Upcoming FLSA Changes: Impact on Dental Practices in California
On December 1, 2016, an update to the federal Fair Labor Standards Act (FLSA) comes into effect, and it has the potential to change whom in your dental practice is eligible for overtime pay.
State overtime salary thresholds are also set to change in the coming years based on the new FLSA changes.
Since California dentists must comply with both state and federal employment laws, they must follow whatever law is most favorable to the employee.
According to FLSA, employees are not entitled to overtime pay so long as they are paid a fixed salary above a certain amount and perform primarily executive, administrative or professional duties (EAP). This three-pronged test has remained largely unchanged since 1940.
In 2004, the Department of Labor updated FLSA to implement a new weekly salary threshold for overtime exemption. At that time, the agency also introduced a new exemption for highly compensated employees (HCE), who are eligible for overtime at a different salary threshold and by meeting a minimal duties test.
The December 1, 2016, update establishes a new standard salary threshold for overtime exemption, based on the percentile of wage earners in the lowest-wage census region, and an HCE threshold based on national wage rates. These levels will update automatically every three years.
Update to Standard Salary for Dental Employees
Under the new FLSA changes, Employees are now eligible for overtime if they are paid a fixed salary of $47,476 per year or $913 per week or less. This figure is the 40th percentile of full-time salaried workers in the South Census Region, where wages are currently the lowest in the United States. Overtime is set at time and a half for all hours over 40 hours per week.
Update to Highly Compensated Dental Employees
Highly compensated employees are exempt from overtime payments if they make $134,004 or more under the new FLSA. The figure is based on the 90th percentile of annual wages across the U.S., and it is an increase from the previous threshold, which was an annual salary of $100,000.
Automatic Updating and California Law
Since the new thresholds for standard salary and HCE are relative to wage percentiles, future changes to the base rate for exemption are relatively easy to establish. Under the FLSA update, the threshold will change every three years starting on January 1, 2020.
The new federal exemption threshold of $47,476 is more than double the old federal exemption amount of $23,660. However, dentists in California must also adhere to state law, in which the base exemption amount for overtime pay is much higher than the old federal standard. In California, employees must earn at least double the minimum wage and perform EAP duties at least 51 percent of the time in order to be exempt.
That means the salary exemption level in California is $800 per week or $41,600 annually, which is more than the old federal exemption rate but less than the federal rate as of December 1, 2016. Dentists may therefore discover some of their currently exempt employees will not be exempt when the FLSA changes come into effect. An EAP employee currently making $42,000 in California, for example, and who was exempt from overtime pay, now qualifies for time and a half over and above 40 hours a week as of December 1, 2016.
Of additional note, California has scheduled increases to the minimum wage in the coming years, increasing the exemption threshold as a result. In 2019, any employer with more than 26 employees will be subject to the state threshold of $49,920. Since federal thresholds are not due to change until 2020, the state threshold will be higher and take precedence. In any given year, the higher threshold of exemption will apply to dental practices, since a higher threshold is favorable to the employee.
Exempt vs. Nonexempt Employees in a Dental Practice
In the case of dental practices, the EAP exemption is often difficult to establish, since the actual duties performed are at issue and not merely the job title or job description. In addition, the educational background of individual dental hygienists is crucial to determine whether they are “learned professionals” for the purpose of the FLSA exemption. A four-year accredited program in dentistry may meet the criterion, while a different four-year program may not.
California law is more restrictive about the professional designation than the FLSA, however, and most dental hygienists are not classified as exempt employees.
Similarly, in order to qualify for the administrative exemption, an employee must perform duties related to management or general business operations. Office managers at a dental practice may or may not, under this definition, qualify for an exemption from overtime pay. Managers who supervise employees but also perform nonexempt tasks on a regular basis may be entitled to overtime.
Highly compensated employees, meanwhile, must meet a separate duties test to qualify for an exemption. This test remains unchanged since the HCE exemption was introduced in 2004, and it is not affected by the new FLSA rule. To qualify, the HCE must perform office or nonmanual work as part of his primary duties and regularly perform an exempt duty of an EAP employee.
Do You Have to Pay Overtime?
As an employer, it is essential to understand your legal responsibilities. The California Dental Association recommends erring on the side of paying overtime, unless employees in question are clearly exempt. Failure to pay overtime can result in employee lawsuits or investigations by the Department of Industrial Relations.
Maintaining a computerized log of employee hours is essential to efficient practice management and resource planning. Since your practice is subject to both federal and state law, it is necessary to understand both and remain compliant with the changing regulations.
If you have any questions about whether or not your practice is in compliance with the new FLSA changes please feel free to give contact one of our experienced dental attorneys a call.