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How to comply with new overtime rules

October 20, 2016

On December 1, new rules for calculating overtime issued by the U.S. Department of Labor (DOL) go into effect. Behavioral healthcare organizations could see unexpectedly higher overtime costs or even potential fines if they do not comply.

The key element of new DOL rules—and one that is likely to be particularly significant for behavioral healthcare organizations—is a much higher salary threshold that defines which employees are eligible to be paid for overtime. A higher salary benchmark means more workers will fall under the nonexempt status, meaning they are eligible for overtime pay.

In the past, employees who earned a salary of $455 per week ($23,660 per year) or more could be classified as exempt—not eligible for overtime pay. The new rules increase the salary for the exempt classification significantly to $913 per week ($47,476 per year), a level that will be adjusted for inflation periodically.

For some treatment center operations, the new overtime rules could translate into higher payroll costs as more employees clock in extra time beyond the benchmark 40 hours per week.

“There is probably going to be a pretty high rate of noncompliance [among behavioral healthcare organizations] with people continuing to work long shifts without getting paid overtime and exposing facilities to penalties,” says Harry Nelson, managing partner with Nelson Hardiman LLP, a healthcare law firm based in Los Angeles.

Complying with the new rules

If they do not adjust to the new regulations, providers could find themselves subjected to Department of Labor investigations and the related attorney’s fees and fines that go with any violations, Nelson tells Behavioral Healthcare.

Providers must rethink staffing “to avoid substantially higher personnel costs” caused by a larger amount of overtime under the new regulations, he says. Smaller organizations that rely on a team of just a few people who often work longer shifts to provide clinical coverage might have to make service adjustments. Larger organizations generally have more staffing options and therefore more flexibility when it comes to personnel management and staffing shifts.

If they have not already planned for the new overtime rules, behavioral healthcare organizations should take immediate steps to do so. What those steps will be will vary based on the organization’s unique circumstances. In general, providers have two options for taking action, and using financial modeling, organizations can determine how these options will impact their long-term finances.

Option 1: Raise salaries for employees so their earnings reach the new $913 per-week minimum threshold for exempt employees who do not qualify for overtime pay.

Option 2: Do not raise salaries. Review the employees who newly qualify for overtime pay and classify them as nonexempt. Then, either manage hours worked to avoid overtime situations or plan for some level of overtime and build it into the cost structure.

An additional option is to adopt a longstanding approach to managing overtime, known as the “fluctuating work week” to calculate overtime. The calculation is somewhat confusing and bases overtime pay on an hourly rate that is determined by dividing the employee’s agreed-upon base pay by the total number of hours worked that week, including overtime.

“We don't see this used a lot because it can be confusing,” says Kevin Troutman, a partner with law firm Fisher & Phillips LLP in Houston. “However, we may start to see it more often because there has been such a drastic change in the weekly salary threshold.” A publication from the labor department provides a lengthy explanation and example of how to calculate overtime using this method.

Early preparation

Origins Behavioral HealthCare, LLC, in West Palm Beach, Fla., is proceeding carefully to comply with the new regulations by analyzing where each position would stand when the new overtime regulations take effect.

“We wanted to identify every position that is impacted and make recommendations on how to handle each one,” says Amanda Montero, corporate director of human resources.

The organization is also revising and analyzing job descriptions, including main duties and functions, to make sure they are up to date and reflect the work people actually do and are aligned with the position’s exempt/nonexempt classification. Overall, the analysis revealed that about 25 positions in the organization would be affected by the new overtime regulations.

With that information, Montero identified where changes would be appropriate for each position, such as reclassifying the overtime status for the newly eligible or increasing the salary level so that certain positions overshoot the new minimum and remain ineligible. This, in turn, could lead to other changes. For example, such compensation changes could impact internal equity for other positions. Montero notes that bringing the organization’s support staff managers up to a salary necessary to make those positions exempt from overtime would bring those salaries almost on par with the salaries of some clinicians.

“We may have to increase those salaries for clinicians as a result,” she says. “But that might not be an option for all behavioral healthcare organizations.”

Future planning is also essential. “We also planned ahead for turnover and when we will be creating new positions,” says Montero. “We will make adjustments as we bring in new hires and look at each position fresh.”

For example, one vacant position had a salary between the cutoff of the old regulations and the new ones. The new hire in theory would not qualify for overtime pay prior to December 1, but then would qualify after December 1.

“We discussed whether to fill the position as is and make it nonexempt under new regulations or to bring up the compensation so that it met the minimum to keep the position exempt,” says Montero.

After evaluating the situation, they decided to reclassify the position as nonexempt to abide by the new regulations so that the new hire would remain eligible for overtime from day one.

Even with these changes, managing overtime will continue to be a challenge. To do this, Montero says that the organization will continue to have a pool of on-call staff for holidays and emergencies. However, she emphasizes the need to consider the big picture.

“We are analyzing the use of resources and educating managers about the overtime regulations and what is required,” she says. “While on-call staff can come in as needed, our focus has to put patient needs and continuity of care first above the cost of overtime.”

In addition, the organization monitors overtime quarterly to make sure that payroll is compliant and that overtime levels are falling within the expected range.

Looking ahead

Provider organizations that have not yet begun complying with the new overtime rules need to begin evaluating employee status now to prepare. If organizations do find that they are not in compliance with the rule after December 1, they should remediate those problems as quickly as possible. Should employees complain about not being paid earned overtime, human resources leaders should find a resolution as quickly as possible.

“In many states, the rules surrounding litigation over nonpayment of wages, including nonpayment of overtime, include provisions for the organization to pay attorney fees,” which could get expensive very quickly, says Nelson.

On the administrative side, Troutman urges organizations to keep detailed records of overtime earned and paid and the classification of exempt and nonexempt employees.

“The employer has to make sure that the employee accounts for their time, and that it maintains detailed accurate and accessible time records going back at least three years,” he says. “This is important not just to prove a case but to determine payment to address any technical violation.”

Joanne Sammer is a freelance writer based in New Jersey.

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