Exempt v. Nonexempt
There has been a great deal of confusion about which employees are entitled to overtime and which are not. There are some significant misunderstandings about these two classifications to the point that this has become the most litigated topic in California as well as some other states.
There is a federal law, the Fair Labor Standards Act (FLSA) that has been the backbone of wage and hour law since it was passed in 1937. It has been amended a number of times since then and is likely to be amended in 2018 or 2019 once again.
States also have their own wage and hour laws codified in their Labor Code and/or other regulations. California is unique in that it also has Wage Orders for each type of industry which also govern wage and hour law for that industry. Dental offices are covered under Wage Order 4. What follows is an overview that is consistent with most states in the basic principles that I am going to discuss. If you have questions about your particular state’s laws, please let me know.
Many employers believe that if an employee is paid a salary that makes them exempt from overtime. While it is true that exempt employees must be paid a salary, nonexempt employees may be paid a salary also, so that isn’t the condition that makes the difference. Nonexempt employees are generally paid on an hourly basis.
Some employers believe that titles make the difference—if they call their receptionist an “Office Manager” that will change her status to exempt. Not so.
There are two things that determine whether an employee is exempt or nonexempt. The main one is the functions of the job. This is called the “duties test.” The second one is if the position pays at or over the salary threshold.
Based on the “duties test,” here are the classifications in dental offices:
- Front desk employees (i.e., Financial Coordinator, Treatment Coordinator, Scheduling Coordinator, Insurance Billing Coordinator, etc.) are nonexempt.
- Dental assistants are also nonexempt even if they are RDAs.
- Hygienists are also nonexempt even if they are RDHs.
- The Office Manager or Practice Administrator that supervises others—s/he may be exempt.
- Doctors are exempt.
Associates may be exempt IF they are paid properly. If Associates are paid based on the hours they work, they will be nonexempt. If they are paid a percentage of production, they are nonexempt. The only way they can be exempt is if they are paid a base salary and then they can be paid a percentage of production on top of that.
The federal salary threshold is based on the federal minimum wage which at this writing is $7.25/hour. The minimum salary an exempt employee has to be paid to meet the salary threshold is $455/week or $23,660/year. This is probably going to go up sometime in the near future.
The minimum an exempt employee can be paid varies in many states because the state minimum wage is higher than the federal minimum wage. For example, in California many cities have raised their minimum wage but the exempt salary threshold is based on the state minimum wage which is either $10.50/hour (for employers who have 25 employees or less) or $11.00/hour for larger employers. The exempt salary minimum is two times the minimum wage or $43,680/year for smaller employers and $45,760/year for larger ones.
Exempt employees are paid a salary that is averaged over the year based on if the employer pays wages on a semi-monthly or biweekly schedule. The salary is not based on the hours an exempt employee works; it is based on the job they do. For that reason there are rules about when an exempt employee’s salary can be reduced.
On the other hand, nonexempt employees are paid based on the hours they work. For that reason they have to keep time records, they can be docked when they don’t work, and they have to be paid overtime.
Paying on a Per Diem basis
It is a common practice to pay hygienists and sometimes associates on a per diem basis. This is fine as long as the per diem rate is turned into an hourly rate for purposes of computing overtime. And the hygienist and associate still have to clock in and out. This is where the problem lies—many times dentists and hygienists rely on the per diem rate and there is no clocking in and out because that rate will be paid regardless. That might have been fine in the past, but it is becoming much more troublesome now in the face of new law. Also, in states like California that require employees to clock out for lunch, there is no proof that the hygienist took her lunch. If there is a claim, the dentist will have to pay a one-hour penalty for every lunch missed in CA going back at least 3 years! As you can see, it can be a very expensive mistake!
We strongly recommend that you calculate the hourly rate based on the per diem rate you currently pay and change your hygienists to an hourly rate. If you have patients cancel, you can send the hygienist home or s/he can do nonproduction work at a different wage rate (if you would like more information about “nonproduction wage rates” please let me know).
Keeping time records for nonexempt employees
Because all nonexempt employees have to keep time records, the easiest way to do that is by using computerized time clocks. Dentrix, Eaglesoft and other programs have timekeeping as part of their systems.
Be sure all nonexempt employees clock in when they begin work in the morning, clock out when they leave for lunch (including hygienists), clock in when they return from lunch and clock out at the end of the day. Writing the total number of hours on a timesheet, e.g., “8 hours,” is not permissible.
Paying overtime to nonexempt employees
And remember, you must pay overtime for hours worked over 40 in a week for most states and for California, Alaska and Nevada, overtime is computed over 8 hours a day first and then over 40 in a workweek without counting the same hours twice.
Also, if you pay a production bonus that is calculated on a formula basis, depending on your state, you may have to add that amount into your calculation for overtime. Don’t count money paid for holidays or vacation or sick leave as part of your overtime calculations—overtime is paid based on hours worked, not hours paid.
Associates can be exempt under the Professional Exemption because they meet the duties test as dentists. If you want to make sure they are exempt, you must pay them a salary that is over the salary threshold. But what if the associate only works one or two days a week? You can’t pay any amount that is less than the exempt threshold for your state regardless of how many days the associate works. So, if your state follows the FLSA rules, then you have to pay the associate at least $23,660/year divided by the number of your pay periods (24 for semi-monthly or 26 for bi-weekly pay periods). If you are in CA, you have to pay at least $43,680/year and it can’t be prorated. You can add a percentage of production on top of that. Or you can pay the associate an hourly amount and treat him/her as nonexempt. S/he will have to keep time records and be paid overtime if that is the case.
If you have questions about how to pay employees—and if you have to pay employees—when you take them to a continuing education class, please call our office and ask for the article written for your particular state. There are lots of contingencies on this subject and there are ways you can save money.
We hope this summary has been helpful. Please call us at 925-310-4824 with questions—non-compliance is a serious and potentially expensive aggravation.