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Wage and hour rules for medical practices

By Daniel M. Bernick, J.D., MBA

The federal wage and hour law, technically known as the Fair Labor Standards Act (FLSA), has been around since the 1930s. Yet despite this long history, misconceptions about these very basic rules persist in many medical practices. Here are some basic concepts to keep your practice on the up and up.

Rule 1: No Comp Time! FLSA mandates that non-exempt employees must receive overtime (time and a half) for any hours worked in excess of 40 in a week. This rule is simple enough, yet it is surprising how many practices do not fully understand it. For instance, many still believe that “comp time” is legal.

Comp time, as it is generally understood in medical practices, means that if an employee works more than 40 hours in a week, no overtime pay is owed if in the next week, the employee reduces his or her hours so that the average time for the two weeks is not more than 40 hours per week. In fact, medical practices are not allowed to average time between weeks. If an employee works more than 40 hours in a week, he or she is entitled to time and a half for the extra hours, no “if ands or buts.”

Some of the confusion in this regard may extend from the rule applicable to hospitals, which have a special provision allowing them to average hours over a two week period, meaning that the employee must work more than 80 hours in a two week period to get overtime. But this special provision is not available to medical practices; therefore using this approach will land your medical practice in legal hot water.

Note that rights under the FLSA are not waiveable by the employee; even if the employee agrees and wants the comp time arrangement, he or she cannot contractually be legally bound to it. Thus, even if you have a “understanding” with the employee about comp time, he or she can at any time (such as after termination) assert their right to back wages, liquidated damages and attorneys fees, all for overtime that you thought that they had agreed to forego.

Rule 2: Salary Does Not Mean Exempt. This is another common misconception. Generally, an employee must be salaried to be exempt, but receiving a salary does not ensure that the employee is in fact exempt. Thus, paying an administrative employee on an hourly basis will make them non-exempt (protected by the FLSA), but paying them on a salaried basis does not necessarily guarantee that they will be considered exempt. Thus, a salaried “administrator” who spends half of her time performing routine, non-administrative work is a non-exempt employee. Thus, the key in terms of distinguishing “exempt” employees from “non-exempt” employees are the duties performed by the employee, not whether the employee is salaried or their title.

In this regard, there are three available categories of “white collar” exemptions. One is an “executive” exemption, meaning that the individual’s primary duties consists of management, including the regular direction of the work of two or more other employees. “Management” in this context means such activities as interviewing, hiring and training employees, setting and adjusting rates of pay and hours of work, maintaining records for use in supervision or control of employees job responsibilities, conducting performance evaluations, portioning work among employees, determining the types of supplies to be purchased and providing for the safety of workers and property.

A second exemption is the “administrative” exemption. This is for employees whose primary duty is to represent non-manual work directly related to management policies or general business operations. This work must involve the “exercise of discretion and independent judgment” based on all the facts and circumstances.

A third exemption is the “professional” exemption, where the employees primary duties consist of performing work requiring knowledge of an advanced type in a field of science or learning, and the work must require the consistent “exercise of discretion or judgment.” This is the exemption that ensures that doctors and other providers are not subject to the overtime rules.

As a general guideline, medical practices should assume as a general guideline that only the doctors and mid-level providers (nurse practitioners, PAs) and the office manager or administrator are exempt employees. However, if the manager is performing substantial amounts of non-managerial functions, such as billing, receptionist, etc., he or she may actually be a non-exempt employee entitled to overtime. Thus, the office manager’s actual day-to-day routine needs to be examined carefully. To be exempt, no more than 40 percent of the administrator’s time may be spent performing non-managerial or non-administrative functions such as answering phones, billing, etc.

Rule 3: If You Allow The Employee To Work, You Must Pay For It. The FLSA defines the term “employed” to mean “to suffer or permit to work.” Thus if an employee performs “unauthorized” overtime, he or she is nonetheless entitled to overtime pay, even if it was performed contrary to management’s explicit direction!

How then to control unauthorized overtime? The appropriate, legal response is to discipline the employee, but nonetheless pay for the overtime. Thus, the employee receives the extra pay but also is given a verbal or written warning, or placed on probation and (ultimately) terminated, unless he or she complies with the employer’s overtime policies.

What about break time? Generally, you must pay for it if the employee is not fully relieved of responsibility, or if he or she does not have sufficient time to leave the office and tend to personal affairs. Generally, the rule of thumb is that the employee must have at least 30 minutes “to be off the clock.” Thus, brief breaks of 10 to 20 minutes are going to be compensable time.

A corollary to the rule that the employee must have sufficient time to leave the premises to be off the clock is that if the computers go down, or there is other interruption in the office schedule, the employee must be paid for the “down time.” In this situation, the employee is being “engaged to wait;” they are on the premises waiting to perform work, and therefore must be compensated. The same applies for the receptionist sitting at his or her desk reading a magazine, waiting for the phone to ring.

What about work taken home? This is compensable time, even though it is not performed on the employer’s premises, and is hard to monitor. Thus, if you suspect or notice that the employee is taking work home, you are obligated to pay for it. If you do not want to pay for such work, you need to make it clear to the employee that (in the future) he or she is not to take work home, and enforce this directive with appropriate discipline. As an aside, does this mean that if you call the employee at home, that the employee is “on the clock?” Yes, if this is a routine occurrence, but no, not if it is a very occasional type of event.

On a related note, working Saturdays, Sundays and Holidays does not entitle the employee to overtime. You may be required by factors of supply and demand to provide additional pay for such days, but you are not legally mandated to provide overtime. Also, compensable time does not include vacation or sick time.

Rule 4: Keep Good Records! Employers are required to maintain time cards for two years, and payroll records for three years. The statute of limits is three years in terms of employee recovery for an FLSA violation. More importantly, the burden of proof is on the employer, if there is a dispute as to hours worked. Thus, if you failed to maintain good records, you are going to be behind the eight ball if the employee claims that they performed overtime, such as when the employee claims that they “always” worked the extra hours.

Employers should review their overtime policies to make sure that they are compliant with the law. The potential penalties are significant: back pay for the overtime, plus liquidated damages equal to the amount of overtime owed, plus the employees’ attorney’s fees and litigation costs. There may also be civil penalties of up to $1,000 per violation, or $10,000 per violation for willful repeat violations.

Daniel M. Bernick, J.D., MBA is a shareholder in The Health Care Group and its affiliate Health Care Law Associates, P.C. in Plymouth Meeting, Pa.

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