Headed Toward Overtime

March 1, 2005

Understand when you need to pay overtime to staff

It's been a busy month in your office, and some of your staff has been staying later than usual to keep up or catch up. But do you know who's eligible for overtime pay and who isn't?

Since staff salaries generally make up about half of a practice's expenses, you need to keep up with federal and state rules that apply to the people who work for you. Virtually every medical practice is covered under the Fair Labor Standards Act ("FLSA"). The FLSA covers a broad array of subjects dealing with employee compensation, including minimum wage payments, overtime pay, and record-keeping requirements.

The FLSA breaks employees down into two categories: exempt and nonexempt. It's your responsibility to determine each employee's classification to know whether your medical practice is legally obligated to pay the employee overtime.

Under the FLSA, employers must pay overtime to nonexempt employees who work more than 40 hours in a workweek. Overtime pay is a minimum of 1.5 times the employee's regular compensation.

Recently, the Department of Labor (DOL) issued long-awaited definitions of who qualifies as an exempt employee, and they are far more employer-friendly.

In the past, there were a series of tests you had to pass to qualify your employees as exempt. Now, the regulations say that a worker who is employed as a bona fide executive, administrative, professional, or as a certain type of computer employee is potentially eligible to be qualified as exempt and not subject to the FLSA's overtime requirement.

What does "potentially eligible" mean? Two things. First, all employees are potentially eligible based on what they do. For example, only certain IT employees are automatically exempt. More importantly, as I mention later, even if the employee would otherwise qualify as exempt, the employer can negate that by then paying the employee on an hourly basis or deducting time from their wages.

You should have written descriptions for each position within your practice. Now is the time to review these descriptions to see if they are up to date. If not, use this as an opportunity to clearly document each employee's job responsibilities and job classification.

Professionals are exempt

Of most importance to medical practices are the DOL's changes to the professional employee definition. This exemption includes those employed in a bona fide professional capacity -- physicians and other practitioners licensed and practicing who are paid a salary of at least $455 per week.

For the healthcare sector, this includes employees whose primary duty is performing work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized instruction. Thus, employees must perform work that is intellectual in nature and requires the consistent exercise of independent discretion and judgment.

The FLSA regulations are very clear that advanced knowledge is not evidenced by a high school degree. The professional employee exemption is only available to those individuals who have acquired it either through an academic degree or a combination of work experience and academic training. The new FLSA regulations specifically discuss the applicability of this professional employee exemption to healthcare workers, including physicians, physician assistants, nurses, and medical technologists.

Physicians clearly meet this standard. The FLSA regulations define physicians as medical doctors, osteopathic physicians, podiatrists, dentists, and optometrists with either a doctorate in optometry or a bachelor of science in optometry. Residents and fellows who are actively pursuing one of these professional degrees are also included as exempt employees under the FLSA regulations.

Registered nurses who are licensed by the appropriate state licensing board also meet the definition of exempt employees. However, licensed practical nurses, medical assistants, and the like, do not generally qualify as exempt professional employees, as a specialized advanced academic degree is not required for those jobs.

The FLSA regulations specifically discuss registered or certified medical technologists. As long as these individuals have successfully completed at least three years of pre-professional study in an accredited college or university plus a fourth year of professional course work in an approved school of medical technology, they may also meet the definition of a learned professional employee and may be exempt from overtime.


Physician assistants (as opposed to medical assistants) who have completed four years of academic study and have graduated from an accredited physician assistant program may likewise meet this exemption to overtime.

Administrative worker categories

The new regulations clarify that only certain administrative employees qualify as exempt. To meet the exemption, the employee must be: compensated on a salary or fee basis of no less than $450 per week; performing primarily office duties or nonmanual work directly related to the management or general business operations of your practice; and exercising independent judgment and discretion with matters of significance.

Before you rush off to characterize all of your administrative employees as exempt, consider their day-to-day responsibilities. Most likely, very few employees in your practice, besides your practice manager, will qualify under this exemption.

Also, don't make the mistake of assuming you can simply amend your employees' job title or description to meet these three requirements. Unless your employees legitimately carry out these administrative responsibilities and satisfy all three elements, they will not qualify for the exemption.

As your practice has expanded, you may have hired one or more individuals to work on computer-related issues for your practice, including Web site design, network administration, and software integration. How do you categorize these employees?

The FLSA permits computer systems analysts, computer programmers, software engineers, or other similarly skilled computer workers to be classified as exempt employees, provided their daily work responsibilities involve a high level of skills related to areas such as system analysis techniques; design, development, creation, or testing of computer systems or programs; and/or design, documentation, testing, creation, or modification of computer programs related to machine operating systems. Before determining whether or not your computer employees are exempt or nonexempt, look carefully at their actual responsibilities.

Invalidating exemptions

Even if your employees otherwise qualify as exempt employees, you, as their employer, can invalidate the exemption. If it is your practice pattern to "dock" employees for absences (for instance, for lateness or partial-day personal absences), you may have unwittingly eliminated your employees' qualification for exempt status.

While it is permissible to deduct nonwork time from a nonexempt employee, an intentional deduction in the salary of an exempt employee will likely be viewed by the government as stripping your employees' exempt status. Bear in mind, you should have in place a clearly communicated policy that prohibits improper salary deductions from exempt employees as well as a grievance policy. Under this grievance policy, you must reimburse the employee for any improper deductions.

For all of your employees that are classified as nonexempt, there are additional record-keeping requirements. You are required by law to maintain information about each nonexempt employee regarding their identifying information (name, address, Social Security number, and date of birth, if under the age of 19), as well as information relating to their wages and hours worked per day and workweek. Employers are not required to maintain time clocks; however, if you use a payroll company, they can help you maintain all necessary information.

Consequences for violations

If you are found to have violated these regulations, you will likely owe the employee the overtime compensation, and possibly additional monetary damages equal to the unpaid wages. You will also likely be responsible for paying the employee's attorneys' fees.
If your practice's actions are flagrant, the government can institute civil and criminal proceedings.

Keep in mind, the statute of limitations for these actions can be up to three years, depending on the facts and circumstances. If your state specifically addresses overtime and wage issues, make sure to double-check those requirements. If your state has a more stringent requirement than the federal law, then you must comply with your state law, in addition to the FLSA.

Don't make guesswork of classifying employees' exempt/nonexempt status. Seek professional advice from your legal advisers to help you navigate this complex area of law. It is easier to get it right the first time and avoid financial and legal consequences.

Joan M. Roediger, JD, LLM, is a partner with Obermayer Rebmann Maxwell & Hippel LLP of Philadelphia. As a member of the firm's health law department, her practice is focused on advising physician practices on legal and regulatory issues including hiring new doctors, buy-in and buy-out arrangements, income division, practice sales, physician termination, fraud and abuse, HIPAA compliance, and other issues. Ms. Roediger is a nationally recognized speaker on practice management related issues. She can be contacted at (215) 665-3216 or via e-mail at joan.roediger@obermayer.com or editor@physicianspractice.com.

This article originally appeared in the March 2005 issue of Physicians practice.