On may 18, 2016, US employers heard the proverbial “thUd” of the other shoe dropping as the department of labor finally announced the new minimum salary for considering a white collar employee exempt from overtime pay: $47,476 per year ($913 per week), with an effective date of december 1, 2016. this change applies to dental offices of all sizes, types, and specialties.
Considering that the level currently sits at $23,660 ($455 weekly), this new change more than doubles the previous requirement!
If you have any employees who will be directly affected by this new salary threshold, you now have a not-so-fun decision to make before the December 1, 2016 compliance date:
• Should you raise all exempt employees’ salaries so they are over the threshold?
• Or should you change the status of your affected employees and pay them hourly instead, with overtime paid out when applicable?
Either way, you’ve got a lot of planning to do. But first, why did this change happen in the first place?
Updating the Fair labor Standards Act: A Pet Project of the dol
Until this past spring, the minimum salary threshold required by the Fair Labor Standards Act was $23,660 annually. This was put in place in 2004 and originally intended to apply to fairly well-paid, managerial employees. But in recent years, the DOL felt the threshold was too outdated ($23K per year does not go as far in 2016 as it did in 2004) and that it was being misapplied to many low-wage employees who should be eligible for overtime when they work over 40 hours.
With blessings from the Obama administration, the DOL has spent the last year pushing forward their changes to the exempt salary threshold. And to keep pace with inflation, the minimum exemption salary is set to automatically increase every three years. This rate change will be published well in advance each time, to give us all time to prepare.
Unfortunately, since this is a federal change, bringing the minimum salary up to date affects businesses of ALL sizes, even those that can’t easily afford to pay anyone more. If you find this more than a little annoying, you’re not alone, but all employers must be in compliance by December 1, 2016.
Raises or Status changes? An Uncomfortable crossroads
To prepare your practice, you have two main pathways to choose from: to give raises, or to make status changes.
First, you’ll need to determine how many salaried exempt employees will be affected – those who are currently classified as exempt and whose salary levels fall below the new minimum.
In a typical dental office, it’s your office managers who are most likely to be affected. Some team leaders may have been classified as exempt, but there are also strict duties requirements for exemption, so this should be evaluated for compliance. Hygienists should almost never be considered exempt, no matter what they’re earning. This is one of the most common ways practice owners get in trouble with the DOL or IRS. (If you’ve got exempt hygienists, please call CEDR at 866-414-6056 to double-check if their status is correct.)
On the other hand, dentists and associate dentists are exempt regardless of salary, as the salary level test is not required for doctors. And pretty much all other dental employees are non-exempt, though again, you would want to check with an HR expert whenever there’s ANY doubt.
Once you’ve figured out who will be affected, it’s time to decide:
• Do you want to raise salaries, if financially possible?
• Or do you prefer to reclassify one or more of your employees as non-exempt?
Your answer likely depends on how many employees are affected by this threshold change, how far away from the salary threshold they are, and how much overtime they tend to work.
If you decide you can’t afford to raise the salaries of one or more affected employees, and instead need to change their status, you’ll need to do all of the following no later than December 1, 2016:
1. Talk to your employee(s) about the status change. (More about this in a minute.)
2. Consider whether to change their compensation method to an hourly rate. You can still pay on a salary basis, but you must track hours and pay overtime when it’s worked. Usually, paying a nonexempt employee on an hourly basis is easiest.
3. Have them begin tracking their hours. You will now need to maintain immaculate timekeeping records, just as you do for all other non-exempt employees.
4. Start paying overtime for any and all hours in excess of 40 during a workweek (or 8 per day in California).
5. Plan how to limit overtime. Many managers habitually work more than 40 hours per week just to get their jobs done, including answering calls and checking email from home, but you may or may not be able to justify that anymore. You may need to remove duties or hire support.
The best way to control overtime is to have an employee handbook policy requiring it to be authorized. You can then issue a corrective action to any employee who doesn’t follow your policy. However, you must pay overtime once it has been
There’s more to being an exempt employee than being paid a salary. Many managers feel they have reached a professional goal when they achieve exempt status. Not having to clock, earning the same paycheck regardless of exact hours worked, and controlling your own flexible schedule is, for many, a big accomplishment. So losing all of those advantages and being reclassified as non-exempt can feel personal, like a setback or even a demotion.
There’s no easy way to have this conversation, but as an employer, here’s what to consider first:
1. Be prepared for an emotional response. A perceived loss in status can trigger our inherent survival response mechanisms: “fight, flight or freeze.” To counter that, make the person feel safe.
Tell them you value their work, and are committed to working with them to find a solution.
2. Think hard about how you want your manager to spend their time. If you need them to reduce their typical hours, you may also need to help them figure out how to still do a great job for you. You can also set the expectation for the manager to review their own responsibilities, identify areas that can be delegated, and ask for help prioritizing important tasks.
3. Know that duties and titles matter. Review your office manager’s job description, or put one in place if you haven’t. Make sure you are both on the same page.
Present any changes you need to make in a positive light. Make it clear that this is just a new structure, one that gives them more definition between work and home life, and a more reasonable workweek. Some managers may not be receptive, but others may see overtime pay as a good thing.
Silver linings: A Good opportunity and a Useful tool
Dilemmas and inconveniences aside, one good side effect of these changes is that they provide a chance to make sure everyone in your office is classified correctly, without raising the usual red “audit” flags caused by switching an employee’s status out of the blue. Take advantage of this opportunity! Employee misclassifications in dental offices are incredibly common, and many call at least one person “exempt” who shouldn’t be. Even if all salaries in your office are higher than $47,476 per year and no one is affected by this change, this is your chance to review your books and get everything right.
Finally, keep in mind that exempt employees must also meet a set of other criteria – it’s not just about salary. For a copy of CEDR’s Exempt Classification Guide and access a free tool that will help you calculate whether raises or status changes are in your best financial interest, please visit www.cedrsolutions.com/tpd.
Paul Edwards is the CEO and Co-Founder of CEDR HR Solutions (www.cedrsolutions.com), which provides individually customized employee handbooks and HR solutions to dental offices of all sizes across the United States. He has over 25 years’ experience as a manager and owner, and specializes in helping dental offices solve employee issues. Paul is a featured writer for The Profitable Dentist, Dental Economics, and other publications, and speaks at employment education seminars, conferences, and CE courses across the country. He can be reached at pauledwards@ cedrsolutions.com or (866) 414-6056.