Exempt vs. Non-Exempt Status: It’s More than Just Salary vs. Hourly!

Is this woman a volunteer if she was paid?

Janet has been the office manager of your practice since the doors opened. She’s always been a non-exempt employee. In the last year though, the practice has grown and you’ve added an administrative assistant, an appointment scheduler, and an insurance coordinator. You’re wondering if it’s time to change Janet’s classification from non-exempt to exempt. What are the guidelines for determining her classification?

We find that far too many employers think that if you pay employees a salary, you automatically do not have to track their hours or pay them overtime. Unfortunately, this is incorrect. The rules under the Fair Labor Standards Act (FLSA) distinguish between exempt and non-exempt positions in a way that is much more complex than simply whether the employee is paid on an hourly or salary basis.

This has been a big focus of IRS and DOL audits and gets many employers in trouble. In this trainer, we will provide you with a brief overview, as well as a link to CEDR’s Exempt Classifications Guide.

Read on to learn:

  • What “tests” can help you determine whether or not an employee is properly classified
  • The only employees in medical and dental practices that typically qualify as exempt
  • What may trigger a DOL audit

 

The FLSA and Exempt vs. Non-Exempt Classification

The FLSA is a federal labor law that governs overtime, minimum wage, child labor, and equal pay. Under the FLSA’s rules, an employee’s position is determined to be either “non-exempt” or “exempt.” A non-exempt position entitles an employee to overtime pay, requires a record of their time worked, and means they must be paid at or above minimum wage for all work hours. Exempt employees are not subject to these rules, but have their own restrictions.

Exemption typically covers “white collar” jobs, such as doctors, executives, and high-level managers. Whether a specific position at your practice is exempt depends on how and how much it pays, and the job responsibilities that it includes.

With few exceptions, in order to be properly classified as exempt, an employee must pass all 3 of these tests:

    1. Salary Level: The salary must be a minimum of $684/week ($35,568/year).

The only exception to this is for employers in California, Washington, Colorado, and New York, where the salary amount has to be higher.

  1. Salary Basis: Employees must be paid a predetermined amount each pay period (a fixed salary), regardless of how much they work in a day. In other words, in any week in which the employee works, they should receive at least their fixed salary. (Deductions may be made in very limited circumstances.) Note that this test does not apply to doctors, who may be paid on a commission or fee basis and still be exempt. However, licensed physicians in California must receive at least $84.79/hour.
  2. Job Duties: Employees must meet the duty requirements for one of three categories of exemption: administrative, executive, or professional. This is the tricky part! See our Exempt Classifications Guide.

Again, employees must meet the standards of ALL THREE “tests” to be considered exempt.
 

Reviewing Your Employees’ Exemption Status

In a typical medical or dental practice, the only positions that may qualify as exempt are your associate doctors and office managers (if your OMs manage a minimum of three full-time employees, not including themselves, for more than 50% of their time). Hygienists are NOT exempt, and must track their time and be paid overtime, regardless of how you pay them.

It’s a good idea to perform a self-audit of all positions in your office at the same time, as a normal part of your HR review process. Employees in the same position should almost always be classified the same way. Once the positions are properly classified, you can record the classification by including it on a job description for each employee to sign. Also, remember that employee classification rules may vary from state to state, so contact the CEDR Solution Center for specific guidance, at 866-414-6056.

One last word of warning: Be careful if you are converting a position from a non-exempt to exempt status. This is a trigger for the DOL to perform an audit. For example, if an employee is consistently making $950 per week (including overtime) as a non-exempt employee, and you convert them to a salaried-exempt employee now making less, it suspiciously appears that you are trying to improperly avoid overtime.

To avoid a problem, make certain the exempt status is justified, and when converting to salary, use a salary equivalent to what the employee was making prior to the conversion.

Three things you can take away:

  1. To be properly classified as exempt, an employee must meet salary level requirements, must be paid a predetermined amount each pay period, and must meet duty requirements for one of the three categories of exemption: administrative, executive, or professional.
  2. Once a position has been properly classified, you can record it by including it on a job description for the employee to sign.
  3. When converting a position to exempt from non-exempt, be sure the exempt status is justified, and use a salary equivalent to what the employee was making when classified as non-exempt.

 

Need Help? Call Our Advisors.

This overview should have given you a rough idea of the FLSA guidelines for exempt employees. However, as you can already see, there are no “one size fits all” answers. For help determining which employees within your practice are exempt, or to ask further questions, CEDR members can always call (866)414-6056 to speak with a Solution Center Advisor.

Updated August 31, 2020; originally published May 2, 2013.

Aug 31, 2020

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.
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