DOL Proposed FLSA White Collar Exemption Changes To Heighten Already High Health Industry Wage & Hour Costs & Risks |

DOL Proposed FLSA White Collar Exemption Changes To Heighten Already High Health Industry Wage & Hour Costs & Risks

Health industry businesses already targeted for wage and hour law enforcement must brace for expanded costs and liability when the department of labor finalize his proposed changes to its Fair Fair Labor Standards Act (“FLSA”) minimum wage and overtime collar exemption rules.

Many health care and other businesses rely on the FLSA white-collar exemption to avoid paying overtime to certain workers. Just-released Department of Labor Wage and Hour Division (“Labor Department”) proposed regulations will substantially shrink the workers eligible to qualify as exempt by increasing by more than 35 percent the minimum salary required for an employee to qualify as exempt under the FLSA exemption for executive, administrative, and professional employees (commonly referred to as the “white-collar exemption”) as well as increase the minimum compensation that an employee must earn to qualify as an exempt employee under the special rule allowing employers to treat certain “highly compensated employees” as exempt.

If changes proposed in the Notice of Proposed Rulemaking (Proposed Rule), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees(“Proposed Rule”) released August 30, 2023 will significantly increase the labor costs for health industry and other employers of the more than 4 million employees projected to cease to qualify as exemption from the FLSA minimum wage and overtime requirements.

Proposed White-Collar Exemption Salary Level Test Compensation Increase

The white-collar exemption to the FLSA generally exempts an employee from the FLSA minimum wage and overtime requirements if the employee Is employed in a bona fide executive, administrative, or professional (EAP) capacity as those terms are defined in the Department of Labor’s regulations at 29 CFR part 541.

Currently, an employee generally must meet the following conditions to qualify as an exempt employee under the white-collar exemption:

Be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);[1]
Be paid at least a specified weekly salary level, which currently is $684 per week (the equivalent of $35,568 annually for a full-year employee) in the current regulations (the “salary level test”); and
Primarily perform executive, administrative, or professional duties, as provided in the Department’s regulations (the “duties test”).

The Proposed Rule would Increase the minimum salary that an employee must earn to meet the salary level test by 35 percent from $684 per week ($35,568 annually) to $1,059 per week ($55,068 annually). This represents an immediate more than 35 percent increase in the minimum salary that an employer must pay an employee to treat the employee as exempt from minimum wage and overtime requirements. The Proposed rule also would extend the applicability of the standard salary level to Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands, and increase the special salary levels for American Samoa and the motion picture industry.

Proposed Highly Compensated Employee Annual Compensation Increase

The Proposed Rule also seeks to increase the total annual compensation that an employee must earn to qualify as exempt as a highly compensated employee.

Presently, a highly compensated employee is deemed exempt under Section 13(a)(1) even though the employee does not meet all of the other requirements in the standard white-collar test for exemption as an executive if:

The employee earns total annual compensation of $107,432 or more, which includes at least $684* per week paid on a salary or fee basis;
The employee’s primary duty includes performing office or non-manual work; and
The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

The required total annual compensation of $107,432 or more, which includes at least $684 per week paid on a salary or fee basis, may otherwise consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period, but does not consist of credit for board, lodging, or other facilities, payments for medical or life insurance, or contributions to retirement plans or other fringe benefits.

Additionally, the weekly salary amount of $684 must be paid in its entirety. Employers may not use nondiscretionary bonuses and incentive payments (including commissions) to satisfy any portion of the weekly standard salary level for highly compensated employees.

The Proposed Rule would increase the total annual compensation requirement for an employee to qualify as a highly compensated employee from $107,432 to $143,988 per year, which would be required to include at least $1,059 per week.

Proposed Automatic Adjustments Every Three Years

The Proposed Rule also calls for automatic updates to the earnings thresholds applicable under the White-Collar Exemption every three years based on then current wage data.

FLSA Violations Expensive; Enforcement Risk High

As costly as complying with applicable FLSA minimum wage and overtime rules can be, violations are worse as illustrated by the $324,049 in back wages and liquidated damages that a federal judge just ordered home health provider Destiny Healthcare Services Inc. and its owner to pay for wrongfully failing to pay required overtime to 159 workers. Since the Labor Department specifically scrutinizes the health industry for special FLSA oversight and enforcement, health industry, employers need to be particularly concerned about getting nailed for FLSA, violations by the Labor Department or private litigants.

In Su v. Destiny Healthcare Services, Inc,. Mirza Baig, Sonia Chalal is illustrative. From October 2020 through October 2022, a Labor Department investigation determined owner Mirza Baig and administrator Sonia Chalal did not keep accurate records of hours worked and paid the affected workers straight-time wages for all hours worked. By doing so, the Westchester-based employers failed to pay overtime as required by the FLSA. The Labor Department obtained a consent order resolving all issues, including payment of $324,049 in back wages and liquidated damages, and an injunction for future compliance. The award included $162,024.69 in unpaid overtime compensation and the additional sum of $162,024.69 in liquidated damages,

Prepare For Compensation Cost Increases

Given the proactivity of the Biden Administration led Labor Department, employers generally and the heightened scrutiny of health industry compliance, health industry businesses begin preparing for the Labor Department to move quickly to finalize and adopt the changes set for the Proposed Rule.

Among other things, employers should confirm the current defensibility of their current treatment of any workers as salaried and assess the extent to which the changes in the Proposed Rules are likely to require the employer to reclassify and treat as non-exempt any employee the employer currently classifies as salaried. If so,the employer should identify and prepare to implement any changes to compensation necessary to maintain compliance with the modified rules when effective. Where the job position warrants increased compensation, an employer may want to increase compensation for a worker that otherwise meets the required conditions to qualify as exempt. In other cases, employers should evaluate the current compensation structure to determine whether and how to convert the current salaried compensation to an hourly rate of pay in a manner defensible under the FLSA minimum wage and overtime rules as well as the process changes required to track and document hours of work and other additional data necessary to comply with recordkeeping requirements of the FLSA. In some instances, it may be possible for the employer to restructure the current salary as a base wage plus overtime rate for overtime rate without materially increasing compensation costs for the impacted employee. In other cases, however, employers may want to begin recruiting additional workers or making other changes to mitigate the projected impact of the required conversion of employees currently classified as salaried to hourly under the Proposed Rule.

Additionally, employers also should evaluate and begin preparing for the expected broader impact of the changes in their compensation budgets, as well as other wage dependent costs and product or service pricing to account for the expected impact of these changes. These projections should anticipate both the direct impact, if any, of the expected labor costs increases that the employer expects to experience in its workplace, as well as the indirect inflationary effect on costs likely to result from increased labor costs of suppliers and others.

Because of the high likelihood of some pre-existing misclassification of workers, the health industry business also should consider conducting this analysis within the scope of attorney, client privilege, and under the guidance of an experienced licensed attorney.

While bracing for the likely adoption of the Proposed Rules, employers and other concerned about these impacts or other changes proposed in the Proposed Rule should share their input by commenting within the 60-day period following official publication of the Proposed Rule on the Proposed Rule through the Federal eRulemaking Portal or by mail to Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, DC 20210.

[1] Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers).

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About the Author

Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 35 plus years of health industry and other management work, public policy leadership and advocacy, coaching, teachings, and publications.

A Fellow in the American College of Employee Benefit Counsel, Co-Chair of the American Bar Association (“ABA”) International Section Life Sciences and Health Committee and VIce-Chair Elect of its International Employment Law Committee, Chair-Elect of the ABA TIPS Section Medicine & Law Committee, Past Chair of the ABA Managed Care & Insurance Interest Group, Scribe for the ABA JCEB Annual Agency Meeting with HHS-OCR, past chair of the ABA RPTE Employee Benefits & Other Compensation Group and current co-Chair of its Welfare Benefit Committee, and Chair of the ABA Intellectual Property Section Law Practice Management Committee, Ms. Stamer is most widely recognized for her decades of pragmatic, leading-edge work, scholarship and thought leadership on healthcare and life science, managed care and insurance and other workforce and staffing, employee benefits, safety, contracting, quality assurance, compliance and risk management, and other legal, public policy and operational concerns in the healthcare and life sciences, employee benefits, managed care and insurance, technology and other related industries. She speaks and publishes extensively on these and other related compliance issues.

Ms. Stamer’s work throughout her career has focused heavily on working with health care and managed care, life sciences, health and other employee benefit plan, insurance and financial services and other public and private organizations and their technology, data, and other service providers and advisors domestically and internationally with legal and operational compliance and risk management, performance and workforce management, regulatory and public policy and other legal and operational concerns. Scribe for the ABA JCEB Annual Meeting with the HHS Office of Civil Rights, her experience includes extensive involvement throughout her career in advising health care and life sciences and other clients about preventing, investigating and defending EEOC, DOJ, OFCCP and other Civil Rights Act, Section 1557 and other HHS, HUD, banking, and other federal and state discrimination investigations, audits, lawsuits and other enforcement actions as well as advocacy before Congress and regulators regarding federal and state equal opportunity, equity and other laws.

For more information about Ms. Stamer or her health industry and other experience and involvements, see www.cynthiastamer.com or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.

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This entry was posted on Thursday, August 31st, 2023 at 12:54 pm and is filed under compensation, FLSA, Health Care. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.