The DOL has proposed new regulations that will make many more workers eligible for overtime pay. Here's what you need to know about these upcoming changes now.
Get ready for some changes to overtime policy. The U.S. Department of Labor is planning to expand OT eligibility in 2016. While the proposed rules are still out for public comment through September 4, now is the time to start preparing and planning for the new regulations to take effect.
I talked with Jonathan Kozak, employment litigator with the workplace law firm Jackson Lewis, about what the new regulations mean for hospital HR departments, including which employees are expected to become nonexempt, how long the new regulations have been in the works, and how this might change employment in hospitals.
Jonathan Kozak |
HealthLeaders Media (HLM): To get started, can you explain a bit about what's been proposed by the DOL?
Jonathan Kozak: What's proposed is a change to salary basis minimum requirement for application of what are known as the "white collar exemptions" under section 541 of the DOL's regulations. For most of the white collar exemptions, there are two essential components or requirements: The first is a salary basis not less than the minimum set forth in the regulations, which is currently set at $455.00 per week; and second, that the individual's job duty is exempt work, the nature of which is spelled out in the regulations.
The proposed change will increase the minimum weekly salary basis amount from $455 weekly to a level equal to the 40th percentile of earnings for full-time, salaried workers in the Bureau of Labor Statistics annual earnings report. For 2016, that level would be $970.00 weekly.
So, essentially, you're going from a minimum salary requirement for many of the white collar exemptions of roughly $23,600 annually to $50,440. So, it's a substantial increase, and it's also an increase that will be tied to the BLS report, so it has potential to increase year to year.
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HLM: Other than people who earn more than $50,440 annually, what kind of workers will not be eligible for overtime under the new regulations?
Kozak: The exempt tests are not limited to the salary basis; exempt tests require employers to demonstrate that individuals for whom they're claiming the exemption have as their primary job duty exempt work. The change in the salary basis level is just one part of the test for who is exempt from earning OT and who is not.
In giving some thought to the types of positions in hospitals and medical facilities most affected, you’re looking at roles currently classified as exempt. Physicians are exempt professionals. This is not going to change anything for doctors—first, because the regulations don't require [overtime pay] to professionals who are doctors and lawyers, and second, because their compensation levels are usually well above $50,000 yearly.
While registered nurses could qualify as exempt professionals if they're paid on a salary basis, my experience is that many RNs not paid on salary basis. Many RNs are treated as nonexempt and overtime-eligible for various labor relations reasons—oftentimes because they're represented by a union and they're following a [pay] scale.
Where I think the greatest impact could be is in respect to administrative positions, where you have individuals who are paid on a salary basis but earn under $50,000, and mid-level management positions who may otherwise satisfy an executive exemption but are paid less than $50,000. Should rules go into effect as proposed, as soon as they are effective, those persons are automatically nonexempt regardless as to their job duties and are entitled to overtime pay when work in excess of 40 hours weekly.
Other roles that are likely going to be impacted in hospitals include information technology positions, depending on method and rate they're paid, their responsibilities, and primary job duties; and social workers, if their annual salary is less than $50,440, may no longer be exempt.
HLM: What are some strategies leaders who wish to avoid paying their employees overtime might take?
Kozak: What's going to happen is, with more workers falling into the nonexempt category—the DOL estimates that 4.6 million employees that are currently classified as exempt will no longer be exempt simply by increasing the salary basis level—employers are going to need to control hours worked by those employees who are newly nonexempt. Otherwise, their costs will increase.
When a newly nonexempt employee works, the employer will most likely be getting less work out of that worker. When the employer get less work out of workers, the employer will also get less productivity, and [that] will probably result in lower wage rates. I think employers who are seeing less productivity or who are going to require the same amount of work are going to have to weigh cost of paying overtime for same level of work as opposed to the cost of hiring more workers to accomplish the same amount of work.
Other employers are simply going to adjust wage rates to account for the extra work or overtime work that will have to be accomplished. The cafeteria manager who earns presently a salary of $40,000 and works 50 hours weekly will become nonexempt—and his or her employer has option to adjust the wage rate to accommodate the overtime hours that they work. It would just be a matter of doing the math.
HLM: How long have these new regulations been in the works? And how much lead time will hospitals and businesses have to prepare for them to take effect?
Kozak: The new regulations didn't come out of nowhere. The [Obama] administration has talked about doing this for some time. It's believed to have been a specific directive from the president to the DOL to modernize existing overtime regulations. It's really not a leap to look at the current salary base level and to suggest, as many have, that it has not kept pace with economy.
In terms of lead time, there will be a 60-day public comment period. It's possible that it will be requested that the comment period be extended. During the last update in 2004, the comment period was extended to 90 days. The DOL will receive and evaluate the comments and prepare the final versions of the regulations.
The effective date won't be until second quarter of 2016, at the earliest. There may be litigation that will impact the effective date—it's happened in the past. When the final version goes through, the lead time may be written into regulations themselves.
In any case, the final rule is not expected to be issued before 2016. Even after final rule is issued, there will be some lead time before rules are in put into practice.
Lena J. Weiner is an associate editor at HealthLeaders Media.