New Overtime Laws may mean lower starting salaries for college graduates.

By September 23, 2016Blog, Overtime Laws

What it means for College Grads: starting salaries

When the Department of Labor (DOL) increased the exempt salary threshold to $47,476 beginning December 1, 2016, it meant a likely decrease in starting salaries for the graduating classes of 2017. The new Federal Overtime laws mean that many of the starting positions and salaries of college graduates will fall under the new threshold and will be eligible for overtime. Currently, about half of all college graduates are hired with salaries above the new threshold, but that means that half of graduates have been hired under the new salary threshold for exempt employees.  

What does that mean? In layman’s terms, the new Federal Overtime Rules, updated guidelines for employees to be considered exempt. In addition to having to pass a “duties test” employees must also be above the threshold to qualify for exempt status. That means that roughly half of all college grads starting at their first professional job will have to punch a time clock instead of getting a base starting salary. Even if their employer calls it a “salary” they will still have to track time and will be qualified for overtime pay. In fact, the new laws require that they are paid overtime pay.

On the surface that seems like a great thing.  Gone are the days of getting starting salaries out of school of $35,000 and working 50 hours a week without overtime pay. However, employers and businesses are not all rolling in extra money and relieved that the DOL has found an avenue for them to spend it via overtime pay. As a result many employers are looking to lower the starting wages for non-exempt college grad positions.

Overtime rules may cause businesses to view new employees as less valuable and more expensive.

Steven Rothberg, founder of College Recruiter, said that; “We believe that the law will have a substantial impact on the number of hours worked by management trainees and other workers who traditionally have been paid as exempt. . .Employers will likely instruct these employees not to work more than 40-hours per week, which will effectively increase the compensation paid to and reduce the return on investment generated from these employees.” In other words employees will cost employers more and be less productive and profitable. While Rothberg still has a positive outlook for the job market and doesn’t think that it will hurt graduates long term because of the retiring baby boomers, but John Johnston, believes differently.

John Johnston is the Director of Manufacturing at States Manufacturing in Minneapolis. They currently employ 49 employees. He worries that the new guidelines will hurt college graduates and interns by reducing the opportunities available to them, not only through new jobs, but also through internships. “I would expect the starting wage to decrease to compensate for the change in overtime rules, Also I would tend to expect the opportunities to reduce as well as the patience of employers. If we are going to pay more, we are going to raise our expectations and be less patient with someone because of the wage they are earning.” Johnston explained. In other words, employers can’t afford to have new employees make the same errors when they are paying more for that employee. Johnston continues to explain; “ When we have had lower wage earners at the start of their career, we are able to be more patient in part because the issues are not as magnified with a lesser wage. Once that increases, we have no choice but to be tougher that much quicker.”

If those predictions come true, then graduates would likely face lower starting salaries job offers than in the past because employers will look to mitigate potential overtime costs with lower starting salaries. This could be a huge disappointment and frustration to the new grads.

Career paths and Internship Opportunities may be reduced from the new DOL rules

Overtime Laws may affect starting salaries of college graduatesCompanies are also likely to reduce the number of internships that they offer. Traditionally internships have been a way for college students to gain relevant experience and have served as an entrance into a career at a company. Many companies have used internships to identify the new graduates that will best fit with their culture and job parameters. However, the new overtime rules place very strict rules on unpaid internships and add overtime pay to paid internships. If companies do decide to reduce the number of available internships available, this could create another barrier to employment after college. Many companies are considering moving to part time employees instead of full time internships as they would not be required to pay for the full cost of benefits and potential overtime with part time employees.

In theory, if the economy continues to grow at a pace that creates more skilled jobs than the graduating classes can provide, then these changes would not be felt by graduates. However, if the jobs created equal or are less than the graduating class, then college grads would feel the increased stress of finding new jobs and competing with part time employment.

About Swipeclock

Swipeclock is a workforce management and timekeeping solution company that works with human resources personnel, accounting and payroll professionals and Professional Employee Organizations to provide solutions to businesses. SwipeClock provides the software and equipment that makes it feasible and cost-effective for companies to maintain timekeeping records on employee hours and the reports that are required by the DOL. Contact SwipeClock to find out how they can help your business transition through these new overtime rules.

Written by Annemaria Duran. Last updated September 25, 2016