Have you heard the latest? The federal government has issued new rules when it comes to overtime exemptions. Are you wondering what this means and how it affects you? You're not alone. We're here to help!
To do that, we first have to address the myth about compensating your staff, and we need to get a few definitions out of the way.
Myth: I pay a salary so I do not have to pay overtime.
This could not be more false. The method of compensation has no bearing on overtime requirements. Employers can pay their employees in a variety of ways-salary, hourly, piece rate, per day, commission-and the requirement to pay overtime might still exist.
Definition: Nonexempt employees
Nonexempt employees receive overtime pay at all times, when it is worked, regardless of their method of compensation. They are not exempt from the overtime pay requirements and calculations.
Definition: Exempt employees
Exempt employees do not receive overtime pay; they are exempt from the overtime pay requirements. These are the only employees who do not receive overtime. To qualify, there are specific job duty tests put forth by the Fair Labor Standards Act (FLSA) that must be met. An inability to pass those tests means the employees cannot be classified as exempt, and therefore they are entitled to receive overtime pay.
The Department of Labor's (DOL) regulations require exempt employees to be paid on a salary basis. In addition, the amount of the salary paid must meet a minimum specified amount. In 2004, the DOL set the salary threshold at $455 per week or $23,660 per year.
OK, now that we got that out of the way, what's new?
As of the issuing of their final rule, the minimum salary for exempt employees is increasing. The key provisions of the new rule are as follows:
• Set the standard salary level at $913 per week or $47,476 annually.
• Set the total annual compensation requirement for "highly compensated employees" subject to a minimal duties test to $134,004.
• Amend the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level.
• Establish a mechanism for automatically updating the salary and compensation levels every three years.
The effective date of the final rule is December 1, 2016. Future automatic updates to those salary thresholds will occur every three years, beginning on January 1, 2020.
What's next for your dental practice?
Here's what you need to do to get your house in order, depending on your current situation:
• If you have erroneously classified employees as exempt, have neglected to pay overtime, and the employees in fact do not meet the exemption duties test, you must reclassify them as nonexempt, rectify the past in which overtime should have been paid and was not, and then pay overtime going forward when the hours are worked.
• If you have properly classified your employees as exempt and they are not making the new salary requirement, you must increase their salaries on or before December 1 of this year in order to keep them classified as exempt.
• If you have properly classified your employees as exempt and you do not wish to pay them the increased salary requirements, you must reclassify them as nonexempt and pay them overtime when it is worked going forward.
• If you have properly classified your employees as exempt and their salaries are or exceed the new requirement, then no action is necessary.
• For any future hires that you want to consider classifying as exempt, you must ensure they meet the duties test and you must pay them in accordance with the new salary requirements.
The method (hourly, salary, commission, etc.) with which an employer compensates employees has no bearing on overtime requirements. There is a myriad of things to comply with and consider. We find that nearly 95% or more of employees in the dental field do not qualify for the exempt classification. We have only scratched the surface on this issue. Be sure to work with an HR professional before implementing exemption positions at your practice.
Tim Twigg is the president of Bent Ericksen & Associates, and Rebecca Boartfield is an HR compliance consultant. For more than 30 years, the company has been a leading authority in human resources and personnel issues, helping dentists successfully deal with ever-changing and complex labor laws. To receive a complimentary copy of the company's quarterly newsletter or to learn more, call (800) 679-2760 or visit bentericksen.com.