Conquering Overtime the Legal Way at Your Practice

November 25, 2016

The recent changes to the Fair Labor Standards Act (FLSA) means practices will have to rethink the way they think about employees and overtime.

Notice:

As of 11/22/16, a federal judge in Texas has issued an injunction barring enforcement of the new U.S. Department of Labor FLSA exemption/overtime regulations that had been scheduled to become effective on December 1. This is a temporary measure in response to lawsuits brought by 21 states and various business groups. Until further notice, employers in all states are no longer required to comply with these rule changes.

The article below describes the rule changes that were originally scheduled to take effect. These rules may be resumed (with a delayed effective date), revised, or halted, depending on the pending court case and/or any new legislation.

Keeping overtime costs down is a source of concern (and occasional panic!) for most healthcare practice owners and physician employers. Thanks to recent changes to the Fair Labor Standards Act (FLSA), it's about to get even harder.

Among other rules governing employee compensation, the FLSA regulates which employees may be considered "exempt" from earning overtime pay when overtime hours are worked and which aren't. In May 2016, the Department of Labor announced an update to the minimum annual salary requirement for exemption, resetting it to $47,476 - more than double the previous requirement.

This is a major change! Over four million additional U.S. employees are about to become eligible for overtime pay, regardless of the havoc this will wreak on employers' budgets. With a compliance date of Dec. 1, 2016, practice owners and managers have just enough time to learn the new rules and prepare, if you start today.

Here are three steps to ensure FLSA compliance by the deadline and minimize your overtime costs:

Self-audit exempt employees whose annual salaries fall under the new threshold.

First, determine which of your employees are exempt but earning less than the new salary threshold. For each affected employee (assuming they meet the rigorous FLSA duties test, which has not changed), you have a choice: Should you raise their wages above $47,476 or change their status to nonexempt? The latter option means they must track their time and their hourly pay must always work out to at or above minimum wage. Additionally, you must pay overtime rates for all overtime hours worked.

The best decision for your practice depends on how far from the threshold each employee is and how much overtime they work. You can use tools, like this overtime calculator, to personalize this for your practice. For an employee earning $46K and working five hours of overtime each week, a raise to bump them over the threshold makes a lot of sense. For one earning $30K and rarely working overtime, changing status to nonexempt might be a better move.

Then there are the "balancing act" employees: those for whom you may need to change status to nonexempt AND find a way to limit overtime. Whether you reassign duties, hire more staff, or decide everyone must "work smarter, not harder," this too can be a tricky proposition.

 Note that some employees may not be happy about a change back to nonexempt status - so if it's truly necessary, you'll also need to frame it in as positive a light as possible.

Self-audit everyone, to make sure all employees are classified correctly.

It's tempting to ignore employees who won't be affected by the FLSA changes, and to think no further about those you've decided should stay exempt. However, it's better to use this transition period to self-audit the status of all your exempt employees.

Here's why: Although the duties test for exemption hasn't changed, it's often forgotten, especially when it comes to office managers and nurses (who, by the way, should almost never be exempt). This new rule presents an excellent chance to fix errors quietly.

Note that the salary level test is not required for doctors, PAs, and NPs, who are exempt by default.

For nonexempt employees, find (legal) ways to limit overtime.

Remember that, for nonexempt employees, all time worked must be paid.

Not only that, but no nonexempt employee may ever waive their legal right to overtime pay, nor work off the clock, even if they agree.

This means policies such as, "Overtime hours will not be paid if not approved in advance," are downright illegal. So is, "Overtime is not permitted and therefore will not be paid." So are most policies that try to use equal measures of so-called "comp" time as a workaround for paying overtime. Once overtime hours are worked by nonexempt employees, overtime rates must be paid.

But the need to pay for time worked doesn't leave you without options! Employers can have a legally compliant policy stating that employees must obtain authorization before working overtime. This helps transfer some responsibility and it means that if employees break this policy (especially willfully or repeatedly), they can expect to receive corrective actions up to and including termination. Like all policies, this needs to be written by an attorney or HR expert.

Your path to compliance: Careful choices

The Dec. 1 compliance deadline for the new FLSA overtime rules mean it's time for all of us to weigh our options, determine which employees are affected, and compare costs versus benefits. Then, think about how much you're likely to pay out in overtime initially, and how you can reduce that figure over time. And don't forget that strong hiring practices and employee retention are also overtime reducers!

Achieving rapid compliance and keeping our overtime costs down afterward may not be easy, but it's the only option the Department of Labor has left us with.

Paul Edwards is the CEO of CEDR HR Solutions, a leading national provider of customized medical employee handbooks and expert HR support for medical practices of all sizes and specialties. He can be reached at 866-414-6056 or pauledwards@cedrsolutions.com.