The full-time coder at your busy surgery center is an hourly employee who constantly logs 60-hour workweeks. You're looking to cut your overtime budget and also do the right thing for the hardworking employee by promoting them to a salaried managerial position. As a manager, they'd make more than they did as an hourly employee during a standard 40-hour week, but less than what you'd often pay them when they worked 20 hours of overtime. You figure the new title is appropriate because the coder occasionally subs for the business office manager, oversees group projects and is consulted on important issues from time to time.
That's not necessarily true. Our law firm is seeing an uptick in cases involving surgical facility leaders who misclassify hourly employees as salaried managers in an effort to not pay them overtime. The move violates the Fair Labor Standards Act (FLSA), the intricacies of which dictate how employees must be compensated.
To be considered a manager under the FLSA, an employee's job must include managing a department as their primary duty; directing the work of at least two full-time employees; having the authority to hire and fire employees; setting hours of work and rates of pay; planning work tasks and how they'll be done; and having some level of control over a budget. Employees must engage in some combination of these tasks "customarily and regularly." Filling in for a manager once a week isn't enough. Managing a group of employees for a short-term project doesn't count either — they must oversee a unit that has permanent status and function. Occasional input into personnel matters is also insufficient. Their opinion has to be received by superiors regularly or given particular weight by leadership.
Performing managerial tasks occasionally isn't enough of a justification to make an hourly employee a salaried manager to avoid paying them overtime. If the employee's assigned tasks are in violation of the FLSA, that employee would be owed for all the time they worked more than 40 hours per week over the past three years. Under the FLSA's liquidated-damages provision, you'd have to pay them twice that amount. For example, if the unpaid overtime totaled $10,000, you'd be on the hook for $20,000.
FLSA infractions can be discovered in a number of ways. A good attorney will look for any angle for their client if the issue the employee came to them with initially — discrimination lawsuits, wrongful termination cases or disagreements regarding sick time during the pandemic — isn't strong enough to file a lawsuit, and proper and adequate compensation is always a ripe area for a good case. The issue even comes up when surgery centers get sold. If prospective owners look at employment records and discover a potential problem with how the employees are classified, they'll knock down the sales price for the liability they're about to inherit and fix the problems once they acquire the facility.
Interpretation of the FLSA is cut and dried; there's no wiggle room for not knowing its provisions. You're either in compliance or in violation. Most misclassifications take place because leaders of surgery centers without a human resources officer simply don't know the duties employees must perform in order to be considered a manager.
If having a human resources professional on staff isn't in the budget, at least have an employment lawyer on speed dial if you're transitioning an hourly worker to a salaried position with a manager's title. Have the attorney make sure you're doing everything right. They'll look at the employee's present job duties versus what you plan on having them do in the new role, and provide a written assessment on whether the new classification should be made or not.
Spending a few hundred dollars for that phone call will be well worth it. It's obviously a less painful expense than the tens of thousands of dollars you'd have to pay an employee years down the road to compensate them for missed overtime pay after finding out you classified their job title incorrectly. OSM