified as exempt under the old wage test of $455 per week but does not meet the new wage test of $913 per week for exempt status.
2. Group employees by job duties. You cannot simply reclassify employees or increase their salaries to meet the new threshold and call it a day. FLSA requires that entire classes of employees have equal treatment. For example, Campus Advantage can’t classify one of its assistant general managers as exempt and the others as nonexempt. What you may discover is that your assistant general managers, in this example, do not all do exactly the same job. There may be an opportunity to split this group into two or more groups to align more closely with their job duties.
3. Work with property managers to estimate how many hours per week your employees are working. This information will come in handy when you are trying to determine whether to bump a category of employees up to meet the new wage base or to re-classify them as nonexempt.
4. Make determinations by groups of employees, remembering the balancing act.  Considering the number of hours per week your exempt staff is working, you may find that increasing their salaries to meet the new wage test is less costly than maintaining their usual hours and bearing the burden of paying overtime. Remember, reducing the hours that members of your staff are working without adding additional staff may impact the level of service for residents.
5. Plan your communications to various audiences within your organization.  Arguably, the most important step in managing change is your communications plan. Prepare high-level information to send to everyone and follow up with individuals (e.g. impacted employees and their managers, budget owners). Remember, these changes have been in the news, so many may be wondering how it will impact them. Do not forget to wave an “all clear” for those who are not impacted, to clear up any questions they might have.

You will want to take this opportunity to reset expectations about expected “after-hours” responsiveness among newly reclassified, nonexempt employees. These reclassified employees and their managers are used to working after hours. This time will now be subject to compensation.

Important tips include:

• Start preparing early.
• Use this opportunity to review job descriptions, titles, and pay grades across your organization.
• Meet with your general managers, regional managers, and budget owners to help them understand the implications of these new rules and the effects on their respective staffs.
• Employees reclassified exempt to nonexempt may view this as a demotion. Work with your employees to help them understand that being exempt is not indicative of status, but rather a function of complying with employment law.

You can find additional information about the FLSA rule changes and the impacts to companies, managers and employees on the websites of the U.S. Department of Labor at https://www.dol.gov/whd/overtime/final2016/faq.htm) and the Society for Human Resource Management at https://www.shrm.org/legalissues/federalresources/pages/overtime-rule-hub.aspx.

Alexis serves as Vice President, Human Resources for Campus Advantage. She is responsible for the strategic revitalization of cultural initiatives across the organization. She comes to Campus Advantage with a history and ability to successfully influence change in a customer centric organization while exuding the cultural and procedural best practices expected of someone in this position. She is responsible for directing all of the human resources functions of Campus Advantage including employee relations, pay and performance and regulatory matters as it relates to employment. She leads strategic human resource planning to deliver the company the best people and talent available and to help position the company as an employer of choice.