Editor’s note: On November 29, 2016, U.S. District Judge Amos Mazzant III, of the Eastern District of Texas, imposed an injunction against the new federal overtime rule in response to pressure from more than 20 states and numerous business advocacy organizations. The stay of implementation took effect December 1, 2016. At the time of this posting, it is not known whether part or all of the rule will be upheld or invalidated. The U.S. Department of Labor may seek to appeal, in which case a ruling is not expected until the second or third quarter of 2017. The U.S. Congress, for its part, may enact legislation in 2017 that factors in the ultimate outcome. Meanwhile, employers are urged to follow these developments closely until the matter is resolved.
Payroll is the largest expense category for most businesses, which is why, starting December 1, 2016, the new U.S. Department of Labor regulations are going to have a big impact on how many small employers deal with paying overtime.
Overtime guidelines had not been updated since 2004, and so in 2014, President Obama’s goal was to update and modernize the regulations governing the exemption of executive, administrative, and professional employees from the minimum wage and overtime pay protections of the Fair Labor Standards Act (FLSA). In other words, he wanted to close loopholes to make sure people get paid for all the work they do.
Most chiropractic offices are covered by the FLSA, and so will be subject to the new guidelines when they take effect. Even though FLSA allows exemptions for very small business operations, this only applies to a small percentage of chiropractic offices operating today.1
Today’s employees are being educated about their rights, and now more than ever are able to blow the whistle on their employer for labor law violations. Which is why ensuring your office’s employment policies and procedures are compliant with the FLSA is essential.
The first step is to understand the basic guidelines, or “rules of the game,” so here are the four main myths about overtime you see in chiropractic practices.2
Myth: My office has a two-week pay period.
Reality: FLSA defines a pay period as seven consecutive 24 hour periods, and the law cannot be circumvented by how frequently paychecks are issued.
Consequence: Because a pay period is seven days, averaging hours over a period of two or more weeks is not allowed. Employees who work 35 hours one week and then 45 the next (i.e., a 40-hour average) must be paid for the five hours overtime worked during the second week. Shifting hours from one week to the next is an FLSA violation.
Myth: Salaried employees don’t get overtime if they work more than 40 hours per week.
Reality: Even if someone is hired as a salary-based employee, they are not exempted from overtime pay requirements. The Labor Department has established strict guidelines for over- time-exempt salaried employees, which are the basis of their “duties test.”
Myth: Dedicated employees can waive overtime.
Reality: An employee is not allowed to authorize their employer to waive overtime payment, and cannot authorize the employer to violate the law on their behalf.
Myth: Supervisors and managers do not get paid for overtime after 40 hours.
Reality: Simply being hired as a supervisor or manager does not exempt an employee from the guidelines. Titles play no part in determining whether the employee is exempt or not. The exemptions are all based on the duties test.
The duties test
There are exemptions, but most DCs will find their requirements are hard to meet. In order for an exemption to apply, an employee’s specific job duties and earnings must meet all of the applicable requirements of the updated guidelines established by the FLSA.3
The employee must meet all three of these conditions to be exempt from overtime:
- The salary basis test means the salary paid is not subject to reduction based upon quality or quantity of work. For example: If the office manager misses four days of work, they would still receive their full week’s salary.
- The salary level test means their salary must meet a minimum salary level, which after Dec. 1, 2016, will be $913 per week, or $47,476 annually.
- The standard duties test means the employee’s primary job duty must involve the kind of work associated with exempt executive, administrative, or professional employees.
All three tests must be met before an employee is considered exempt from overtime payment. Two out of three isn’t good enough—all three conditions must be met for them to be exempt.
Within chiropractic offices, the two most commonly exempt employees are the doctor and his or her associates.
The basis of a professional employee status is established by the employee holding a professional license or certificate. Other licensed employees in the office may be exempt and to determine their exemption status, consult your business attorney or review the criteria as given by the Labor Department.4
Are changes required for your practice and employees?
Before or immediately after December 1, 2016, evaluate your responsibility by checking the salary levels of your team, especially those in supervisory positions such as administrators, office managers, and billing managers.
If any of your employees earn less than $47,476 annually, you need to modify your policies and procedures so you can track the hours they work and determine how much overtime to pay them.
And be aware the information provided here only addresses the federal level of labor regulations. Where state laws differ from the federal FLSA, an employer must comply with the standard most protective to employees. Links to your state labor department can be found at dol.gov/contacts/state_of.htm.
Don M. Cross, DC, CPCO, is a certified professional compliance officer and leader in the chiropractic profession. A professor at Palmer Chiropractic College-Florida focusing on the business of practice, he’s served as president of the Florida Chiropractic Association and vice president of the Council of Chiropractic State Associations. He also created the OCCM Chiropractic Compliance Manual. He can be contacted through chiropracticcompliance.com.
1 “Guidance for Private Employers on Changes to the White Collar Exemptions in the Overtime Final Rule. U.S. Department of Labor. www.dol.gov/whd/overtime/final2016/general- guidance.pdf. Published May 2016. Accessed Oct. 2016.
2 “Small Entity Compliance Guide to the Fair Labor Standards Act’s ‘White Collar’ Exemptions.” U.S. Department of Labor. www.dol.gov/WHD/overtime/final2016/SmallB usinessGuide.pdf. Published May 2016. Accessed Oct. 2016.
3 “Fact Sheet #17D: Exemption for Professional Employees Under the Fair Labor Standards Act (FLSA).” U.S. Department of Labor. www.dol.gov/whd/overtime/fs17d_professional. htm. Updated July 2008. Accessed Oct. 2016.