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The New White Collar Exemptions: The Final Rule, (an exception), and the Possible Consequences

On May 18, 2016, the US Department of Labor (DOL) announced the Final Rule amending the “white collar” overtime exemptions to increase the number of employees eligible for overtime, effective December 1, 2016. Got overtime? There is no phase-in; it is immediately effective on December 1st.

We all know that the Affordable Care Act (ACA) placed heavier burdens on employers with the employer mandate for employee health insurance. But, the burdens didn’t stop with the ACA!! Oh, no!  In 2014, President Obama signed an Executive Order directing the Department of Labor to update the regulations defining which white collar workers are protected by the Fair Labor Standards Act (FLSA) minimum wage and overtime standards. How else could we financially burden employers? We could mandate employers pay overtime to salaried workers!!! Oh, we already do? Let’s raise the overtime salary threshold exemptions so more employees receive overtime!!

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You ask, “How is the DOL Final Rule on white collar exemptions germane to my health care agency/practice?” Answer: Do you have employees? If yes, the Final Rule is applicable to you. If no, there is no need to read this blog (unless you are a salaried employee and want to receive more overtime).

The new, increased salary threshold for executives, administration, and professionals exemptions swells from $455/week to $913/week or $23,660/year to $47,476/year. The number for the ceiling is actually less than what was proposed by $800/week. These numbers are based on 40th percentile of full-time employees (salaried) in the lowest wage region, which happens to be the South. Don’t get your knickers in a knot.

Furthermore, the exemption for the highly compensated employee will jump from $100,000 to $134,004 (odd number). This number is $12,000 more than the proposed amount. Well, that just dills my pickle!

The Final Rule also requires that the salary threshold for executives, administration, and professionals be reviewed every three years in order to maintain the salary exemption comparable to the 40th percentile of full-time employees (salaried) in the lowest wage census region – the South.

Finally, the salary basis test will be amended to allow employers to use non-discretionary bonuses and incentive payments, such as commissions, to satisfy the requirements up to 10% of the salary threshold.

The allowance of non-discretionary bonuses and incentive payments was meant to soften the blow of the increased salary thresholds. That’s about as useless as a screen door on a submarine/a trapdoor on a canoe.

VERY IMPORTANT EXCEPTION

The Secretary of DOL issued a time-limited non-enforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. From December 1, 2016 to March 17, 2019, the Department will not enforce the updated salary thresholds.

BUT THE REST OF US BEWARE!!

Do your math!! If the 10% maximum allowance is exceeded, you could find yourself in a world of hurt! We are talking misclassification claims! Also, ensure you know the proper distinctions between discretionary and non-discretionary bonuses!

What likely consequences will arise from this Final Rule? There are a number of possibilities:

  1. Employers will raise employees’ salaries to the new levels;
  2. Employers will pay more overtime;
  3. Employers will convert the salaried employees to hourly;
  4. Employers will change benefits or other operation costs to compensate for the increased burden.

Well, that’s just lower than a snake’s belly in a wagon rut!

“A Modest Proposal for the ACA Employer Mandate”

We all know about the ACA employer mandate. It placed a tremendous burden on employers, many of whom will only feel this burden weighing them down as we ring in the new year because, starting in 2016, companies with over 50 employees must offer health insurance to full time employees (those who work over 30 hours per week).

So how much does it cost you, as an employer, to hire an employee? Are there exceptions? Are there loopholes?

We will get to the first question in a second. The answer to the last two questions is a “yes,” which will be discussed further in this blog.

Cost of an employee

Employers have to pay Social Security tax, Medicare tax, state unemployment insurance, and, now in 2016, health care insurance benefits (if the company has 50+ employees).

Social Security tax is 6.2%. Medicare tax is 1.45%. State unemployment tax differs from state to state, but it can range from 0% to 12.27% (Massachusetts). For the sake of clarity, we will use 5%.

Health insurance benefits also can vary greatly depending on the plan. According to the Kaiser Family Foundation/Health Research & Education Trust 2015 Employer Health Benefits Survey, annual premiums for employer-sponsored family health coverage reached $17,545 this year, up 4 percent from last year, with workers on average paying $4,955 towards the cost of their coverage.

This means that the employer, on average, is paying $12,490 per year per employee for health care benefits.

Assuming a base salary of $70,000, an employer would spend:

Social Security tax: $4,340

Medicare tax: $1,015

State unemployment tax: $350

Health care insurance benefits: $12,490

For a whopping total of $18,195 per year.

Think about this…if you offer your employee a salary of $70,000/year, he/she has to produce revenue for that company of, at least, $88,195 per year in order for you to break even. As you well know, successful companies are not in the business of breaking even, so you will expect your employee to create, at least, over $90,000 of profit in order to be paid a salary of $70,000.

None of the above contemplate a 401K plan. If you’re in a position to offer your employees a 401K plan, they will need to be that much more profitable.

So how can you, as the employer of a home health company, a long term care facility, a dentist practice, or other health care provider decrease the amount of money spent on health care benefits?

“A Modest Proposal for the ACA Employer Mandate”

Before we begin our journey of “A Modest Proposal for the ACA Employer Mandate,” I would like to give a bit of an English lesson on satire, lest one of you miss it. Satire is defined as, “the use of humor, irony, exaggeration, or ridicule to expose and criticize people’s stupidity or vices, particularly in the context of contemporary politics and other topical issues.” It is burlesque. And so I write this blog in the vein of Jonathon Swift’s “A Modest Proposal” (for those of you who have not heard of it, I suggest you click on the link above). For the faint of heart, those easily offended, or those too lazy to click on the link, I suggest not reading further.

Below is my “A Modest Proposal for the ACA Employer Mandate.”

  1. Hire childless singles.

Childless singles are cheaper to insure. So screen your potential employees. Ask whether they intend to have children and warn them that you operate a non-child company. Explain that if you discover that any employee has a dependent child it will result in immediate termination. Bonuses for those who undergo voluntary hysterectomies or vasectomies.

2. Hire old people.

People over 65 are eligible for Medicare. They’re loyal; they don’t talk back. The only things they complain about are their ailments. Many expect little pay because they, or their parents, went through the Great Depression. You can be sure that they will not spend their time on Facebook, Twitter, Instagram, or other social media because they don’t know how. If the position involves driving, you can sure they will get no speeding tickets. Best of all, you know that you are not undertaking a long-term commitment.

3. Hire poor people.

People below the poverty line are eligible for Medicaid. They rarely talk on the phone to friends. Many even only talk to themselves, which is fantastic (and not creepy at all) in the workplace. They are never late with excuses of bad traffic; and their homes are, most likely, going to be very near by (and maybe right out front). They never try to “one-up” the Joneses’. You will never see them bragging about their new Iphones, Louis Vuitton bag, or Mercedes Benz.

5. Hire lazy people.

People who work under 30 hours per week do not get offered health care coverage. Hire employees who enjoy video games too excess. All the better if they own Assassin’s Creed: Victory, Battlefield: Hardline, and Dying Light. It’s an office party every day – no need to worry about them working over 30 hours per week – they like vodka, bourbon, and gin. It’s even better if they enjoy the occasional (daily) marijuana. Embrace a drug-friendly environment.

If you follow the above hiring tips, you too can avoid paying the ACA employer mandate. Remember, the key to success is to only hire childless singles, and old, poor, and lazy people.

And you’ve struck gold if you hire a childless, old, lazy, poor, single person….Goldmine!