Unity Health in Searcy said the U.S. Department of Labor’s overtime rules that take effect Dec. 1 could result in $400,000-$500,000 more in annual expenses to the health care system.
“Obviously, we are concerned,” said Pam Williams, the human resources director for Unity Health, which has a 438-bed hospital. “We’re really not sure what we’re going to do yet.”
The centerpiece of the Department of Labor’s new overtime regulations raises the threshold of what salaried workers must be paid in order to qualify as an exempt employee.
The level has stood at $23,600 a year since 2004, but on Dec. 1, it doubles to $47,476.
That means that if an exempt salaried employee makes less than $47,476, the employer has two options: Bump the pay up to that amount or convert the employee to an hourly worker and pay time and a half for any hours worked over 40 in a week.
The new rule could award overtime pay to 4.2 million Americans, about 50,000 of them in Arkansas, who previously wouldn’t have been eligible for it.
The effect of the overtime regulations on the bottom lines of Arkansas hospitals isn’t clear yet as hospital officials are still devising plans to deal with the rules.
“We believe it will have an impact, just like it will on practically all other businesses,” said Paul Cunningham, executive vice president of the Arkansas Hospital Association.
“Hospitals are susceptible to having to pay overtime, as is practically any business you can pick out, and maybe more so than some just because of the nature of what we do.”
Williams said Unity Health is still considering how to comply with the regulations, which will affect about 100 of its 2,260 staff members. One option is to increase the pay of the salaried workers to ensure they earn at least $47,476 a year.
But Williams said that if a hospital raises the pay of those employees who currently make, say, $45,000 a year to $47,500, then the workers who are making around $48,000 will wonder where their raises are. And then those workers will have to be given a raise, she said. “It’s the domino effect,” Williams said. “And once you pay it out, you have to continue to pay it out.”
Stuart Hill, vice president and treasurer at Unity Health, said that if the health system has to devote $400,000-$500,000 more to payroll expenses as a result of the overtime regulations, “we would have to look at all of our different options on how to adjust for that.”
Those options would include cutting expenses or finding more revenue, he said.
But he said changing the status of those salaried employees to hourly positions and then allowing them to earn overtime might be easier.
Other hospitals also are navigating their way through the regulations.
The University of Arkansas for Medical Sciences has about 10,300 workers, and 1,100 could be eligible to receive overtime after Dec. 1.
“We’re going to take steps to kind of mitigate the impact,” said Bill Bowes, the chief financial officer for UAMS. “Hopefully, this will not have a major impact on us.”
UAMS and other hospitals also will have to address the issue of employees who had been in salaried positions and who now will be considered hourly workers. Some employees probably won’t like the idea of clocking in to keep track of their hours after years of not having to do that, Bowes said. “We’re going to find ways to make it as easy and as painless as possible for them to be able to do that,” he said. “But there’s no way of getting around that.”
‘A Little More Vigilant’
In 2014, President Barack Obama signed a presidential memorandum directing the federal Department of Labor to update its overtime rules, which had been comprehensively updated only once since 1970, according to a May news release from the White House press secretary.
In May, the Labor Department released the new rules, with the biggest change the increase in the salary level from $455 to $913 a week for workers to be exempt from overtime. The threshold will be updated every three years starting on Jan. 1, 2020.
“The main component of those regs is the new salary level for the executive, administrative, professional and computer professional exemptions,” Stuart Jackson, a partner at the law firm Wright Lindsey & Jennings of Little Rock, said in an email to Arkansas Business.
Jackson, who practices employment law, said he thought most registered nurses probably will be covered under the professional exemption and could be paid a salary. “So any hospital that pays its registered nurses a salary better make sure that the salary is at least $913 a week” as of Dec. 1, Jackson said. Otherwise, the hospital will have to pay overtime to the nurse.
Still, the new salary level alone doesn’t make an employee exempt under the Fair Labor Standards Act, he said. “A person’s job must still meet other ‘tests’ before it is properly considered exempt from the minimum wage and overtime laws,” Jackson wrote.
For example, the administrative employee’s primary duty must be managing the business or regularly managing two or more full-time workers to be considered exempt from being paid overtime, according to the Department of Labor.
Since news of the proposed rule changes more than a year ago, UAMS has been looking at its salaried workforce, said Jeff Risinger, an associate vice chancellor and chief human resources officer for UAMS.
He said managers were quizzed about how much overtime is actually worked by the employees who would be affected by the rule change. Out of the 1,100 workers who could be affected, a portion of those employees actually work more than 40 hours a week, he said.
“We’re trying now to see how we can control for that overtime,” Risinger said. “Perhaps we can just be a little more vigilant in how we track hours and track work.”
In hospitals, health care workers are typically assigned shift work and are paid by the hour, which makes their hours easy to track, said Devon Herrick, a senior fellow at the National Center for Policy Analysis of Dallas.
“That said, if you didn’t have everything covered in your shift, you might stay a little bit longer and not necessarily get paid for it,” he said. “That’s going to be a little harder for hospitals to get by with now.” He said that managers are going to keep a closer eye on employees so they get their work done and don’t go over their 40 hours in a week.
“There’s always an assumption that there are people out there that would gladly stretch 40 hours of work into 42 or 43, if that got them paid for 45,” Herrick said.
But if an employee works overtime and the employer refuses to pay it, a charge could be filed at the Department of Labor. After conducting an investigation, the department could then order the company to pay the overtime wages that are owed plus other damages, Jackson, the labor attorney, told Arkansas Business in an interview.
The second option is for an employee to file a lawsuit. And if the company loses, in addition to paying damages to the employee, the organization could have to pay the employee’s attorneys’ fees. “A lot of times the attorneys’ fees are greater than the actual damages,” Jackson said.
St. Bernards Healthcare in Jonesboro is working on its strategy for dealing with the overtime regulations.
“You’ve really got two options,” said Lori Smith, vice president of human resources for St. Bernards. “You can increase the individual salaries or reclassify [them] as nonexempt. But when you do that, then you run the risk of increasing their overtime cost.”
Smith estimated that fewer than 50 workers out of almost 3,000 will be affected at St. Bernards by the new regulations. Still, she said, St. Bernards will try to keep the financial impact of the regulations to a minimum by restructuring workloads in some departments.
Some human resources officers said they don’t think complying with the new regulations will be much of a burden. “Quite frankly, it’s just more of an adjustment to somebody’s status,” said Steve Percival, the vice president of human resources at Washington Regional Medical System in Fayetteville.
He said it is difficult to calculate the cost to the hospital now because those employees eligible for overtime might not work it after Dec. 1. “A lot of times salaried people work extra on their own because they feel like they need to get stuff done,” Percival said.
He said that it’s difficult to tell if those “several dozen workers” who were once salaried employees but don’t make more than $47,476 annually will work overtime after Dec. 1. Washington Regional has over 2,300 employees.
But, he said, the hospital probably won’t give raises to those workers on the cusp of the annual salary threshold just so they could be exempt from overtime pay.
Making “a salary adjustment just to avoid paying overtime doesn’t seem like it’s following the spirit and intent of the law,” Percival said. “I think that we probably would just let nature take its course and comply with the law.”