How the Department of Labor’s New Overtime Rules Could Impact Your Practice

One Rule, Two Tests

The Department of Labor’s (DOL’s) goal is to extend overtime pay to more U.S. workers, especially to midrange “white collar” workers who have traditionally been exempt from overtime pay.¹

Two quick tests can help you determine if any of your employees fall into this group. If an employee fails to pass either test (or both), you’ll have HR decisions to make and changes to implement before December 1, 2016, when the new rules are slated to take effect.

Test #1: What is the Employee’s Salary?

Yes or No: Are your exempt employees effectively being paid more than the DOL’s new $913/week or $47,476/year threshold? If so, they can remain exempt — if they also pass Test #2 …

Test #2: What Are the Employee’s Duties?

Yes or No: Is the employee eligible for the existing “white collar exemption” from overtime pay?² For administrative staff members, their PRIMARY DUTIES must include:

  • “[O]ffice or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;”

AND

  • Significant “exercise of discretion and independent judgment.”

Professional staff members also are subject to specific (different) primary duties, and must exercise consistent discretion and independent judgment (See the DOL’s overtime overview webpage for additional information on professional, as well as administrative, executive and other staff exemptions.)

It’s worth emphasizing that, under Federal law, an employee’s primary duties are those that occupy the significant majority of his or her time.

For example:

  • Office managers in a large office who are truly “in charge,” with limited or no clerical work as a percentage of their weekly schedule, should pass Test #2.
  • “Office managers” in name, who spend most of their time on clerical duties such as billing, scheduling, filing, and customer relations would NOT qualify as exempt.

Office Scenarios

Professional Staff

Many dental and medical offices may already pay their professional staff salaries that put them comfortably past the $47,476 annual threshold. If these employees have “passed” both tests in the past (or not), there should be no need to reassess their status. In other words, the rules have not changed regarding a professional staff member’s “Test #2” primary duties.

Office Professionals

Salaries and hours for your office managers and similar administrative employees may require closer inspection. You and your staff may both be satisfied with annual salaries in the $35,000-$45,000 range (plus benefits) and relatively flexible work schedules. But the DOL’s new rules may still call for updated policies and more formal time-tracking procedures for such employees.

What Next?

Before December 1

If you have exempt employees who will fail one or both of the salary and duties tests, there are a number of actions you might take, many of which can be combined as warranted:

  • Raise exempt employees’ salaries to exceed the minimum threshold.
  • Reclassify exempt employees to non-exempt. Keep their salaries level, but prepare to track their hours more closely and pay overtime as required.
  • Trim staffing levels, individual hours and/or bonus packages to mitigate additional costs.
  • Consider hiring part-time or temporary employees to bridge gaps. Ongoing — The new rule also provides for adjustments every three years of the new $913/week or $47,476/year threshold (which, according to the DOL’s website, represent “the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region”). These levels are more likely to go up than down, so plan accordingly.

Looking for Assistance?

While you’re at it, if you’ve not rewritten your employee handbook in a while — or if you don’t yet have one — consider the DOL’s new rule a call to action! A membership in CalChamber (www.calchamber.com) offers a number of benefits we’ve found well worth the cost for most California dental and medical professionals. This includes employee handbook compilations for $199, as well as a hotline for your related questions and concerns.

¹The information here does not, and shall not be construed to constitute legal advice. It should not be considered a substitute for the informed advice of an attorney.

²Important differences remain between California and Federal laws governing the primary duty test. For example, under California law, the primary duties test means more than 50 percent of the duties must be exempt.