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INSIGHT

Exempt employee salary rules just changed: are you ready?

By Paul Edwards  bio

Medical practice owners and office managers are about to face a tough transition. The minimum salary at which an employee may qualify as “exempt” from overtime pay has just been changed to $47,476 per year by the Department of Labor—and by December 1, 2016, all businesses must comply.

What’s changing, and why?

Under the old Fair Labor Standards Act (FLSA) rules, in place since 2004, salaried employees earning at least $455 per week, or $23,660 per year, could be considered exempt from overtime pay requirements if their administrative, executive or professional job duties met certain criteria. This “white collar” exemption was originally intended to apply to high-level employees, but after years of inflation, the minimum exempt salary was no longer a high-level salary. In fact, an exempt employee earning $23,660 per year and supporting a family of four fell below federal poverty levels, yet did not qualify for overtime pay.

The DOL felt the old salary threshold was so low that it applied to many employees it shouldn’t, which is why they have more than doubled it. The new minimum salary has been set at $913 per week, or $47,476 per year. All other exemption criteria must also be met. And from now on, starting in 2020, the minimum salary requirement will be automatically updated every three years.

Make no mistake here: The new exempt salary requirement is aimed at bumping many previously exempt employees into nonexempt status, meaning you must pay them for any overtime. Alternately, you can choose to raise salaries above the new exemption line.  

As a small concession to employers, nondiscretionary bonuses and incentives may now satisfy up to 10 percent of the required salary level, if these bonus payments happen at least quarterly.  

How should you prepare?

With a compliance deadline before the end of the year, it’s time to make plans. To get ready, determine how many salaried exempt employees at your practice currently earn less than $47,476 per year. Note that the salary requirements do not apply to professional employees practicing medicine (i.e. doctors, PAs and NPs). They do apply to managers! Nurses should almost never be categorized as exempt.

Of course, some professionals are already compensated highly enough that they are well over both the old and new minimum salary thresholds. For each employee who is affected by this change, you will need to:

  • Increase their salary and double-check all other exemption criteria to maintain exemption under the new rules; OR
  • Change their status to nonexempt, have them track their time, and begin paying overtime when they exceed 40 hrs/week (or 8 hrs/day in California).
  • For employees changing to nonexempt/hourly, reduce their likelihood of overtime by removing duties or hiring more staff.

Remember, nonexempt employees cannot legally waive their right to overtime pay for any overtime hours worked—although you can require that they obtain authorization first, and discipline them if that procedure is not followed.

None of these options are ideal. Employers will likely end up losing productivity or facing increased payroll costs. This will be a painful transition for many small businesses, and the best way to limit the aggravation in your practice is to identify the extent to which these changes will affect you and start planning your transition.


Paul Edwards is the CEO of CEDR HR Solutions for Medical (www.cedrsolutions.com), the nation’s leading provider of customized medical employee handbooks and expert HR support for practices of all sizes and specialties. He can be reached at 866-414-6056 or pauledwards@cedrsolutions.com.


The above information is shared by a guest contributor and does not necessarily reflect the views of Medical Office Manager.

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