Labor Department's new salaried overtime rule: What healthcare leaders should know

The Labor Department has issued its biggest increase to the federal overtime threshold in decades — and healthcare is among the most affected industries. 

Effective July 1, salaried workers making less than $43,888 per year will qualify for 1.5 times pay if they work more than 40 hours per week, up from the current cusp of $35,568. On Jan. 1, the threshold will rise again to include salaried workers making less than $58,656. 

The healthcare and social services industry — which employs a number of low-paid salaried workers — will see some of the most significant changes as a result of the rule, according to an April 23 analysis from the Economic Policy Institute. Across all industries, it is expected to result in an annual transfer of $1.5 billion from employers to workers in increased pay. 

Under the new rule, the salary levels will be updated automatically to reflect current earnings data. In an April 23 blog post, the Labor Department said it increased the minimum salary required for the EAP exemption from overtime pay every five to nine years between 1938 and 1975. Since then, long periods between increases to the salary requirement have caused "an erosion of the real value of the salary threshold" and made it more difficult to identify exempt EAP employees, according to the department. 

Employers can get "a reasonable sense well in advance of what the next threshold will be" on the Bureau of Labor Statistics' website by tracking how the 35th percentile of full-time salaried worker earnings in the lowest-wage Census region is evolving over time, according to the EPI. 

The Labor Department projects that 740,000 workers in the healthcare and social services industries will be affected. It estimates that small healthcare services entities — excluding hospitals — will see a total cost and payroll increase of $63.4 million in Year 1 and $94 million in Year 10. For small entity hospitals, the department anticipates a cost and payroll increase of $3.5 million in Year 1 and $4.4 million in Year 10.  

The rule and its new updating mechanism have been criticized by organizations representing employers. Specifically, nonprofit organizations and providers of home- and community-based health services are concerned that future updates will be challenging for the nonprofit sector to meet. The Washington Post reported April 24 that some critics are concerned the wage boost will worsen inflation and catalyze job loss — and that business and trade organizations are expected to challenge the rule in court, as they did when the Obama administration moved to raise the salary threshold. 

However, proponents of the rule — developed based on nearly 30 nationwide listening sessions and more than 33,000 written comments — believe the revision is fair. 

"This rule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid more for that time," acting Labor Secretary Julie Su said in an April 23 news release. "Too often, lower-paid salaried workers are doing the same job as their hourly counterparts but are spending more time away from their families for no additional pay. That is unacceptable."

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