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2016 Special Healthcare Issue


Fair Labor Standards Act – News Healthcare Companies Can Use

By: Mike Birrer and Kyle A. Perkins

Healthcare industry employers should be aware of two recent updates under the Fair Labor Standards Act (“FLSA”) that will have a significant impact on employee compensation and other business decisions.

1. New Minimum Salary Requirement for Exempt Employees.

Effective December 1, 2016, the minimum salary requirement for most exempt employees (often referred to as the Salary Basis Requirement) will be $913 per week or $47,476 per year (up from $455 per week / $23,660 per year). So as of December 1, 2016, employees exempt from receiving overtime under the executive, administrative, or professional exemptions must be paid at least this increased Salary Basis Requirement.  Other important changes include:

  • Employers may use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the Salary Basis Requirement;
  • The annual compensation requirement for employees who are exempt under the highly compensated employees (HCE) rules will be $134,004 (up from $100,000); and
  • The Salary Basis Requirement will be automatically updated every three years based on pre-established formulas (the first update will be January 1, 2020).

Accordingly, employers with exempt employees making less than $47,476 per year must make important decisions, such as whether to maintain the employee’s exempt status (and provide an increase in salary) or whether to switch the employee to non-exempt status and pay overtime when required. Employers should address these questions now, because employers who wait until after December 1, 2016 are at risk of collective action lawsuits and/or agency investigations.

2. Recent DOL Rule Requiring Higher Pay for Many Home Healthcare Workers Still Intact—For Now.

Under the FLSA, certain domestic-service workers are exempt from overtime requirements, including those providing companionship services for individuals who (because of age or infirmity) are unable to care for themselves. For years, the Department of Labor (“DOL”) has taken the position that this exemption applied to both home care workers employed directly by members of the household, as well as home care workers employed by a third-party provider.  Accordingly, many home healthcare companies built their business models around this interpretation, reducing expenses by not paying overtime to exempt home healthcare workers.

Effective January 1, 2015, the DOL issued a new rule that removed home care workers employed by third-party providers from the “companionship service” overtime exemption:

Third party employers of employees engaged in companionship services within the meaning of § 552.6 may not avail themselves of the minimum wage and overtime exemption provided by section 13(a)(15) of the Act, even if the employee is jointly employed by the individual or member of the family or household using the services. However, the individual or member of the family or household, even if considered a joint employer, is still entitled to assert the exemption, if the employee meets all of the requirements of § 552.6.

29 C.F.R. § 552.109(a).

The new rule created an uproar among home healthcare companies, both as to the policy reasons for the change, and perhaps more importantly as to the DOL’s authority to enact the new rule. That leads us to the Home Care Association of America’s (“Association”) lawsuit seeking to overturn the new regulation, arguing the DOL did not have authority to enact the new rule because it contravened the plain terms of the FLSA.

The Association was successful at the trial court level, with a district judge granting partial summary judgment vacating this portion of the new rule. The Association’s win was short lived because the Unites State Court of Appeals for the District of Columbia reversed the trial court’s decision, upholding the DOL’s authority to enact the new regulation.  A discussion of the appellate court’s analysis would require a crash course in administrative law not relevant to this article, but suffice it to say the opinion was well-reasoned, and it was authored by Sri Srinivasan, a well-regarded judge who many think will one day be appointed to the United States Supreme Court.   Nevertheless, home healthcare companies held out hope that the United States Supreme Court would hear the case and reverse the appellate decision.

Once again, that hope was short lived, because on June 27, 2016, the United States Supreme Court denied the Association’s petition for writ of certiorari, declining to hear the case. So, the new DOL regulations remain in effect, and home healthcare companies should continue to modify their business models to account for this overtime change.