Fair Labor Standards Act: Impact of Overtime Rule Changes for Healthcare Employees

After many years of proposed legislation and revisions, the Biden Administration passed the Fair Labor Standards Act (FLSA), effective July 1, 2024. This new regulation increases the minimum salary amount that employers must pay to be considered for exemption from the overtime pay requirements.

The FLSA adjusted the threshold for overtime pay to be applicable for those employees who make less than $43,888 on July 1, 2024, and $58,656 on January 1, 2025.  The FLSA also applies to highly compensated employees (HCE), increasing the threshold to $132,964 on July 1, 2024, and $151,164 on January 1, 2025. These compensation thresholds are set to be reevaluated on July 1, 2027, and every three years thereafter. Prior to July 1, 2024, the overtime threshold was set at $35,568 per year for standard salary level and $107,432 for HCE. Adjustments to these thresholds reflect the ongoing efforts to update overtime regulations to current economic conditions. Let’s explore the anticipated changes, their potential impacts on your practice, and the necessary steps to ensure compliance with this legislation.

According to the Fair Labor Standards Act, almost all hourly employees are eligible for overtime pay, including those who may have been previously exempt. Medical practices typically have a range of administrative and professional staff who fall under the executive, administrative, or professional (EAP) exemption categories. Due to the new rule, many of these previously exempt employees may now be eligible for overtime pay. This could affect positions like office managers, senior administrators, and certain specialized non-clinical staff. Employers have the option to either raise the salaries of employees who fall below the new threshold to maintain their exempt status or reclassify them as non-exempt, thus making them eligible for overtime pay.

Steps to Ensure Compliance With the New FLSA Regulations

Now that we understand the FLSA, here are some ways to proactively handle the regulation changes and ensure compliance:

  • Create a detailed communication plan to inform affected employees about the reclassification and its reasons.
  • Include explanations of new timekeeping requirements and how these changes will impact their employment status.
  • Provide training on new policies and systems to help both employees and managers adjust to the new overtime regulations.
  • Make sure to reflect any potential increase in labor costs in your budget for the upcoming year.
  • Establish a policy for periodic review of employee classifications and salary levels against FLSA Standards.

In summary, it is necessary to assess the new legislation to see if it will impact any of your current employees. As these changes will extend overtime protections to more employees, employers may need to adapt or adjust their payroll practices.

Author: Alex Weis, MBA | [email protected]

Contact Us

Reach out to Withum’s Healthcare Services Team to discuss these changes to ensure your practice remains in compliance.