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New federal overtime regulations take effect on Dec. 1. Do you fully understand how they will affect payroll in your practice?
In less than one month—December 1, 2016, to be specific—the Department of Labor’s final rule updating overtime regulations takes effect. Specifically, the rule sets a new minimum required salary of $913 per week for employees to be considered exempt from overtime pay—more than double the previous minimum of $455 per week.
The rule is creating considerable confusion among many small businesses, including dental practices, that don’t have legal or human resource departments. Shanna Wall, a compliance attorney with ComplyRight, says the Department of Labor estimates the new law will affect more than 4 million workers.
“It’s going to affect how people get paid,” Wall says. “It could affect other requirements such as recordkeeping. And a lot of people either don’t know about it, or don’t know what they need to do about it.”
And in this case, ignorance is not bliss.
Understanding the options
If the new rule sounds like a lot of people are going to receive sizeable raises, that’s certainly one of the possibilities. But first, Wall suggests dentists take a step back and look at their staff, consider what they’re paid, but more importantly, consider what they do.
“In dental offices, you’re going to have to take into consideration education,” Wall says.
For example, Wall explains that dental employees are either going to be exempt or non-exempt, and there are two “tests” to being considered an exempt employee. The first is meeting the salary threshold of $913, but there’s more. An employee also has to meet a “duties” test, which considers what the person actually does.
“In order (for a dental hygienist) to qualify for a (learned professional) exemption, they have to successfully complete four academic years of pre-professional and professional studies in an accredited college or university that’s approved by the Commission on Accreditation of Dental and Dental Auxiliary Educational Programs and the American Dental Association,” Wall says. “So, there are very specific requirements just for a dental hygienist.”
In other words, a staff member’s title doesn’t matter. They could already be earning well over the range stipulated by the new law, but if they don’t meet the duties test, they’re still considered non-exempt.
“That’s something a lot of smaller dental offices might not understand,” Wall says. “And if an employee who was classified as exempt now needs to be re-classified as non-exempt, that makes them eligible for overtime.”
Do the math
Wall explains that while Federal law states an employee must be paid overtime if they work more than 40 hours per week, state and local laws need to be considered as well. For example, in some states overtime is calculated on a daily basis. If a staff member works more than eight hours in a day, they would be eligible for overtime regardless of how many hours they worked that week.
“You really need to look at this to consider what your best financial options are,” she says. “If you have an employee who’s going to work 5 to 10 hours of overtime a week, it may actually cost you less just to go ahead and give them a raise, as opposed to paying them and then paying them overtime.”
The implications are far reaching, and could create a recordkeeping nightmare for whomever handles payroll at the practice. Consider that employees who were always misclassified as exempt have never had to keep track of their time. But if they’re now non-exempt, a time-keeping policy may need to be put in place.
“Are you going to do that manually on paper?” Wall asks, rhetorically. “Are you going to have a punch clock, or some kind of electronic system to keep time? These are things that dental practices may not have taken into consideration before.”
The penalties, Wall explains, for not adhering to the new law can be huge. For example, depending on how many employees the dental practice has, civil lawsuits could be filed against the dentist. It could even result in class action lawsuits if there are multiple employees in the same category who were not receiving overtime pay.
“The Department of Labor can get involved, and open your books to check that everyone in the office is getting paid accurately,” Wall says.
A can of worms could also be opened if the practice has an employee misclassified as exempt, and therefore no time records are being kept. If that employee later sues the practice for overtime, and there are no records of how many hours that person actually worked, it can become a costly he-said, she-said situation.
“These are things that dental practices may not have taken into consideration before,” Wall says. “But that’s going to change.”