Looking Toward the Year Ahead: More Health Care Employees Entitled to Overtime under the FLSA

The U.S. Department of Labor (DOL) is expected to issue a final rule regarding the overtime provisions in the Fair Labor Standards Act (FLSA) in late 2016 that will significantly expand the number of employees eligible to receive overtime pay. The proposed rule issued in July 2015 has already prompted health care employers to proactively evaluate their compensation and employee classification practices so as not to be caught flat-footed when final rule takes effect.

The FLSA requires certain employees to be paid overtime for any hours worked in excess of 40 in a workweek. Employers are not required to pay overtime to all employees. Among other categories, the FLSA exempts certain “white collar” workers (e.g., executive, administrative, professional). To be exempt, employees must satisfy a “salary test” and a “duties test” which require that the employee:

• Be paid a statutory minimum salary threshold of $23,660 ($455 per week); and
• Perform certain types of “duties” (i.e., those that involve managing, supervising, or running a business; exercising discretion or independent judgment on significant matters; or performing tasks that require advanced knowledge).

The DOL has proposed to increase the salary threshold for white collar exemptions from $23,660 to $50,440. The proposed changes include a "mechanism to automatically update the salary and compensation thresholds on an annual basis using either a fixed percentile of wages or the CPI-U (Consumer Price Index for Urban Consumers)." If the rule becomes final, employers will be required to reassess pay levels each year to determine eligibility for overtime exemptions. The initial increase to $50,440 is expected to expand overtime eligibility for nearly five million employees within the first year of enactment.

DOL also proposes to increase the salary threshold to meet the “highly compensated employee” exemption from $100,000 to $122,148, the 90th percentile for full-time salaried employees. All employees who earn less than $50,440 must be classified as non-exempt regardless of their job duties, and all employees who earn between $50,440 and $122,148 are potentially non-exempt, depending on their specific duties. DOL’s proposed rulemaking doesn’t make any changes to duties analyses for white collar exemptions.

Health care compensation analysts expect the rule change to impact mid-level administrative positions within hospitals and health systems especially: Lower-level white collar positions in support departments such as accounting, human resources and information technology are ones that are most often misclassified as exempt.

But it is important for physicians, physician assistants, nurses and other employed medical professionals to understand that they, too, may be entitled to overtime compensation, if they are made to work more than 40 hours per week and are paid a salary that is under the threshold, or are not paid a salary at all. This is the lesson that Righttime Medical Care, an operator of urgent care clinics in Maryland, learned to its dismay this past year when some of its current and former PAs and NPs sued it for unpaid overtime, and were subsequently granted class certification under the FLSA by the United States District Court.  ​