U.S. Department of Labor Issues Significant Overtime Rule
May 19, 2016 09:43 AM
Federal agencies are busy clearing out pending rules this spring as the Obama Administration seeks to finalize policy changes through the federal system. One such change is in the standards for exemption from overtime for Executive, Administrative, and Professional personnel paid on a salary or fee basis issued on May 18 by the U.S. Department of Labor (DOL). The new requirements will affect industries of all kinds across the country. Health care is one of the areas that will be significantly impacted, including home care and hospice.
The Administration published the proposed rule in July 2015. It is generally known as the “white collar” exemption from overtime because of the nature of the affected employees. At the time of the initial proposal, the President emphasized that there had been no adjustment to the minimum salary requirements since 2004 and that it had not kept pace with inflation even then.
What is changed by the new rule?
There are several significant changes to the current overtime exemption requirements. These include:
Raising the minimum qualifying salary level to $913 weekly in contrast to the current $455 weekly.
Automatically adjusting the salary level minimum every 3 years to be set at the 40th percentile of full-time salaried workers in the lowest-wage Census region.
Permitting non-discretionary bonuses, incentive payments, and paid commissions to count towards the minimum salary requirement up to 10% of the minimum amount.
Increasing the Highly Compensated Employee standard from $100,000 annually to $134,000.
Maintaining the long-standing “duties test” to determine whether an employee qualifies as an “Executive, Administrative, or Professional” employee for purposes of the overtime exemption.
When does the rule take effect?
The rule is effective on December 1, 2016. NAHC and others sought greater lead time, but DoL concluded that giving more than 6 months is far better than the normal 30 days.
Will Medicare and Medicaid adjust the payment rates to account for this new cost?
NAHC recommended that DoL suspend the rule until such time as government payers modified payment rates to cover the increased costs triggered by the rule change. DoL rejected that recommendation, stating that businesses have a variety of options to address the changes in the overtime requirements.
What should home health agencies and hospices do?
One big change that the rule requires is that businesses must understand how many hours salaried and “fee basis” employees are working. Per visit compensation may qualify as “fee basis.”
This is especially important in home care and hospice where service employees are out of the office most of the time providing patient care with tracking time becoming difficult. Providers need to recognize the “hours worked” include patient care time and any other activities on behalf of the employer such as certain time spent in travel, in-service training, and care documentation.
In addition, many home care and hospice companies pay professional service staff on a “per visit” compensation basis. If the company plans to continue that compensation method, it is essential that there be a full accounting of the hours worked whenever the compensation is less than $913 weekly.
NAHC recommends that home care agencies and hospice conduct full evaluation of their compensation methods and outcomes in relation to work hours to determine whether comparable circumstances will create overtime obligations in the future when the rule takes effect on December 1.
In some companies, the level of compensation in relation to the amount of employee-specific work hours may mean the rule change is inconsequential. For example, if a home health agency pays $75 per visit and a nurse typically works 20 visits a week, the total compensation exceeds the $913 minimum and no overtime is owed regardless of the number of hours. However, if the compensation rate is $40 a visit, 20 visits per week would not result in meeting the $913 minimum.
Please note that “per visit” compensation is not always compliant with the DoL requirements for “fee basis” compensation, which is an alternative to the salary test. Companies are advised to seek competent legal counsel to determine if their “per visit” compensation is a compliant method under federal and state law.
What are the options other than recording all working hours and paying overtime when an employee exceeds 40 hours in a week?
There are several options available, but each organization must determine what works best for it. DoL offers the following possible implementation options:
Increase the employee’s salary to meet the new salary level minimum
Pay overtime over 40 hours
Reduce or eliminate overtime hours
Reduce pay allocated to the employee’s base salary and add pay to account for overtime to hold total compensation constant with current compensation
Use some combinations of these options
It is important for home care and hospice companies to evaluate the impact of the new rules soon as it takes time to implement compensation and operational changes such as controlling working hours. Unfortunately, there is no expectation that Medicare or Medicaid will adjust payment rates sufficient to cover any new overtime costs. Home care’s experience with the new overtime requirements for personal care services that began in October 2015 indicate that government payment sources simply leave providers to figure out on their own how to cope with potential new costs.
Where can I read more about the new rule?
The rule is found at: https://www.federalregister.gov/public-inspection. Also, there is a wealth of information available on the DoL website including the following:
Is there any chance that Congress will reverse the rule change?
That possibility exists, but it is very remote. Congress can pass legislation that blocks or reverses the rule, but that legislation must be signed into law by the President. In this case, President Obama would not be expected to sign off on such legislation. At the same time, a two-thirds vote is needed to override a President’s veto. In this election year, it would be unlikely that Congress would uniformly support eliminating a rule that is touted to protect the middle class.