Developing a compensation strategy that meets the needs of your healthcare organization, and employees, can be a challenging process; compensation teams need to consider budgetary constraints, internal equity, and market standards when designing compensation plans and pay philosophies. Making the right decisions can have a profound impact on your workforce — and patient and business outcomes as a result. The process of developing or adjusting compensation plans, however, can be difficult and time-consuming, especially when new federal regulations are introduced that may require a significant restructuring of your existing compensation structures.
On May 18, 2016, the Department of Labor announced changes to the Fair Labor Standards Act (FLSA). These updates will impact regulations governing overtime pay eligibility, and will extend pay protections to more than 4 million people nationwide. Under the new regulations, workers who earn less than $47,476 annually will become eligible for time-and-a-half pay benefits for time worked in excess of 40 hours per week. These changes are scheduled to go into effect on December 1, 2016, and effectively double the salary cut-off limit for overtime pay eligibility from $23,660, annually, where the limit is currently set.
A recent article in Harvard Business Review, “Why the U.S. Decided Managers Deserve Overtime Too”, calls attention to the challenges this change poses to employers, stating “Employers have some big choices to make about how they respond to the change in law. In the end, these choices will say a lot about whether their frontline managers are really the part of the corporate team or are just another cost to be minimized.”
While it’s unclear just how many healthcare workers will be impacted by this change, it’s safe to bet that many healthcare organizations will need to adjust their current compensation plans and strategies to be compliant. In doing so, healthcare administrators and compensation teams will need to consider the unique circumstances and challenges facing their organization in order to select the best course of action without jeopardizing business goals, or risking workforce attrition.
Though it’s difficult to predict how healthcare organizations will respond to the new regulation on a greater scale, some options employers may consider are:
- Reclassifying salaried positions that don’t currently meet the new salary cut-off to hourly positions, and compensating the employees in these roles with the required overtime pay, as needed.
- Reclassifying salaried positions that don’t currently meet the new salary cut-off to hourly positions, and limiting number of hours these employees are allowed to work in an effort to reduce overtime pay expenses.
- Standardizing the base salary for specific positions to meet the new salary cut-off of $47,476 annually.
- Split roles that contain both staff and managerial responsibilities into two separate positions — the former paid hourly wages, and the latter salaried at $47,476 or above.
Not all of these options will be viable at every healthcare organization, however, and will need to be considered on a case-by-case basis. Furthermore, administrators need to carefully assess the risks and costs associated with such actions.
Organizations that decide to reclassify salaried positions as hourly ones, for example, will need to consider whether they can justify, and afford additional expenses associated with mandatory overtime payouts. Reclassifying salaried positions as hourly ones, while limiting hours, on the other hand, is likely to result in decreased productivity, and may even lead to increased costs if new employees need to be hired to complete work that can’t be finished by those restricted to a 40 hour work week. Standardizing the base salary for specific positions so they meet the new $47,476 annual cut-off may be an option in certain cases, but only if any associated costs are less than projected costs of overtime pay for those positions.
Determining whether to divide existing roles into new hourly/salaried positions, based on the type and level of responsibility, also has its drawbacks. For certain positions, like hybrid roles that combine the duties of multiple positions into one, this might make sense. Managers and leaders, however, need to consider how this could affect employee satisfaction. Employees whose responsibilities are reduced may be less engaged in their roles, leading to decreased performance or increased turnover, both of which impact patient care and an organization’s bottom line.
One thing that’s certain is that, regardless of circumstance, healthcare employers have little more than six months to prepare for the FLSA updates to go into effect and to assess its potential impact on their organization. To do this, employers need to have a firm understanding of what their current compensation structures look like, which roles may be affected, and how they will need to adapt their overall compensation strategies in the long run.
These tasks may seem like daunting challenges to many organizations, but with the right tools, they don’t need to be. HealthcareSource has partnered with PayFactors, a market leader in compensation data analysis, to offer Pay Data and Survey Management comprehensive compensation analysis solutions.
With Pay Data and Survey Management, compensation professionals can quickly gather and analyze compensation information, price hourly, salaried, and hybrid positions, and make pay grade adjustments in order to meet FLSA regulations.
Additionally, Pay Data and Survey Management make the process of collecting and compiling data for salary survey participation more efficient, saving time while helping ensure the accuracy of compensation data, with pre-built survey participation files and an online, easy-to-access library of preferred surveys. Pay Data and Survey Management also provide unlimited access to best-in-class market data for 4,000+ clinical and non-clinical roles, across 50,000+ geographic locations, that’s updated on a monthly basis, so compensation teams always have the market data they need at their fingertips to keep up with the market.
Finally, with Pay Data and Survey Management, compensation teams gain access to PayFactors’ Certified Compensation Professionals (CCPs), who are always available to provide consulting and compliance recommendations, at no additional cost. PayFactors even has a resource portal, which contains important information about the new FLSA changes, to keep compensation professionals up-to-date.
The new FLSA standards will surely change the way healthcare employers view compensation, and determining which course of action will best help their organizations adapt to the new rule is essential for developing a strong compensation strategy moving forward. It’s essential that employers consider the effect these changes will have on employees, and that these impacts are clearly communicated at all levels of the workforce.
With the right tools in place, adapting to regulatory changes doesn’t have to be a nightmare, but can instead be a great opportunity to rethink compensation strategy and to affect positive organizational change.