Compliance with New Overtime Rules
By Olivia Wann, JD
The dilemma of whether an employee is salary or hourly continues to perplex employers. Perhaps you have classified your office manager as salary exempt meaning no compensation for overtime because he or she is serving in a managerial capacity. Maybe the hygienist was also classified as exempt “salary.” The hygienist on a daily rate never had to track hours worked and was paid a daily rate whether they worked 8-hours a day 4-days a week or the occasional 6-days a week.
Salary exempt must meet a standard salary level and the standard duties test in order to qualify for exemption from overtime. According to the Department of Labor, job titles never determine exempt status under the FLSA. Furthermore, receiving a particular salary, alone, does not indicate that an employee is exempt from overtime and minimum wage protections.
The overtime rules have changed the working environment with the new rules that go into effect December 1, 2016. It is highly important that you as an employer carefully review how these changes affect your practice. Compliance managers must update their handbooks, job descriptions and recalculate compensation accordingly.
The Fair Lair Standards Act ensures minimum wage and overtime pay protections for most employees covered by the Act. Some employees are considered “exempt” from these protections. Exempt employees are a classification of employees exempt from overtime. Non-exempt are employees subject to payment of overtime. Perhaps you have used the term “salary” to refer to an employee not subject to overtime pay.
In order for executive, administrative and professional employees to be exempt from overtime, each of the three tests must be met:
1) the employee must be paid a set salary amount that is not subject to reduction because of variations in the quality or quantity of work performed which is the “salary basis test;”
(2) the amount of salary paid must meet a minimum specified amount referred to as the “salary level test”; and
(3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations, known as the “duties test.”
The weekly salary threshold changed from $455/week ($23,660/annual) to $913/week ($47,476/annual). Therefore, employees classified as exempt and clearly engaged in exempt related work cannot earn less than $913 a week or the $47,476 a year.
Employers are permitted to use nondiscretionary bonuses and incentive payments (including payment of commissions) to satisfy up to 10% of the standard salary level.
If the employee is classified as “salary,” the employer cannot reduce the individual’s compensation for working less than 40 hours. For example, if it snows at 10 AM and the office closes for the remainder of the day, the salary exempt employee cannot incur a pay reduction.
Although hygienists do not meet the professional exemption status, employers may pay the hygienist a salary as non-exempt. As a non-exempt salary paid worker, the hygienist is eligible for overtime and must track his or her work hours.
Is the office manager salary exempt? In addition to the compensation requirement, the employer must determine if the primary job duties meet the executive, administrative, and professional employee exemption in addition to the standard salary level.
To qualify for the administrative exemption, the employee’s primary duty must be performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, or in our scenario, the employer’s patients. The salary exempt employee must exercise discretion and independent judgment regarding significant matters. Likely a small dental office’s office manager does not meet this test.
The professional exception includes associate dentists, not hygienists. To satisfy the executive exemption, the salary exempt employee’s primary duty consists of managing the enterprise and regularly directs the work of two full-time employees or the equivalent. A large practice or an operations manager managing multiple locations meets this job duties description.
According to the United States Department of Labor, here are your options for responding to the changes in overtime rules:
- Raise salaries to maintain exemption
- Pay current salaries, with overtime after 40 hours a week
- Reorganize workloads, adjust schedules or spread work hours
- Adjust wages[i]
The standard salary level requirement shall be updated automatically every three years.
Reading this article does not constitute legal advice or imply an attorney-client relationship.
 Wage and Hour Division, United States Department of Labor, Guidance for Private Employers on Changes to the White Collar Exemptions in the Overtime Final Rule, May 18, 2016, Page 2, https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf Accessed on June 18, 2016.
[i] Wage and Hour Division, United States Department of Labor, Guidance for Private Employers on Changes to the White Collar Exemptions in the Overtime Final Rule, May 18, 2016, p. 5, https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf Accessed on June 18, 2016.