Schools across the country are bracing for a surge in personnel costs as they prepare for the Obama administration’s overhaul to overtime-pay rules.
The Labor Department proposal, due to be released in final form as soon as this summer, would make about 5 million U.S. workers newly eligible for overtime pay by more than doubling the salary threshold that generally determines who can and can’t get it.
While the rule will apply to employers of all kinds, higher-education institutions say their missions and circumstances mean they’ll be hit in ways that other types of employers aren’t. School officials, who say they’re under pressure to keep a lid on tuition, have warned of cuts in student services, degree offerings and labor-intensive research on issues such as climate change and cancer.
The University of California school system, for instance, faces a $39 million-a-year tab for raises to avoid paying overtime to thousands of postdoctoral scholars, librarians and specialists. The University of Iowa says it would limit work hours of staff. And a state university in Missouri could cut some employee benefits.
The new requirements are creating a clash between two White House priorities: strengthening the middle class by raising pay for many workers and relieving tuition burdens on college students.
Given the administration’s desire to rein in student debt, many colleges question the wisdom of the details in the overtime-pay proposal, saying that doubling the salary threshold is too extreme, for example. “Adding additional financial burdens on higher education institutions does not make good fiscal sense,” Southeast Missouri State University told the Labor Department. The university said the rule could cause schools to curb bonuses and other benefits.
The rule reached its final stages of review last week when the Labor Department sent it to the White House’s Office of Management and Budget. That office will have 90 days to review it, including analyzing the costs and benefits, though that could be extended.
Obama administration officials wouldn’t comment on colleges’ contention that the rule undermines the president’s goal of making college more affordable.
An administration official said that under the Fair Labor Standards Act, there’s a whole class of workers who aren’t even subject to the overtime-pay regulation, including many at colleges and universities who have teaching responsibilities, such as professors. The official said it’s important to note that employers are faced with changes in costs and wages all the time and make adjustments accordingly—with varied options for doing so.
Administration officials say inflation has eroded the value of the existing threshold of $23,660 a year 
since it was last updated in 2004, leaving too few workers eligible for overtime pay while working more than 40 hours a week.
If the threshold is raised to $50,440 as proposed, hourly workers and those who earn salaries of less than that could get overtime pay while those with salaries of at least that amount who work in white-collar jobs generally could not.
Universities are busy determining which workers will be affected and what their costs will be if regulators don’t scale back the proposal. Though professors and others who primarily teach are expected to be untouched by the rule under a longtime teaching exemption, that still leaves a huge swath of staff.
To afford the cost of compliance, institutions say they’ll likely use a combination of raising salaries, paying overtime, and forbidding some work.
Vanderbilt University in Nashville, Tenn., calculated that nearly half its employees would be eligible for overtime pay, up from about a third now. It would cost about $7 million a year to increase salaries of the newly eligible workers to keep them exempt from the rule—or more than $9 million to switch them to hourly employees logging 10 hours of overtime weekly.
“I can’t raise tuition at Vanderbilt to pick that up,” said Barbara Carroll, the university’s chief human-resources officer. “Almost certainly less work will get done.”
Research universities reliant on postdoctoral associates—academic employees and trainees who have earned Ph.D.s and take on labor-intensive projects to advance their careers—will feel a particular blow, say school officials who fund some of these positions with federal grants that have been stagnant or declining.
“It’s a finite bucket of money in higher education,” said David Blake, chairman of the public-policy group for the College and University Professional Association for Human Resources.
The University of California said in a regulatory filing that it would have to boost salaries for about 70% of nearly 12,000 workers classified as postdoctoral scholars, librarians and specialists to avoid the hassle of having to monitor and pay for these postdocs’ overtime hours. That’s about 8,200 employees, based on a tally from its 2013-14 fiscal year.
The cost: about $39 million a year, including raises that could exceed 20% of base pay instead of the typical cost-of-living adjustment of 2% to 5% allotted in research grants.
“The required increase would place enormous strain on the university’s budget, likely forcing layoffs and causing delays and disruptions in ongoing research,” the school said. It asked the Labor Department to exclude postdoctoral scholars and specialists from the rule.
Anke Schennink, a former postdoc who is president of the union local that represents postdocs throughout the University of California system, said most are in their 30s and 40s and can’t afford to live on their current salaries. While she agrees with the school that the nature of postdocs’ work would make tracking their hours to pay them overtime a monumental challenge, she says raising their salaries to the proposed threshold is reasonable and the school is exaggerating the hardship it would cause.
“The university’s talking points are really a doomsday scenario,” she said, adding that previous raises the union negotiated in 2010 didn’t undermine postdocs’ work or positions. “We are losing great scientists to other careers because postdocs can’t even afford the basics.”
Like businesses, colleges say the new threshold doesn’t consider regional wage differences or a phased-in adoption. They worry it will blur the distinction between clerical and service workers who tend to qualify for overtime pay, and professional and administrative staff they say often work more than 40 hours weekly in flexible jobs not designed to be tracked or paid hourly.
The University of Iowa told regulators it would have to “actively limit the work hours of our dedicated staff and take away the discretion and flexibility in work schedules,” at least in the current budget year.
Deciding how to manage will require digging into how, and how much, employees work. Officials at Purdue University in Indiana are meeting with department heads to find a solution for every job classification by June, said Vice President of Human Resources Trenten Klingerman.
“Do they hold regular office hours and appointment schedules? Do they travel? Does their workweek fluctuate at different times of the year?,” he said the school is asking.
Nearly 1,700 of its full-time employees would be newly eligible for overtime pay and raising their salaries to keep them exempt would cost $13 million a year. Paying them two hours of overtime weekly instead would cost $4.7 million, though it’s unclear if that would be enough time.