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New rules for overtime pay go into effect this December, and the impact will be felt by nearly every employer in America. The U.S. Department of Labor (DOL) recently made substantial changes to the overtime and exempt employee rules of the Fair Labor Standards Act (FLSA). These changes, which come into effect on December 1, 2016, will make approximately 4.2 million currently exempt employees eligible for overtime pay. What will this mean for your veterinary practice?
The New Overtime Rules
Under the FLSA, employees are guaranteed a minimum hourly wage plus an overtime premium equal to 1.5 times their regular rate for all hours worked over 40 hours per week. Certain employees, such as executive, administrative, and professional staff, are exempted from these rules ("exempt employees"), meaning they are not eligible for overtime. What the DOL has changed are the rules surrounding which employees qualify for this exemption.
A Summary of the Rules
According to the FLSA, an employee will be considered exempt if each of the following three tests is met:
- The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the "salary basis test"); and
- The amount of salary paid must meet a minimum specified amount (the "salary level test"). Specifically, the DOL increased the standard salary levels at which employees will be considered exempt employees. These amounts will be increased by the DOL every three years; and
- The employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the "duties test").
The DOL has set the minimum salary level for exempt employees at $913 per week, or $47,476 per year for a full-time worker (40 hours per week). If a full-time employee earns less than this amount, they cannot be considered an exempt employee and will be eligible for overtime benefits. Receiving a salary does not automatically make an employee ineligible for overtime compensation. Such a person would become "salaried, non-exempt."
Highly compensated employees (HCE's) are also considered exempt employees and are not eligible for overtime compensation if they earn a minimum of $2,577 per week ($134,004 annually) and customarily perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee.
What Does this Mean for Your Veterinary Practice?
These rules do not apply to veterinarians, including interns and residents. Employees holding a valid license permitting the practice of medicine are, by statute, exempt. However, the law specifically states that veterinary technicians are not exempt. More about this in a minute.
Veterinary practices are most likely to be affected by these changes in the following three areas:
1) Employees earning a fixed salary of less than $47,476 per year ($913 per week) cannot be considered exempt, regardless of title or job duties.
Because the FLSA requires that all three tests be met in order for an employee to be considered exempt, any employee earning less $47,476, will be eligible for overtime compensation on any hours worked in excess of 40 hours per week. In other words, if an employee is working more than 40 hours per week but is being compensated on a fixed salary below $47,476, they will become eligible for overtime compensation. This is true regardless of the employee's position or duties within the practice. It is also true even if the employee has a three or four-day work week schedule (and has a reduced salary due this schedule) but is, in actuality, working more than 40 hours per week. In other words, what matters is how many hours the employee is actually working not how many hours the employee is contracted to work.
2) In certain circumstances, practice managers or other administrative employees who are earning more than the minimum annual salary of $47,476 per year, still may not be considered exempt.
Administrative employees and practice managers earning more than the $913 per week will only be considered exempt if: (1) their primary duties are "directly related to the management or general business operations" of the practice; and, (2) their primary duties include "the exercise of discretion and independent judgement with respect to matters of significance." While the FLSA itself does not define these terms, the DOL has issued a fact sheet (see link below) that lists some of the duties that would be considered appropriate for an exempt administrative employee. These duties include having authority to: make an independent choice, free from direction or supervision, commit the employer in matters that have significant financial impact, and waive or deviate from established policies and procedures without prior approval.
Most Hospital Administrators would meet the executive exemption if their primary duties are managing the business, directing the work of at least two employees, and hiring and firing other employees. In this case, provided they are paid more than the minimum salary, they would meet the requirements for exempt status.
3) Veterinary technicians and other technical employees are not considered exempt employees even if they earn more than the minimum annual salary.
While it may seem that veterinary technicians would meet the duties test since they perform professional duties, in Fact Sheet #17O, the DOL states that "technologists and technicians" do not meet the requirements for the learned professional exemption. This affects all technologists and technicians including licensed veterinary technicians.
Prepare Your Practice for the Change
As with most changes, at little advance planning can make the process easier. Take the following actions now to ensure you understand and can mitigate the impact the changes will have on your hospital.
1) Have salaried employees keep track of actual hours worked over the next few months.
Have salaried employees track the number of hours they are working each week. This will allow you to determine if they would be considered a full-time employee (working at least 40 hours per week), and if so, the amount of overtime compensation for which they would be eligible. With this information in hand you can make an informed decision as to whether it would be better to increase the employee's salary to meet or exceed the minimum salary level or to transition them to an hourly pay structure, i.e. non-exempt status.
2) Review employee job descriptions.
Take a careful look at the job descriptions for all salaried employees. For practice managers and other administrative employees whose duties would allow them to meet the duties exemption, ensure that the employees' job descriptions are clear with respect to their duties and authority. If the employee does not perform the duties or have the authority that would allow them meet this exemption, have them track their hours (as discussed above) to determine if an hourly or salary based pay structure would be most suitable for them.
3) Transition all technical employees compensated on a salary basis to an hourly pay structure.
Since veterinary technicians do not meet the professional duties exemption, all non-administrative, non-veterinarian employees (whether or not they hold a technical license) should be compensated on an hourly basis. Make this transition as soon as is practical for your practice in order to determine the impact on your practice profitability, but not later than December 1, 2016.
Final Thoughts
Be open and honest with your employees about the changing rules and how this may impact not only their pay structure but also the practice finances. Provide the details of what the employee would lose or gain if his/her pay structure were to change and set the stage for open, honest communication.
Stress that moving from salary to an hourly wage is not a demotion or a reflection of the employee's value to the practice. Even salaried employees should routinely clock in and out so you know the number of hours each person works. Besides being necessary for the FSLA, tracking time allows you to understand if employees are working too many hours and if another employee should be trained to lessen the load. With burn-out occurring so often among veterinary hospital employees, better awareness of actual hours worked is a step towards healthier staff.
Some states have their own definitions regarding exempt versus non-exempt employees. Because each circumstance is unique, obtaining legal advice from an attorney or assistance from a human resources professional will help you ensure that your practice complies with the FLSA.
As with most new policies, there are more questions than answers right now. Check Summit's Facebook page for the latest news.
References
United States Department of Labor, Wage and Hour Division: Small Entity Compliance Guide to the Fair Labor Standards Act's "White Collar Exemptions".
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