Who gets OT pay? Labor laws make 1.3 million eligible

Once considered 'exempt,' over a million additional American workers will become overtime-pay eligible come 2020, prompting small businesses nationwide to review their compliance with federal labor laws.

Effectively closing out a four-year saga to update overtime provisions of the Fair Labor Standards Act (FLSA), the Department of Labor (DOL) issued a final ruling on Sept. 24 that updates earnings thresholds necessary to exempt executive, administrative and professional (EAP) employees from minimum wage and overtime pay requirements. The rule takes effect Jan. 1, 2020, and, more specifically, will:

• Raise the 'standard salary level' from $455 to $684 per week (equivalent to $35,568 per year for a full-year worker).
• Raise the total annual compensation requirement for 'highly compensated employees' from $100,00 to $107,432 per year.
• Allow employers to use nondiscretionary bonuses and incentive payments paid at least annually to satisfy up to 10% of the standard salary level, in addition to other revisions.

This update represents the first adjustment to the overtime rule since 2004, the DOL notes, and will affect an estimated 1.3 million workers. Even then, it still falls short of the 2016 proposal to nearly double the salary threshold to $913 per week ($47,476 per year) that many business groups balked at via a successful 2016 court challenge.

As such, many businesses and employers must assess how the new overtime provision may affect their staff in the new year. This self-audit affords employers an opportunity to ensure not only complete compliance with FLSA provisions but also that they're protected from claims associated with the employment process.

Determining exemption status

Essentially, FLSA dictates when workers are considered "on the clock" and how that time is compensable for two categories of employees: those exempt or non-exempt from overtime regulations. While most FLSA-covered employees are non-exempt (and must receive at least "time and a half" for hours worked in excess of 40 in a given workweek), EAP employees or "white-collar workers" are exempt. Doctors are subject to neither a salary basis nor salary-level test.

The DOL's Wage and Hour Division outlines three tests (all three tests must be met) to satisfy an exemption claim:

1. Payment on a salary basis. The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
2. Payment of a minimum salary level. The amount of salary paid must meet the specified minimum amount of no less than $684 per week.
3. A duties test. The employee's job duties must primarily involve those associated with exempt executive, administrative, professional, outside sales or computer employees.

So how do optometric practices know if their employees are correctly classified? As of Jan. 1, 2020, if an employee makes less than $35,568 per year, they could be entitled to overtime pay even if they're paid on a salary basis. However, the question gets more complex if staff perform EAP job duties.

Employers should closely review DOL's WHD guidance to determine how staff should be classified. For additional tools and resources to ensure optometric practices are operating in compliance with the variety of federal labor laws, employers should access DOL's WHD website.

AOA General Counsel Mike Stokes, J.D., advises optometric practices of the age-old adage: an ounce of prevention is worth a pound of cure.

"I would encourage employers not to assume everything is ok, but to take a serious look at their employee classifications and pay practices on a periodic basis," Stokes says.

Protect against employee claims

Failure to comply with FLSA opens employers up to legal action, and in fact, FLSA lawsuits were up 417% in 2017 over the previous decade. By its very nature, health care makes for a particularly challenging industry when it comes to FLSA compliance with more than 22,100 prosecutions since 1984—the second-most affected industry behind food services and accommodation. Chief among those FLSA compliance mistakes in health care is the misclassification of employee exemption status.

To mitigate the fallout from such employment-related incidents and claims, employers can protect their practices with employment practices liability (EPL) insurance available through AOAExcel^®'s professional liability insurance partner, Lockton Affinity. With EPL insurance, employers are covered for the cost of fighting employee allegations in court, regardless of the outcome, as well as judgments or settlements that result. Common claims include:

• Wage and hour law.
• Wrongful termination.
• Sexual harassment.
• Invasion of privacy Discrimination.
• Breach of contract.

Oliver Sowards, assistant vice president, program executive, at Lockton Affinity, says EPL simply protects employers and their practices from the costs stemming from claims associated with the employment process, as well as claims arising from a third party.

"Any optometric practice that has employees is at risk for an employment practices claim," Sowards says. "While it is not legally required for companies to carry EPL insurance, it is always a good idea to protect your practices, as defending an EPL claim can be detrimental to the financial future of optometric practices of all sizes."

Should employers have questions regarding EPL insurance, contact AOAExcel endorsed business partner Lockton Affinity at 888.343.1998 for a licensed agent. Find more information about EPL insurance.