Complying with the Wage and Hour Law

Robert D. Orzechowski, MBA, SPHR, SHRM-SCP
Chief Operating Officer, Lancaster Cancer Center, Lancaster, PA

All employers, including oncology practices, face human resource (HR) management challenges. For most medical practices, complying with the federal Department of Labor (DOL) Wage and Hour Division standards or with the minimum wage state laws, and any local ordinances, is especially important, because managers in medical practices may be so focused on caregiving that they lose sight of issues such as the exempt status of employees, the use of interns and independent contractors, and how those HR decisions could affect the employer. In addition, it is possible that many medical practices do not have ready access to, and oversight by, a qualified HR professional, because of their size or their financial situation.

Approximately 1 year ago I wrote an article for Oncology Practice Management informing readers of many important aspects of the federal Fair Labor Standards Act, also often referred to as the Wage and Hour (W&H) law. During the past few months, the DOL proposed and then opened for comment significant revisions to the W&H law.

The purpose of this article is to review some of the recent developments from the DOL as they concern employees in any organization, and to offer some strategies and tactics to consider.

Proposed New Regulations

In June 2015, the DOL proposed revised regulations for determining the exempt or nonexempt status of employees. They received almost 300,000 comments on their proposals. The W&H law currently allows employers to determine a worker’s exempt (from overtime) status based on a salary level test and a duties test. The specific details can be found on the DOL website (www.dol.gov/).

The DOL’s new proposal requires the salary level test to be raised from its current level of $455 weekly to $921 weekly. This amount represents the 40th percentile of weekly earnings for a full-time salaried worker. Furthermore, the proposed regulations require this threshold amount to be recalculated annually. Because labor costs are a significant part of a practice’s expense structure, it would be wise to strive for a neutral cost impact.

Should the exemption duties test remain as written, but the salary test increase substantially, it is possible that many employees of medical practices may have their exempt status revised, and, if found to be nonexempt, would then be eligible for overtime pay in the future. Compliance requires planning, vigilance, and attention to basic but important HR responsibilities.

Tips for Practice Administrators

So what is a practice administrator to do? The following options are important steps to consider:

  1. Conducting an HR audit is a good first step, with an initial focus on the foundation activities and documents, such as clear and accurate job descriptions and HR policies regarding overtime approval, exempt classification decision processes, and updated disciplinary procedures
  2. What controls exist to ensure that employees who are nonexempt are not working when they are not “on the clock”? Are any nonexempt employees paid a salary instead of an hourly wage? Just because an employee is paid a salary does not mean he or she is exempt from the W&H law; that employee could still be eligible for overtime
  3. Are your HR files compartmentalized according to state laws?
  4. Are your supervisors trained in such matters as approving overtime? It is important to know that even if timecards are not available, the employer must still make every effort to pay for all time worked. This holds true if overtime was worked even without preapproval. Employees can be disciplined for failing to gain approval or ignoring lawful supervisory direction, but the hours worked must still be paid properly
  5. Identify any employees currently classified as exempt and review with legal counsel what options exist in case they fall into the lower range of the expected new, higher salary level test, or if their actual duties may be open to serious challenges according to the exemption duties test. In addition to wages, certain benefits could also be adversely impacted by a change in exemption status
  6. Share with the practice owners, managers, and leaders what the proposed regulations stipulate, and what your plan is to deal with them. For instance, if any exempt employees will be reclassified as nonexempt, how will their (presumably) new job be described? How will this be communicated to the employees? How will their pay be managed?
  7. Identify all independent contractors and review any work agreements, statements of work, or other documents addressing the nature of the working relationship. The DOL is placing a strong focus on such relationships and finding that many independent contractors should in fact be “W-2 employees.” The Internal Revenue Service (IRS) requires employers to report wage and salary information for employees on Form W-2.

    The W-2 also reports the amount of federal, state, and other taxes withheld from an employee’s paycheck. Independent contractors would not receive a W-2 form. Rather, their relationship with their client differs from that of a W-2 employee in that they receive a retainer or other type of compensation arrangement that does not include any payroll taxes. The IRS, the courts, and the DOL use what is known as “economic realities” testing. On July 15, the DOL issued the Administrator’s Interpretation No. 2015-1 to provide guidance for employers on this
  8. Determine whether any interns are actually employees. The DOL’s 6 criteria for a legal unpaid intern can be found at www.dol.gov/whd/regs/compliance/whdfs71.pdf.

Be Proactive

Federal and state laws affecting worker status can be confusing and difficult to comply with in the current healthcare setting, which tends to be more dynamic than the static nature of some work the W&H laws are designed to control.

All employers will certainly face some hard choices once the final regulations are promulgated. Now is the time to get familiar with these proposed regulations and to be ready to take steps to manage them proactively.

Look for future articles on the impact of these new DOL rulings, as well as on rulings by the National Labor Relations Board, which governs unionized and union-free companies.

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