Recent media coverage of the de-bate surrounding an increased federal minimum wage as well as increased “salary basis” test to determine exempt status has drawn employers’ attention. Although some claim that these actions are posturings on the part of politicians seeking to further their own party’s agenda and will have little impact on the majority of American workers, the news does provide an opportunity to clarify a few critical points for medical practice employers.
The federal minimum wage and salary basis test are provisions within the Fair Labor Standards Act (FLSA),1,2 enacted in 1938, which is often referred to as the “Wage and Hour” law. Imagine the labor and employment landscape that must have existed in 1938, including oppressive working rules and conditions, and no worker protections for overtime, minimum wages, child labor, recordkeeping, and numerous other aspects of the employment relationship. The FLSA was also, in effect, an attempt at a national job classification program.
Since its passage, certain jobs and entire industries have been excluded from coverage.2,3 There are regular court decisions on issues of working hours, class action suits regarding the “exempt” status of certain employees, and W-2 versus Form 1099 workers. Exempt status is based largely on income and job description; the classification impacts whether an employee is governed by rules regarding minimum wage and overtime pay.4 It is possible that employers may misclassify employees out of ignorance or inattention to job details. It is also possible that employers misclassify employees as independent contractors. The results of these misclassifications can be disastrous.
Sanctions for violations (intentional or otherwise) can be severe,5 compliance is often uncertain, and most states (or municipalities) even have their own similar—but not always exact—replicas of the FLSA. If you are covered by any of these related statutes or ordinances and the FLSA, you must follow whichever requirements are more advantageous to your employees.
The purpose of this article is to review a primary point of concern for medical practice management: the employee’s exempt versus nonexempt status. We will assume for the purpose of this article that your employing medical practice is covered by FLSA, and that your workers are, in fact, W-2 employees. The next step, then, is to determine each employee’s status as exempt from FLSA or if they are nonexempt.
The FLSA specifically exempts certain workers and industries from its minimum wage provisions, overtime requirements, or both. The employee exemptions have some specific, and not-so-specific, standards (duties tests). Therefore, accurate, current job descriptions are critical to compliance. The main categories of exemptions are executive, administrative, professional, and outside sales. Readers may recall recent court decisions regarding pharmaceutical representatives and their exemption as “outside sales” employees. Other exemptions include computer, highly compensated, and first responder employees. In addition, if employees are determined to be exempt by virtue of their work (not their job title), they must ordinarily be paid a salary. There is also a salary level test, which is currently $455 weekly. Other rules apply to exempt employees regarding docking pay for no work, discipline, or garnishment.2-4
Each duties test must be satisfied within its own category. The employer cannot choose duties from multiple exempt categories. Furthermore, the job’s primary duties are paramount for the exempt determination. Ideally, the job design will require any primary duties to account for more than 50% of the total work time. There is no percentage requirement in the FLSA, but employers are cautioned that having lower percentages of any exempt duties increase the legal risk if challenged. The actual FLSA language is too lengthy to include here, but can be found on the US Department of Labor’s Wage and Hour Division website6; most medical practice employees would have the following exemptions if their duties warranted such an exemption (Table)4:
- Executive. This includes “hire/fire” authority, management of all or part of the entity, and directing the work of others
- Administrative. This includes office or nonmanual work directly related to the management or business operations of the employer. It must include the exercise of discretion and independent judgment
- Professional. This is divided into 2 sections: learned professional (LP) and creative professional (CP). The LP is described as doing work that is intellectual in nature, requiring the consistent exercise of discretion and requiring advanced knowledge. The CP is described as doing work that requires invention, originality, or talent in a recognized field of artistic endeavor.
The detailed rules and examples used to qualify for these exemptions appear to be specific.4 Unfortunately, the reality of our work processes, job designs, and shifting responsibilities are often less specific than the written examples. Employers should familiarize themselves with the criteria for each exemption before making a determination about and documenting their decision for FLSA coverage.
Here are a few related issues that may arise in the course of implementing compliance programs for the FLSA4,6,7:
- Employees may not waive their rights to the requirements of the law
- Only actual time worked (including certain “donning and doffing” time) must be considered when calculating overtime. Vacation, holiday, and sick time, for example, are not included in the total hours in a given workweek
- Each workweek’s hours are calculated separately in most cases.
- Nonexempt employees must be paid premium pay for hours worked in excess of 40 in a workweek (not for hours exceeding 8 in a workday). Note that there are exceptions to this 40-hour rule
- Employers are generally free, within limits, to establish their own definitions for a workweek and a pay period. A workweek is any consecutive 7-day (168-hour) period. A pay period is usually 2 consecutive workweeks for nonexempt employees (some employers pay exempt employees monthly)
- Compensatory time is generally not allowed for nonexempt employees in the private sector
- Nonexempt employees may be paid a salary, but doing so exposes the employer to some complicated calculations should overtime pay be required. It is prudent to pay nonexempt employees on an hourly basis and to devise adequate controls on overtime
- Exempt employees may be paid for time worked above a certain number of hours, but doing so should be a business decision and developed only after a thorough analysis
- Employers are not required to have exempt employees track their working time through manual or electronic means. There may be business reasons (and employee relations reasons) for such a decision.
Recent proposals from members of Congress could include an increase to the current salary basis amount of $455 weekly. Should the 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 then found to be nonexempt, would be eligible for overtime pay going forward.
The FLSA is a critical piece of labor law and must always be taken seriously. The dynamics of the workplace and evolving nature of this law through presidential executive order, court cases, and congressional amendment demand our constant vigilance for compliance. No single article on the FLSA can possibly cover all aspects of it, and nothing can replace legal counsel for your human resources policy and practices review. Future articles will focus on other aspects of this important legislation.
1. United States Department of Labor, Wage and Hour Division. Compliance Assistance–Wages and the Fair Labor Standards Act (FLSA). www.dol.gov/whd/flsa/. Accessed April 29, 2014.
2. United States Department of Labor, Wage and Hour Division. Fact Sheet #17G: Salary Basis Requirement and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA). www.dol.gov/whd/regs/compliance/fairpay/fs17g_salary.pdf. Accessed April 29, 2014.
3. United States Department of Labor, Wage and Hour Division. Coverage Under the FLSA. www.flsa.com/coverage.html. Accessed April 29, 2014.
4. United States Department of Labor, Wage and Hour Division. Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA). www.dol.gov/whd/regs/com pliance/fairpay/fs17a_overview.pdf. Accessed April 29, 2014.
5. United States Department of Labor, Wage and Hour Division. Poster: Employee Rights Under the Fair Labor Standards Act. www.dol.gov/whd/regs/compliance/posters/minwage.pdf. Accessed April 29, 2014.
6. United States Department of Labor, Wage and Hour Division. Home Page. www.dol.gov/whd/. Accessed April 29, 2014.
7. United States Department of Labor, Wage and Hour Division. Overtime Pay. www.dol.gov/whd/overtime_pay.htm. Accessed April 29, 2014.