Salary threshold for overtime pay doubles

Veterinary practices, universities, nonprofits impacted
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Starting Dec. 1, exempt salaried employees earning less than $47,476 a year will qualify for time and a half when they work more than 40 hours a week. The previous threshold to qualify for overtime pay for these workers, last set in 2004, was $23,660.

The Department of Labor issued the highly anticipated overtime rule May 18, which means an estimated 4.2 million additional workers will qualify for overtime pay. It all started in 2014 when President Obama issued a memorandum directing the Labor Department to update the regulations governing exemptions to the Fair Labor Standards Act’s overtime pay requirements.

For salaried workers, two factors determine whether they are guaranteed time-and-a-half pay when they work extra hours: how much money they make and what their duties are. The new regulations change the first part of the equation by raising the overtime salary threshold to $47,476. 

The salary threshold is the number below which all workers have a right to overtime pay, regardless of their job duties. This means that starting Dec. 1, “executive, administrative, and professional” workers, who can currently be exempt from overtime pay if they make as little as $23,660 a year, will be eligible for overtime if they earn less than $47,476.

The new rule also requires the cap for overtime eligibility to be adjusted once every three years to the 40th percentile for full-time salaried workers in the lowest-wage census region. The first adjustment will be posted Aug. 1, 2019, 150 days in advance of its effective date of Jan. 1, 2020.

​With the new overtime rule going into effect Dec. 1, veterinary practices will see an impact on salaried practice staff who make less than $47,476 and are currently exempt, most likely practice managers, bookkeepers, or human resources directors. The Department of Labor has specifically ruled that veterinary technicians are nonexempt, so they historically have been eligible for overtime. (Photo by R. Scott Nolen)

Employer decisions

Veterinary employers and associations were still determining what changes they will make in light of the new rule. Banfield Pet Hospital declined to comment. The American Animal Hospital Association hasn’t taken a position. The Veterinary Hospital Managers Association says it will be developing educational offerings to ensure that its members are well-versed on what they need to know about adhering to the new rule within their veterinary practices.

The AVMA does not have established policy concerning the Fair Labor Standards Act. The Association also has not taken a position on the Protecting Workplace Advancement and Opportunity Act (HR 4773/S 2707), which aims to block the final overtime rule from taking effect and require the Labor Department to perform a deeper analysis on the impact of the proposed changes on various entities before proceeding with a new rule.

A coalition called the Partnership to Protect Workplace Opportunity supports the act. The Association of American Veterinary Medical Colleges and the American Veterinary Distributors Association signed on to letters of support for the legislation.

As written, the new regulations will apply to employers of all kinds. According to a Q&A by the Labor Department, employers have the following options:

  • Increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status.
  • Pay 1 1/2 times the employee’s regular rate of pay for any overtime hours worked.
  • Reduce or eliminate overtime hours.
  • Reduce the amount of pay allocated to base salary and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant.
  • Use some combination of these responses.

Veterinary practices will see an impact with salaries paid to practice staff who make less than $47,476 and are currently exempt, most likely practice managers, bookkeepers, or human resources directors. The Labor Department has specifically ruled that veterinary technicians are nonexempt, so they historically have been eligible for overtime.

That said, Rebecca Rose, president of the National Association of Veterinary Technicians in America, says the new rule provides a good opportunity for veterinary practices to review how much overtime they are paying and whether they should hire more staff.

“If you are paying a lot of overtime, that’s a red flag. You’re burning people out and not effectively and efficiently using team members,” she said. Rose noted the new rule also should have owners or managers talking to their accountants about whether they are categorizing and paying team members appropriately.

When Rose was at a rural veterinary hospital in Colorado more than 20 years ago, she worked more than 50 hours a week but was getting paid a flat salary. “I knew it was wrong, and I spoke with the doctor about it, but he said, ‘No, this is how we’ve always done it,’” she said. So Rose, after reading in the newspaper how she could ask the Colorado Bar Association for advice, wrote a letter to the organization. The state bar responded that she was eligible for overtime and entitled to back pay. Rose showed the letter to the veterinarian, who changed the hospital’s policies so that she and other staff began tracking their hours and were paid overtime for extra hours worked.

Academic institutions and nonprofits

Small businesses such as veterinary practices won’t be the only ones impacted. The Association of Public and Land-grant Universities issued a statement saying it is concerned that the new regulations will raise universities’ costs and make it more difficult to keep rising tuitions in check.

Faculty members are exempt from overtime; however, the new salary threshold does apply to postdoctoral fellows who do not primarily teach. Thus, the new regulations will likely result in raises for a lot of postdocs, particularly those in the health sciences. The mean annual pay for postdocs is around $45,000. Labor Secretary Thomas Perez, in a May 17 op-ed for The Huffington Post, wrote, “Universities, teaching hospitals, and other institutions that employ postdocs have a choice. They can carefully track their fellows’ hours and pay overtime, or they can raise their salaries to levels above the threshold and thereby qualify them for exemption.”

Veterinary interns and residents likely will not be affected by the new rule, as they could fall under two exemptions.

The AAVMC, in a letter to veterinary deans this past March, cited a decision in which the 9th U.S. Circuit Court of Appeals has already held that veterinarians are included in the exemption for the practice of law or medicine. This ruling has the effect of law in the court’s territory of Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, and Washington.

“A federal agency cannot interpret its rules differently in different states; that is, the Department of Labor cannot suggest that veterinarians are exempt from the rule in the Ninth Circuit, but not exempt in other states. Since it is extremely unlikely that another U.S. Circuit Court of Appeals will address this issue, and even less likely that the U.S. Supreme Court ever will, the Ninth Circuit ruling stands alone. In the alternative, the ‘learned professional’ exemption should apply to residents and interns,” Dr. Andrew Maccabe, AAVMC executive director, wrote in the letter.

During the 2014-2015 academic year, there were 315 interns at U.S. veterinary colleges. Intern salaries ranged from $22,500 to $38,360; the mean salary was $26,572, according to the AAVMC. Meanwhile, there were 978 residents at U.S. veterinary colleges in that time frame, and the mean resident salary was $32,707. Reported salaries ranged from zero to $54,774.

Veterinary interns and residents will likely not be impacted by the new overtime rule. (Photo by Malinda Larkin)

Dr. Maccabe told JAVMA this past year, “Residencies and internships are different from other types of employment. Colleges offer a great deal of nonsalary benefits, such as free tuition and experienced mentorship, often resulting in a master’s degree or PhD for applicants who complete a residency. Veterinary colleges are not simply trying to pay the least amount of money for the most amount of work. A well-structured internship and residency involves mentorship and formal classroom training and travel for participating in scientific meetings. That’s why these positions traditionally have been at the lower end of the pay scale.”

Nonprofits could be impacted. The Labor Department, in a fact sheet published this past year, said that nonprofits that have revenue from sales or business of at least $500,000 were covered under the Fair Labor Standards Act. The department specifically gave the example of a nonprofit animal shelter that provides free veterinary care, adoption services, and shelter for homeless animals, which are charitable activities. In addition, this shelter provides veterinary care for a fee to customers, which is a commercial activity.

“If the revenue generated from the organization’s commercial activities is at least $500,000 in a year, the employees engaged in the commercial activities are protected by the FLSA on an enterprise basis. Employees of the organization’s charitable activities are not covered on an enterprise basis since those activities do not have a business purpose. However, an employee who spends a considerable amount of time fundraising on the phone and taking credit card donations from other states would be individually covered,” the fact sheet stated.