Misclassifying nonexempt employees as exempt can cost you

A column about keeping your practice in good health

By — Posted Nov. 9, 2009.

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Are your licensed practical nurses exempt employees who should be salaried and not paid time-and-a-half for overtime?

What about the registered nurse who does your bookkeeping but not much nursing? Should that person be classified as exempt or nonexempt from wage and hour regulations?

Under the federal Fair Labor Standards Act, both should be classified as nonexempt, which means they are subject to rules for minimum wage and overtime pay. Experts say many medical practices get this wrong, and making this kind of error can be pricey -- especially with word coming that the Dept. of Labor is hiring more investigators to get more aggressive about such violations.

"The burden is always on the employers to prove employees actually meet the qualifications to be exempt," said Kevin Troutman, chair of the Healthcare Practice Group at Fisher & Phillips in Houston. "The assumption is that employees are nonexempt and are going to be paid on an hourly basis and are going to be entitled to overtime. If you make a mistake, it can be very costly, and we are seeing more and more wage-and-hour claims in federal courts."

FLSA applies to businesses with gross receipts greater than $500,000,which means most medical practices are affected.

Here is one example of how much a misclassification can cost: A New York medical group had to pay 50 medical and clerical workers, including nurses, more than $100,000 in back wages for unpaid overtime.

The settlement with the Labor Dept. didn't disclose whether the group had to pay employees double what they originally would have received in overtime, but that is a common judgment. And judgments can require more than just the back pay.

If the misclassification is viewed as deliberate, fines can result. Attorney fees can add up. And business owners, rather than the business, are responsible.

"It adds up extremely fast," said John Gilliland, a lawyer with Gilliland & Markette in Indianapolis, who advises medical practices on this issue. "And what many employers are not aware of is that owners are personally liable. It's your own bank account."

There are several basic principles to follow in correctly classifying employees, experts say. Employees are considered nonexempt by default but can be classified as exempt if they are executives, administrators, learned professionals or outside salespeople.

These medical practice employees tend to be exempt:

  • Registered nurses.
  • Practice managers.
  • Physician assistants.
  • Nurse practitioners.

These employees are more likely to be nonexempt:

  • Clerical workers.
  • Licensed practical nurses.
  • Medical technicians.

How employees are classified, however, has more to do with duties than education, training or job title.

RNs and other professionals may be considered nonexempt if they primarily carry out clerical tasks. LPNs can become exempt if they manage the practice and supervise employees.

"A registered nurse who is performing the duties of a registered nurse does qualify as exempt. An LPN does not meet the qualifications typically under the professional exemption," Troutman said. But if that LPN is the office manager and supervises other staff; makes decisions regarding pay, scheduling, hiring and firing; and provides input that is given considerable weight, then he or she would be considered exempt as an executive.

In addition, experts say many medical practices erroneously believe that employees who are paid a salary are exempt. But that is only one qualification.

Employees also "have to exercise discretion and independent judgment with respect to matters of significance -- not just what we're going to order for lunch today," Troutman said.

Experts advocate that medical practices review how they classify employees because, although random audits have been unusual, they are expected to become more common.

"We are being told that the Dept. of Labor is hiring several hundred new auditors, and I would expect more activity in this area," said David C. Wood, director of human resources for the professional employer organization Terra Firma in Denver.

Most investigations are generated by complaints from employees themselves, although anyone who suspects a workplace is not in compliance can file a complaint.

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