News & Resources

Salaried versus Hourly Employees

by Coale Anderson | December 4, 2009 | Published in HealthcareWealthcare.com

Doctors and dentists who also happen to be employers are becoming more likely to fall victim to minefields in the wage and hour laws that could cost them significant money (sometimes including triple damages and penalties) and even expose them to criminal charges.  Employers’ exposure has escalated in the last year in the wake of a recent changes in laws of certain states (such as Massachusetts, mandating triple damages for all wage and hour violations, regardless of employer intent), increased efforts by the U.S. Department of Labor’s Wage and Hour Division to investigate wage and hour claims under recently appointed Secretary of State Hilda L. Solis, and an accompanying spike in private litigation by employees seeking and recovering back wages for unpaid overtime.

The Basics
As a general rule, employees must be paid the minimum wage for each of the first forty (40) hours, and one and a half (1½) times the minimum wage for each hour more than 40 hours that they work during a given week.  However, Employees can be “exempt” from such minimum and overtime wage requirements under certain circumstances.  In particular, employees who make at least $455 per week, are paid on a “salary basis” (or in some circumstances, a “fee basis”), and qualify as “administrative,” “executive,” “professional,” “outside sales,” or “computer” employees may be exempt (commonly known as “white collar exemptions”).  Payment on a “salary basis” means payment of a predetermined amount each pay period, which “is not subject to reduction because of variations in quality or quantity of work.”

The employee’s primary duty must be as follows to qualify for one of the three most common white collar exemptions below:

Executive Exemption –  to manage the business (or a customarily recognized department thereof), customarily and regularly direct the work of at least 2 or more full-time or full-time-equivalent employees, and includes the authority to hire or fire other employees (or the employee’s recommendations as to hiring, firing, or other change in status of other employees must be given “particular weight”);

Professional Exemption – to perform work requiring advanced knowledge, defined as work that is predominantly intellectual in character and that includes work requiring the consistent exercise of discretion and judgment, and such advanced knowledge must be in the field of science or learning and customarily acquired by a prolonged course of specialized intellectual instruction;

Administrative Exemption – to perform office or non-manual work related directly to the management or general business operations of the employer or employer’s customers and must include the exercise of discretion and independent judgment with respect to matters of significance (factors to consider include whether employee carries out major assignments in conducting the operations of the business, performs work that affects business operations to a substantial degree, provides consultation or expert advice to management, investigates and resolves matters of significance on behalf of management, represents the company in handling complaints, arbitrating disputes or resolving grievances, and has authority to formulate, affect, interpret or implement management policies or operating practices, to commit employer in matters that have significant financial impact, to waive or deviate from established policies/procedures without obtaining prior approval, or to negotiate and bind the company on significant matters.

Potential Errors
Some of the most frequent employer errors are misclassifying non-exempt employees as exempt, converting exempt employees into non-exempt employees by inadvertently making improper deductions from their salaries, and failing to correctly identify hours for which non-exempt employees should be paid.  Examples of each are provided below.

Misclassifying Employees

• Not all salaried employees are exempt.  Salaried status is a necessary but not a sufficient condition for most exemptions.
• Title is not dispositive.  For instance, courts have ruled that certain employees are non-exempt, despite the title of “Office Manager” or “Office Supervisor.”  (Some office managers and office supervisors, however, depending on their responsibilities and duties are in fact exempt from wage and hour laws and regulations.)
• Comparison to other Employees.  In assessing an administrative or executive employee’s “primary duty,” the employee’s salary will be compared to wages paid to the non-exempt employees that the employee is managing or supervising. If the purportedly “exempt” employees earn little more than “nonexempt” employees that they oversee, that fact will undermine an employer’s claim of exemption.
• Nurses.  Licensed Practical Nurses are not exempt, while Registered Nurses are exempt if the salary tests are satisfied (although more than 75% of RNs continue to be paid by the hour and are eligible for overtime pay).
• Dental Hygienists/Assistants.  Dental Hygienists are exempt only if they have successfully completed four academic years of pre-professional and professional study in an accredited college or university approved by the Commission on Accreditation of Dental and Dental Auxiliary Educational Programs of the American Dental Association, and if the salary tests are satisfied.
• Medical/Dental Technicians.  Technicians (including “chief” x-ray technicians) are generally non-exempt.
• Physician Assistants.  Physician Assistants are exempt only if they have graduated from a program accredited by the Accreditation Review Commission on Education for the Physician Assistant and who are certified by the National Commission on Certification of Physician Assistants, and if the salary tests are satisfied.

Improper Deductions

The following improper deductions can convert an exempt employee into a  non-exempt employee, potentially exposing Employer to back wages and penalties:

• Docking pay of an exempt employee who works less than 40 hours per week.
• Requiring mandatory time off due to decreased business needs and reducing employee’s pay accordingly.
• Deducting fines or penalties from employee’s paycheck so that the hourly amount of the check falls below the minimum wage.
• Deducting amounts from an exempt employee’s pre-determined salary because of variations in quality or quantity of work.
• Deducting an amount for jury duty or military leave which exceeds the amount employee received for such service.

Failing to Properly Pay Non-Exempt Employees

• Dangers of “comp” time.  (If employee works 60 hours one week, Employer cannot avoid paying 20 hours of overtime by granting employee 20 hours off the following week.)
• Incorrect Calculation of Overtime Compensation. In calculating overtime pay at one and a half times the hourly rate, that hourly rate must sometimes include incentive pay, shift differentials, commissions and other additional compensation rather than just the stated hourly rate.
• Employers must pay for the following:
  • Time Checking Email Sent After Work Hours (If time checking emails exceeds 5 or 10 minutes, Employer will likely be obligated to pay for that time.)
  • Overuse of Employer-Issued Personal Digital Assistants (PDAs) (For example, some courts have found that if a non-exempt employee checks email before driving to work, Employer must pay for the time checking email and subsequent commute time.)
  • Time spent at meetings, training and coursework (including after work hours)
  • On-call time (when employee’s time is so restricted that employee cannot use such time effectively for personal purposes)
  • Meal time (Employer must pay employees for any time they work during lunch.)
  • Break time (for breaks lasting up to 20 minutes)
  • Travel time (e.g., between job sites)
  • Errands (e.g., work-related errands on the way to and from work)
  • Working at home  (including speaking to supervisor on the phone for more than a minute of two)
  • Staying Late Voluntarily to Finish-Up a Job
  • Time Spent Changing into Uniform (if changing takes place at work place or uniform or costume is elaborate)

Disclaimer – This article does not provide legal or other professional advice, and does not create an attorney-client relationship. Laws and their application and relevance vary depending upon jurisdiction and factual circumstances. Information in this article should not be used in lieu of consultation with professional advisors.  To comply with certain U.S. Treasury Regulations, we inform you that any federal tax advice contained in this Article is not a covered opinion as described in Treasury Depart Circular 230 and therefore cannot be relied upon to avoid any tax penalties or to support the promotion or marketing of any federal tax transactions.