Know FairPay, the new FLSA overtime regulations, to avoid violations and hefty fines

Recently, the Department of Labor (DOL) announced an update to the Fair Labor Standards Act (FLSA) overtime rule. The new regulation, FairPay, will go into effect nationwide on August 23, 2004. This is the first major change to the overtime rule since 1954.

The FLSA addresses issues such as minimum wage, overtime pay, record keeping, and child-labor standards. While individual states may have higher wage requirements or stricter labor laws, every state and most employers must abide by the minimum regulations set by the FLSA. While the FairPay initiative does not replace FLSA, it does ensure coverage for employees who fell through the cracks and were denied overtime in the past.

The Employment Standards Administration (ESA), a new division within DOL, and the Wage and Hour Division will enforce the new overtime regulations. ESA states that FairPay is designed to close gaps found in previous regulations and answer questions employers had with outdated FLSA rules. Under the new FairPay rules, workers earning less than $23,660 per year or less than $455 per week are guaranteed overtime protection.

Generally speaking, employees of a covered business (yes, that does mean chiropractors) must receive overtime pay (time and a half) for hours worked in excess of 40 hours in a workweek. FLSA does not require or address overtime pay for work on Saturdays, Sundays, or religious holidays, or for time worked more than 8 hours in one day. However, some states do have laws concerning these issues.

Employees who are exempt from the FLSA rules for overtime include executive, administrative, professional, and outside-sales employees. The old FLSA rule had a short and long test to evaluate work situations that would classify an employee as exempt. However, the new FairPay regulation has streamlined these tests with a single test for each category with two basic requirements: 1) perform designated exempt duties; and 2) paid on a salary basis.

For years, most chiropractors have either believed that their employees were exempt or simply remained oblivious to the federal laws, especially those concerning overtime pay.

While there are many exceptions regarding who may be eligible to receive overtime pay, chiropractic assistants—working under normal conditions—are not exempt.

CAs are not exempt because they do not perform designated exempt duties, which includes independent judgement; are involved in line-of-duty work; and are health care workers who do not hold a degree (specifically nonexempt). Associate doctors would be classified as exempt and are not subject to the overtime rule.

Classification Matters
Doctors have routinely misclassified employees as administrative or salaried and assumed those labels excluded the employee from overtime. Even a salaried nonexempt employee is entitled to receive overtime if that employee works more than 40 hours during a 7-day workweek.

For example, a CA hired to work 50 hours for a weekly salary of $500 ($10 per hour) should actually be paid at a rate of 40 hours at $10 and 10 hours at $15 per hour. If the salary is set based on a monthly salary, then the total amount of salary is divided by 160 to arrive at a base per hour salary ($2000/160 = $12.50 per hour). If during one week in a particular month the employee works 45 hours, compensation would be added for 5 hours to be paid at $18.75 per hour ($12.50 + $6.25, one-and-a-half times the regular pay).

Under the new FairPay rule, a nonexempt salaried employee receiving $2,000 a month ($24,000 a year) would automatically be guaranteed overtime regardless the duties performed. Chiropractors should not confuse their employees with other professions. For example there are still exceptions to the overtime rule with some professionals, such as teachers, doctors, lawyers, and outside salespeople, because there is no minimum salary for these categories. This sometimes causes confusion when a CA receiving a monthly salary is entitled to overtime (because the CA is a nonexempt employee), and an associate doctor receiving a salary is not entitled to overtime regardless the number of hours they work.

The overtime requirement may not be waived by verbal agreement or written office policies. An agreement that only 8 hours per day or 40 hours per week will be counted as working time also fails the test of FLSA compliance. An announcement by employers that no overtime work will be permitted, or that overtime work will not be paid for unless authorized in advance, will not negate an employee’s right to compensation. Written office policies that notify employees that overtime is not paid—when overtime is indeed required and worked—violates employee rights, the FLSA, and FairPay regulations.

CAs who are required to attend seminars as part of their employment are also entitled to be compensated for their time attending the seminar. If that time puts the employee into an overtime situation (hours worked plus seminar add up to more than 40 hours in a 7-day workweek), then any time over 40 hours must also be calculated at time and a half.

Avoiding Violations
Chiropractors and office managers will have to scramble to ensure that they are in compliance with these new regulations by the August 23 deadline. Errors in judgement can be costly. A simple misclassification of an employee or negligence that leads to an error in overtime pay can cause serious problems for the employer. If found guilty, the employer can be liable for up to 3 years of back pay and hefty fines.

According to the Wage and Hour Division of the DOL, the most common violations of FLSA regulations include:

• misapplication of the executive or administrative exemption to nonexempt salaried persons, such as clerical workers, working foremen, dispatchers, and inside salespersons
• employment of underage minors in prohibited duties and/or beyond permitted hours
• failure to pay overtime to nonexempt salaried employees
• failure to pay employees for all hours worked, including time spent taking inventory, cleaning up, completing paperwork, etc, beyond the normal work schedule
• failure to maintain records on nonexempt salaried or piece-rate employees
• granting compensatory time off in lieu of overtime pay
• considering certain employees to be contract labor or independent contractors, thus treating them as not covered by the FLSA provisions
• illegal deductions or kickbacks for shortages, uniforms, errors, bad checks, etc, that reduce an employee’s pay below the applicable minimum wage or required overtime pay
• failure to pay minimum wage and overtime to part-time employees

Violations against the FLSA may be prosecuted under both civil and criminal statutes. Safe harbor provisions offer some protection for employers against harsh penalties for honest, unintentional, and correctable mistakes. However, when violations are found, employers are subject to civil money penalties of up to $1,000 for each such violation. Willful violations may be prosecuted criminally and the violator fined up to $10,000. A second conviction may result in imprisonment.

Remember, ignorance is not a defense of the law, and some states have other laws that actually supercede the federal requirements of FLSA. For example, there are 13 states that have a higher minimum wage law than the FLSA required $5.15 per hour (Figure 1). There are three states that require overtime to be paid after 8 hours per day, (Figure 2). California requires double time after 12 hours per day. There are nine states with labor laws that only affect employers with a certain number of employees and five states with laws that cover employers who make a certain amount of money (Figure 3).

All employers should immediately do a job review to ensure that each position is properly classified, each employee properly paid, and the clinic is up to date on all employment issues. Doctors may wish to contact an employment attorney for a complete compliance evaluation. More information on the FLSA and the new FairPay initiative can also be obtained directly from the DOL Web site at www.dol.gov/esa.

Ces Soyring, CA, is cofounder of the National Academy of Chiropractic Assistants (www.naca-online.com ) and a chiropractic consultant. She can be reached via email: naca_csoyring@yahoo.com.