New overtime rules take effect December 2016


Beginning in December, under a new rule from the U.S. Department of Labor, employees whose annual salary is less than $47,476 and who work more than 40 hours per week will be required to receive overtime pay. This new rule includes some employees previously considered exempt from overtime under the Fair Labor Standards Act, and thus may cause some confusion for employers such as medical practices.

Under the Fair Labor Standards Act, employees are considered exempt if they work in an executive, professional, or administrative job and are paid a salary over a certain amount. In the health care world, it is fairly easy to define an executive (anyone in a supervisory or managerial role) and a professional (physicians, nurse practitioners, physician assistants, and other highly trained clinicians).

The definition of “administrative” has traditionally been tricky for medical practices. For the administrative exemption to apply, all of the following must be true:

  • the employee must be compensated on a salary basis not less than a specific amount;
  • the employee's primary duties must be the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer's customers; and
  • the employee's primary duties must include the exercise of discretion and independent judgment.

The last requirement is where it gets muddy in medical practices because it could arguably apply to many nurses, medical assistants, and administrative staff.

The Department of Labor's new rule addresses the salary threshold. Currently, the salary cutoff amount for overtime eligibility is $455 per week (or $23,660 a year), which is well below the minimum wage. In December, the new minimum salary for most workers to be considered exempt will increase to $913 a week (or $47,476 a year). In other words, any full-time employees who earn less than this rate will be entitled to overtime pay if they work more than 40 hours a week. For medical practices, this means that any employees, even those previously defined as “exempt,” are now eligible for overtime if they make less than $47,476 per year. The new rule will automatically update the salary threshold every 3 years based on wage growth over time.

Practices have some options on how to minimize the need to pay overtime. The most obvious solution is to increase any salaries that are below $47,476. Another option is to maximize the use of part-time employees. This can actually allow more flexibility in staffing and for those who do not need benefits, such as those who are on a spouse's insurance plan. Another option is simply to be vigilant in staffing so as to limit work to 40 hours in a week by any employee. Of course, there may be times when working overtime is warranted and it is well worth remunerating the employees willing to stay late to take care of those last patients.

For more information about the new overtime rule, see the fact sheet from the U.S. Department of Labor online. For detailed information about overtime rules, go to the Department of Labor Overtime Pay web page.