A rule proposed by the U.S. Department of Labor this June could drastically increase the number of salaried white collar employees eligible for overtime pay.
The department last updated its regulations under the 2004 Fair Labor Standards Act (FLSA), which governs which employees are entitled to overtime pay. It is now proposing to raise the salary threshold for workers who qualify for overtime.
Currently, employees who make $455 a week, or $23,660 a year, are generally ineligible for overtime. The department sets the salary threshold for the white collar exemptions at the 40th percentile of weekly earnings for full-time salaried workers nationwide. When the final rule goes into effect in 2016, the salary threshold to qualify for overtime will rise to $970 per week, or $50,440 per year.
The department estimates that 4.7 million Americans will become newly eligible for overtime by this update. What will such an increase in the overtime threshold mean to health care providers and their employees?
Who Falls Under Exemption Now
The FLSA establishes, among other things, minimum wage and overtime pay standards for employees in the private sector. Unless an employee is considered exempt, an employer must pay employees overtime pay for all hours worked over 40 in a work week, at a rate not less than one and one-half times their regular rate of pay.
Certain executive, professional, and administrative employees fall within the white collar exemption from overtime eligibility. Under the current guidelines, to fall within these exemptions, the employee must:
- Receive a salary of $455 per week or $23,660 annually;
- Receive a predetermined salary on a weekly (or less frequent) basis that cannot be reduced due to the quality or quantity of the employee’s work; and
- Perform executive, administrative, or professional duties.
Depending on the specific exemption applicable to a given employee, duties that exempt an employee from overtime eligibility include but are not limited to:
- Managing the enterprise or a department or subdivision;
- Directing the work of at least two or more full-time employees;
- Having the authority to hire or fire other employees or having the power to weigh in on the hiring and firing of other employees;
- Exercising discretion and independent judgment regarding significant matters; and
- Performing tasks requiring advanced knowledge in a field of science or learning.
Highly compensated employees making $100,000 per year or more are exempt from overtime eligibility provided that they regularly perform some executive, administrative, or professional functions. The Department of Labor is now proposing to raise this threshold to $122,148 per year.
How The Proposed Rule Will Affect Health Care Providers
The department determines whether an employee falls within one of the many white collar exemptions, depending on whether the employee’s salary and duties meet the regulatory standards. In other words, if a health care provider hires someone as an “office manager” but the person does not exercise administrative or professional duties and does not make at least $455 a week, he or she will be eligible for overtime.
The department’s proposed rule is a game changer in that a whole category of white collar employees who were making between $455 a week and $970 a week will now be eligible for overtime, even if they perform professional, administrative, or executive duties.
Let’s say a health care provider employs a nutritionist and pays her an annual salary of $50,440. She exercises her own judgment when it comes to a resident’s nutrition plan; supervises a staff of three; and, while she cannot hire and fire the staff, manages values and uses her judgment when it comes to staffing decisions.
As of now, this nutritionist is not eligible for overtime if she worked 40 or more hours in a given work week because she makes more than $455 per week. However, if the rule goes into effect and the new salary threshold in 2016 is $970 a week, she is automatically eligible, even though she is performing professional/administrative duties.
What should a health care provider do? A provider should start planning now before the rule is put into effect. It could hold white collar salaried workers to no more than 40 hours a week and thus not pay overtime. Alternatively, a provider could increase a white collar employee’s salary to above the threshold and, by doing so, make him or her ineligible for overtime. A provider could also hire other employees to do the work that was being done by the white collar employees in their previously unpaid overtime.
In short, it is up to the individual provider to develop a plan that is efficient and that satisfies the company’s budgetary needs. A provider should carefully evaluate the classification status of its workers now to determine who will be and who will not be exempt from overtime eligibility.
A health care provider should tread carefully in this area. Along with government enforcement of the FLSA, a successful private litigant can recover the following from his or her employer in an overtime case:
- Payment of the earned overtime going back up to two years or, if the employer’s violation was willful, up to three years;
- Liquidated damages of up to 100 percent of the earned overtime for a willful violation; and
- Reasonable attorneys’ fees and costs.
Next Steps In The Rule-Making Process
The proposed rule has been published in the Federal Register, and the Department of Labor is now reviewing public comments. The final amended regulation will likely go into effect in 2016.
The department, it should be noted, is proposing that the salary and compensation thresholds be adjusted on an annual basis so that they do not become outdated between updates to the regulations.
In light of this proposed raise in the minimum salary threshold and the profound financial effect it will have on the workforce, a health care provider should consult with legal counsel to evaluate its options for the future.
Andrew I. Bart is a New York City lawyer specializing in commercial litigation and labor and employment law. He may be reached at firstname.lastname@example.org or (917) 572-7828.