New Overtime Rules Impact Medical And Healthcare Practices

On September 24th, the Department of Labor released a new rule that will increase the minimum salary requirement for the administrative, professional, and executive exemptions from overtime pay to $684 per week ($35,568 annualized). The Fair Labor Standards Act (FLSA) will require the minimum salary to be increased by up to $11,648 for all exempt employees that are currently below the new threshold. The new rate will take effect on January 1, 2020. The new rule also raises the threshold for highly compensated employees from $100,000 a year to $107,432, of which $684 must be paid weekly. The new rules do not include automatic annual adjustments to the newly set rate.

For any salaried employees that fall under the new $35,568 threshold, employers have two options:

1. Switch the employee to hourly or non-exempt status and pay for the overtime worked, or
2. Raise the employee’s salary above the new minimum threshold of $35,568.

Compliance can be a bit more complicated in healthcare setting. Generally your hourly employees might include a receptionist, scheduler, billing staff, physical or occupational therapists, medical technologists, etc. Some of your salaried employees might include a Registered Nurse as well as a Licensed Practical Nurse, but only one of them is considered exempt under the professional rules test. There is also confusion concerning Dental Hygienists.

Please note for any and all positions that it is the salary threshold, the minimum education required, the type of work done (duties test), and not just the job title (fancy or otherwise), that determines whether a position is overtime exempt.

What Does This Mean For Your Practice?
To be exempt from overtime starting in 2020 under the FLSA, employees must be paid a salary of at least the threshold amount and meet the duties tests below. If they are paid less or do not meet the tests, they must be paid one and a half (1 & ½) times their regular hourly rate for hours worked in excess of 40 in a single workweek. The new rule forces practitioners either to reclassify currently exempt employees to non-exempt status or raise their pay above the new threshold.

You will have to weigh the cost of raising employee salaries against the cost of paying overtime. Keep in mind that under the new rule, nondiscretionary bonuses, incentive payments, and commissions paid annually or “frequently” may be used to satisfy up to 10% of the standard salary level.

Meeting the salary threshold is just one requirement for classifying workers as exempt. Take the time to review job descriptions and employees' actual daily job duties to ensure that they satisfy the applicable exemption's criteria.

The Duties Test Must Also Be Met
The white-collar exemptions applicable to a healthcare environment each have slightly different duties tests:

Executive exemption. The employee's primary duty must be managerial in nature. The employee must customarily and regularly direct the work of at least 2 employees and have the authority (or influence) to hire or fire employees.
Administrative exemption. The employee's primary duty is office or non-manual work that is directly related to the management or general business operations of the employer or its customers. The employee's primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.
Professional exemption. The employee's primary duty must be work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study. Category includes the salaried computer professional.
• Highly compensated employees. These employees are eligible for exempt status if they meet a reduced duties test:
o The employee's primary duty must be office or non-manual work.
o The employee must "customarily and regularly" perform at least one of the exempt duties of an executive, administrative or professional employee.

Non-Compliance Means Penalties
This is a perfect time for Doctors, Dentists, and other medical and healthcare practitioners to check how compliant their practice really is! If an employer fails to pay any overtime worked, they will have to pay back wages to the employee for the time worked but not paid, liquidated damages (which doubles the OT!), plus civil penalties may be levied of up to $1,100 per violation, as well as additional penalties for repeated or willful violations.

Confusion generally surrounds the following healthcare positions:

Office Managers in Medical, Dental, and Other Healthcare Practices
Remember the overtime exemption is not just a question of whether an employee is paid on a salary basis and above the minimum threshold. There’s a duties test as well for the administrative exemption. Your office manager must do work directly related to the management or general business operations of the practice and include the exercise of discretion and independent judgment with respect to matters of significance. But what does that mean exactly? In order to be “significant” for example, they must have:

• The authority to formulate, affect, interpret or implement management policies or operating practices;
• The authority to waive or deviate from established policies or procedures without prior approval;
• The authority to negotiate and bind the company on significant matters generally involving $$$; and
• They provide expert advice to management.

Physician Assistants
The DOL has stated that the white-collar exemption for medical professions extends to certified Physician Assistants with 4 years pre-professional and professional study, and who are graduates from an accredited PA program. The PAs must be salaried, not paid hourly, as they might be in a hospital or urgent care setting. If an employer chooses to pay their PAs hourly, then of course they don’t fall into any exempt category.

Nurse Practitioners
Courts have upheld that if the Nurse Practitioner holds “a valid license or certificate permitting the practice of medicine and was engaged in the practice thereof,” they may qualify for the “salary-basis exception” and, therefore, be subject to the professional exemption. The DOL holds the opinion that NPs must be paid on a salary basis to be exempt from the FLSA, if paid hourly, then they are not.

Dental Hygienist
Hygienists do not meet the professional exemption status, therefore a Hygienist is eligible for overtime and must track their work hours. This is because under federal regulations, only those Hygienists who have completed 4 academic years of study in an accredited school approved by the American Dental Association potentially qualify for professional exemption. Also, how much discretion can Hygienists exercise independently when many state practice regulations require them to work under the supervision of a Dentist?

Registered Nurse (RN)
A salaried Registered Nurse can qualify as exempt under several tests. If the RN supervises at least 2 employees and can hire and fire, they may meet the requirements for the executive exemption. If the RN is performing professional nursing duties they meet the requirements for the professional exemption. But if an RN is paid on an hourly basis, they are considered non-exempt and entitled to overtime pay.

Licensed Practical Nurse (LPN) & Licensed Vocational Nurse (LVN)
Licensed Practical Nurses, Licensed Vocational Nurses and other similar medical workers generally do not qualify as exempt learned professionals, regardless of work experience and training, because having a specialized advanced academic degree is not a prerequisite for the occupation. Even though trained and experienced, the formal educational requirements for the professional exemption must be met.

Time for a Check-up!
Our professionals suggest this is a good time for practitioners to review their budgets and forecast how their labor costs will increase due to the change:

• Gather data on any workers classified as exempt that are earning below the new threshold.
• Consider what positions you might restructure.
• Identify whom you might reclassify to nonexempt.
• Select whom you would be willing to give a salary increase.
• Make a timetable to implement the changes by December 31st.

If employers must reclassify employees to non-exempt status, they will need to track affected workers' work time and pay overtime premiums for all hours worked beyond 40 in a single workweek. They will need to communicate clearly that reclassified employees are not being demoted, and changes are based on new government rules. Keep in mind training might be needed for time-keeping procedures.

Also, make sure you have a procedure in place to limit overtime hours worked by newly nonexempt workers; at the very least make sure all overtime is pre-approved. Last but not least, consider the impact the new requirements may have on employee benefit plans, especially if you have separate tiers for salaried/exempt and hourly/non-exempt workers.

CONTACT US: The FLSA increase to the minimum salary requirement means many healthcare clients will have to make important changes and smart choices. At Fuoco Group our tax and business advisors are committed to ensuring our clients are not at risk for penalty for non-compliance and are making the right financial choices. Most of our healthcare clients will need to review their budgets and find an effective way to manage their labor costs. Let Fuoco Group help and advise you on compliance, profitability and efficiency - we are committed to your success. Call toll free: 855-534-2727.

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