When Should I Pay Overtime and Do I Have to Pay Overtime to Every Employee?

Chiropractic practices have a number of unique characteristics that can complicate the assessment of whether or not employees are eligible for overtime pay. Although the standard Fair Labor Standards Act (FLSA) tests are universal and apply to your practice, the assessment is further complicated because you employ other licensed health care providers and physicians, you delegate patient care tasks, and your chiropractic assistants may provide a broad range of duties.

As an employer, you are currently required to carefully track the number of hours worked by your employees and to pay the employees overtime (1.5 times the regular rate) for all hours worked over 40 in a given work week; that is, unless the employee is considered exempt (not eligible for additional pay for overtime hours).  In order to qualify as an exempt employee, your chiropractic assistants and all other employees must meet each of 3 tests:

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1. The employee must be paid a fixed salary which is a predetermined amount that cannot be reduced because of variations in the quality or quantity of work (§541.602(a));
2. The employee must have primary job duties that involve executive, administrative or professional duties OR be meet the qualifications of a highly compensated employee.  Each of these areas are specifically covered by Department of Labor rules and are covered later in this article; AND
3. The employee must be paid a salary that meets a minimum specified amount.  This is the key provision that changed in 2020 and will potentially impact your office.

”Overtime-eligible employees” are employees that do not meet the tests above and must be paid 1.5 times their regular hourly wage for all hours worked over 40 in a given work week.

”Exempt employees” are employees that meet all of the specifics of these tests.  You would not be required to pay overtime (1.5 times the regular rate) for exempt employees, and they can work more than 40 hours without adjustment to their fixed salary.

“Primary duty” pertains to an employee’s main or most important job responsibility, and we suggest being very conservative when making this determination.  For further explanation, please see this fact sheet.

Minimum Salary Changes for Exempt Employees

Beginning on January 1, 2020, new rules changed the minimum salary amount, increasing it to $35,568 a year, or $684 per week. This amount was previously much lower, so if you have not reviewed your exempt employees’ pay recently, please ensure you verify their status against this new exempt minimum.

What Does This Mean for Your Practice?

Cut to the chase – If you are paying an employee less than $35,568 you will be required to pay the employee overtime (1.5 times the regular rate) for all hours worked over 40 in a given work week.  If all of your employees will be overtime-eligible, then you can skip the rest of this section and jump to Options for Your Practice.

Many of these questions are complicated by the breadth of employee relationships that exist in chiropractic offices.  You may employ assistants that only perform office duties; assistants to whom you delegate health care duties (i.e. modalities and physical therapy); licensed massage therapists, to whom you delegate tasks to some but not to others; Physical Therapists; and other licensed physicians, including doctors of chiropractic and medical doctors.  The differences among these employees and their duties complicate the correct determination of exempt status.

In order to continue to consider any of your employees exempt from the overtime rules, you must consider all three tests above. For the scope of this article, we are assuming that your chiropractic assistants and your other staff to whom you delegate health care duties will not meet the Executive Exemption (i.e., they are not directly supervising 2 or more employees and do not have the ability to hire and fire); thus, we will focus on the Administrative and Professional Exemption portion of the duties test. The two sections below are divided between employees who are unlicensed and employees who operate under their own license (i.e. other physicians, Physical Therapists, other physicians).

Unlicensed Employees

In order to classify an unlicensed employee as exempt from receiving overtime compensation under the Fair Labor Standards Act (FLSA), the answer to all of the following questions must be YES:

1. Are you paying this employee a fixed salary (not per hour worked)?
2. Are you paying this employee a salary equal to or greater than $35,568 per year?
3. Do the employee’s primary office duties include “the exercise of discretion and independent judgment with respect to matters of significance” ¹?
4. Does the employee perform only office or administrative related duties?  If the unlicensed employee performs health care duties that you delegate (i.e., ultrasound, physical therapies, etc.), answer NO to this question (Please see Delegation Note below).

If you answered no to ANY of the questions above, the unlicensed employee must be considered an overtime-eligible employee, and thus you are required to pay overtime (1.5 times the regular rate) for all hours worked over 40 in a given workweek). 

Licensed Employees (non-physician)

In order to classify a non-physician, licensed employee as exempt from receiving overtime compensation under the Fair Labor Standards Act (FLSA), the answer to all of the following questions must be YES:

1. Are you paying this employee a fixed salary (not per hour worked)?
2. Are you paying this employee a salary equal to or greater than $35,568 per year?
3. Do the employee’s primary office duties include “the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment”¹?
4. Does the non-physician, licensed employee perform services billed under his or her own NPI?  If the licensed employee performs health care duties that you delegate and bill under your own NPI, answer NO to this question.  (Please see Delegation Note below)

If you answered no to ANY of the questions above, the employee must be considered an overtime-eligible employee, and thus you are required to pay overtime (1.5 times the regular rate) for all hours worked over 40 in a given workweek. 

Physician Employees

There may be some instances where your practice has a physician employee, and FLSA has specific rules that apply to employees who practice medicine.  However, the specific language in the law, rules and FAQs leave some ambiguity for chiropractic physicians in this area.

For employees who are actually engaged in the practice of medicine, the salary requirement is removed (§541.304(d)).  Additionally, by definition, licensed physicians would also qualify for the remaining considerations under the learned professional exemption.  Therefore, physicians would not be subject to the overtime rules and would be considered exempt employees.

Although chiropractic physicians in Illinois are clearly physicians (Illinois Medical Practice Act), the specific FLSA statute providing this salary basis exemption does not include chiropractic physicians in the specified list.  The Illinois Chiropractic Society contends that, because Illinois law clearly defines chiropractic physicians as physicians under the law, chiropractic physicians should be able to apply this exemption to chiropractic physician employees.  However, when under scrutiny, the Department of Labor may determine otherwise.

The easiest way to eliminate this question would be to pay chiropractic physician employees a fixed salary greater than $35,568 per year.  Otherwise, we would encourage employers to seek the counsel of an employment attorney.

Highly Compensated Employees

There may be some instances where your practice has an employee, such as another physician, that meets the Highly Compensated Employee status.  In these cases, in order to be considered exempt, the highly compensated employee must meet a simpler set of standards.  If you have a non-physician employee or a physician who is not treating patients, please review the US Department of Labor Fact Sheet #17A.

Options for Your Practice

At the beginning of this process it will be important to determine the impact of the changes (or current misclassifications) to your office.  To measure that effect, carefully identify those employees that must be converted to overtime-eligible employees under the new salary rules.  With the increased salary threshold, many who were previously not eligible for overtime may become eligible.  Then determine the potential impact – number of overtime hours worked, reasons for the additional hours, frequency of overtime hours, etc.  This will give you the requisite information to make informed decisions.  Once you are able to determine this information, here are some adjustments you may want to consider in order to reduce the number of overtime hours for which you may now be responsible:

1. Adjust or shuffle job delegated health care duties to minimize the number of overtime-eligible employees.  For example, if you are able to combine the delegated health care tasks to a single employee and combine the administrative tasks in the same manner, you may be able to classify only one employee as overtime-eligible instead of two. 
2. Distribute tasks that result in overtime hours to other employees, thus eliminating the overtime hours.  These tasks could be given to overtime-eligible employees working fewer hours, or the tasks could be given to exempt employees.
3. Review activities in the office and eliminate or reduce the potentially unnecessary or less valuable activities.  For example, if you currently provide a paid lunch hour, consider converting to an unpaid lunch period.  Additionally, you may want to find ways to streamline your staff meetings in order to reduce the amount of time in meetings.  This may involve a more extensive upper level meeting with exempt employees, and shorter meetings with employees that are overtime-eligible.
4. Review your practice hours and the revenue generated against the overtime hours worked.  Some physicians may find that they could extend their lunch period and not necessarily reduce the number of patients treated in a day.  However, adjust your hours only after carefully considering your geographical location, hours you are open and patient appointment preferences.
5. Examine tasks to determine if outsourcing to a properly qualified independent contractor would be an appropriate alternative.  For example, if you pay several employees to handle your billing, you might want to consider outsourcing your billing to a billing company.  Again, only outsource these types of tasks after careful financial analysis of both options.

Conclusion

First and foremost, the Illinois Chiropractic Society is encouraging our employer physicians to review each employee against the correct tests to ensure they are categorized appropriately as overtime-eligible or exempt.

Additionally, re-examination of these tests may bring other key questions to the forefront.  Have you properly classified your workers as independent contractors or employees, are you meeting the delegation requirements, and are you delegating appropriately to your Licensed Massage Therapists? The ICS has information that may assist our members through this process:

• Information and online education related to properly categorizing workers as employees or independent contractors.
• Delegation to Licensed and Unlicensed Personnel
• Delegation to Licensed Massage Therapists

Delegation Note:  The Medical Practice Act permits physicians to delegate patient care tasks to qualified licensed and unlicensed personnel in the office.  “Delegation” is a  term of art indicating a required level of direction and supervision over the person to whom the health care duties are delegated that would conflict with FLSA Administrative Exemption “exercise of discretion and independent judgment with respect to matters of significance.” ¹  “Matters of significance” would be specific to the health care duties, and delegation implies that the tasks or duties are implicit and not subject to interpretation or modification through the use of discretion or judgment.  Therefore, unlicensed staff members to whom health care tasks are delegated would not meet the Administrative Exemptions as provided by the Department of Labor. Additionally, by billing under your own NPI, you are implying delegation and supervisory control over the employee performing the delegated duties. Thus, a licensed employee would no longer be performing “consistent exercise of discretion and judgment.” ¹

Footnote 1: US Department of Labor – Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA).

Editor’s Note: The content of this article should not be construed as legal advice.  We encourage our members who need legal assistance navigating the proper classification of employees to seek counsel from an employment attorney.