Proposed “Exempt” Status Risks for Health Care Employers

Health care providers need to be aware of significant anticipated changes to federal laws governing which employees may be treated as exempt from eligibility for overtime. Failing to account for the changes if and when they go into effect will expose health care employers to significant potential liability. Successful claims for improperly paid or unpaid wages carry the potential for both a doubled damage and an award of attorneys fees to a successful claimant. When multiple employees are affected, an employer may be faced with defending a class action.

The proposed regulatory changes are primarily focused on the threshold level of salary an employee must receive in order to potentially be ineligible for overtime. If the proposed changes are implemented, minimum salary for exempt employees would more than double. The changes may become effective as early as 2016.

The changes were posted by the United States Department of Labor’s Wage and Hour Division on July 6, 2015 and set forth proposed modifications to 29 CFR Part 541, the regulations addressing which employees will qualify as “exempt” for purposes of eligibility for overtime pay. The changes will apply to any employer covered by the Fair Labor Standards Act (FLSA), which includes hospitals, businesses providing medical or nursing care for residents, and public agencies. While doctors are not subject to the new regulations, the changes would apply to other health care providers and employees.

The current minimum salary threshold for most exempt employees was set in 2004 and requires at least $23,660 annually with at least $455 received per week. If effective in 2016, the regulatory changes would increase the minimum threshold to $50,440 annually with at least $970 received per week. The modifications anticipate setting the minimum salary level at the 40th percentile of weekly earnings for all full-time salaried workers. The proposed changes also anticipate incorporating a system for continuing adjustments to the necessary minimum salary in order to keep pace with living costs, either through linking increases to earnings percentile of all full-time salaried workers or through linking to changes in inflation as measured through the Consumer Price Index for all Urban Consumers (CPI-U).

The proposed revisions additionally anticipate modifying the exemption for highly paid employees. Currently, employees making at least $100,000 annually and receiving at least $455 weekly will be considered exempt if the employee customarily and regularly performs at least one of the primary duties or responsibilities of an executive, administrative, or professional employee as identified in the FLSA standard tests for exemption. Under the changes, the minimum salary for highly paid employees would be increased to $122,148 annually which corresponds to the 90th percentile of weekly earnings of all full-time salaried employees.

Employers have a window to voice positions on the proposed regulatory changes. Written comments will be accepted until September 4, 2015 and will need to reference Regulatory Information Number (RIN) 1235-AA11. Comments may be submitted online and additional information for how to submit a comment can be found here.

Health care employers should carefully evaluate the wages paid to all employees currently classed as exempt to identify which employees may be affected. Employers may wish to consult with counsel to most effectively plan for any necessary changes and identify potential pitfalls. Employers may also wish to submit comment prior to the September 4th deadline expressing positions and opinion on the proposed changes.

For questions regarding the anticipated changes, their impact, and potential options, please contact the author, Patrick Pearce.

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