In May, the Department of Labor finalized an overtime rule raising the threshold to qualify for overtime from $23,660 to $47,476, the first such increase in 22 years. The change applies to non-exempt white collar employees who work more than 40 hours a week and includes provision to automatically update every three years.
According to DOL, the Fair Labor Standards Act rule will affect about 200,000 hospital workers and 300,000 nonhospital healthcare workers, mostly nurses, paramedics, medical and pharmacy technicians and medical and physical therapy assistants.
One lawsuit to rule them all
Concerned that they will be forced to cut back on services, 21 states filed a lawsuit in a Texas federal court on Sept. 20 seeking to block the rule from taking effect Dec. 1. Within hours, a coalition of more than 50 business groups led by the U.S. Chamber of Commerce filed a similar complaint in the same court.
The states argue the rules will cost more money and states “cannot reasonably rely upon a corresponding increase in revenue.” To businesses that oppose the rule, the automatic triennial increase in the salary threshold is an economic death knell. DOL officials insist the overtime adjustment is long overdue.
The U.S. District Court for the Eastern District of Texas, where the lawsuits were filed, is considered a “rocket docket” because of its speedy disposition of cases.
“My guess is they cherry-picked this district court in Texas, and they’re almost assured to win because they’ve picked the judge they know will rule the way they want to,” said an attorney familiar with the case who asked not to be identified.
However, Armin Moeller, a partner with Balch & Bingham, says the plaintiffs may have a tough time convincing the court to enjoin or postpone the rule given the broad way in which the FLSA is construed and the narrow interpretation of exemptions.
Don't count on an injunction
With less than two months to go before the rule goes live, healthcare organizations can’t count on an injunction and should be preparing for the change and its impact on costs.
Raising the threshold for overtime pay will have “substantial across-the-board impact” on healthcare employers, Moeller says. For organizations already on tenuous financial ground, the impact could be catastrophic.
Richard Gundling, senior vice president for healthcare financial practices at the Healthcare Financial Management Association, agrees. “Given the increased pressure on healthcare organizations, including greater regulatory complexities, changes in payment models and greater risk associated with higher bad debts, any regulation that increases cost puts stress on an organization's operating margin,” he says.
He recommends organizations establish a baseline to identify all managers impacted by the change, assess timekeeping and pay policies to accommodate new nonexempt employees, and prepare forecasting models and budgets that account for these increases.
Employers should first determine their options and what each will cost them as an organization, says Moeller. He points out DOL gives employers four options to comply:
- Raise salaries above the $47,476 threshold so that workers remain exempt from overtime;
- Keep wages at the current level and pay workers time and a half when they work more than 40 hours in a given week;
- Restructure workloads and shifts to avoid overtime; or
- Adjust salaries downward to offset overtime costs.
But determining the true cost impact of the new overtime rule is tricky at best. To try and do so, employers need to identify all currently exempt workers and those job classifications they wish to keep maintain, as well as those workers who will be making less than the threshold after Dec. 1, says Moeller, who specializes in labor and employment law. They should then do a gap analysis to determine the cost of increasing salaries for those below the threshold.
One option is to reclassify exempt employees as nonexempt and overtime eligible, but this requires employers can accurately project how much overtime these employees put in, Moeller says. For instance, how many hours do they spend on work-related matters on the computer, smartphone, emails or telephone after hours? “Any work which the employer ‘suffers or permits’ the employee to work is compensable work under the FLSA,” he says.
Alternatively, employers can increase salaries to above the threshold to avoid paying overtime. The closer the salary is to $47,476, the less it will impact an organization’s costs, especially if the worker puts in a lot of overtime, Moeller says.
While restricting workloads might work in some industries, it isn’t very practical for most healthcare organizations, he adds.
One strategy that could work, according to Moeller, is a fluctuating workweek plan. In this case, salaried exempt workers would be reclassified as nonexempt and paid a salary for all hours worked in a week, including overtime, which would be paid as half time instead of time and a half.
“Since the employee receives halftime for overtime, the salary the employee receives for ‘all hours worked’ is divided by the number of hours the employee works in a work week,” Moeller explains. The more the hours, the lower the hourly rate.
“The FWWP can result in savings to healthcare employers even when a currently exempt [professional] is paid a salary reasonably close to the new salary requirements and works significant overtime,” says Moeller.
He sees this as the best option if an organization needs to transition currently exempt employees to avoid crippling cost increases.
Are the providers aware?
Healthcare Dive reached out to several state hospital associations to see what they are telling their members about the new overtime rule. “As employers, this would impact them,” said Ohio Hospital Association spokesman John Palmer. “We are not seeing any preparation, though.” He added that the association is not providing any advice on how to prepare for the rule at this time.