Practice Management Alert

Dive deep into the nitty-gritty definitions.

Practices are comprised of many employees — who all have different roles, statuses, and responsibilities. While the skillset and, therefore, the level of compensation differs wildly between physicians and front-desk staff, you may be wondering whether your current compensation is fair to your employees and also compliant with federal and state wage and labor laws.

Compensation for medical practice associates is broken down in a few ways: hourly, salary, per diem, a percentage of total production, as well as various combinations of these and even other strategies.

Read on to make sure your workers’ pay is up to legal snuff.

Context: If you’ve ever worked in any type of office, you’ve probably seen the noticeboard filled with the plethora of information that businesses are required to post. One of those posters might be about the “grand daddy” of labor law: the Fair Labor Standards Act, which was originally passed in 1937 and has been amended several times since. The FLSA is the basis for other wage and labor law, and usually applies, in addition to respective state laws.

Important: If your state’s law and federal law conflict and you’re not sure which rules to follow, you should abide by whichever law guarantees employees the most benefits, says Barbara Freet, PHR, president/CEO and founder of Human Resource Advisors in Walnut Creek, California.

Understand These Crucial Classifications

Labor and wage laws are usually structured around the understanding that a business’s employees can be classified into two categories. Although employees is a sort of catchall phrase in common parlance, in terms of wage and labor law, employees are a special category. People who work for a practice need to be classified as either employees or independent contractors, and their status in terms of wage and hour law is either exempt
or nonexempt.

Independent Contractors Escape Some Tax Burden

Many practices try to situate their rosters so that associates are termed independent contractors instead of employees, so as to avoid taxes, Freet says. In fact, even some clinicians try to avoid employee status so they personally can choose how much and what to report for their taxes, she adds.

With labor and wage laws varying state to state, one option is to go by the federal definition of independent contractor; you can evaluate how your practice’s situation compares by taking a yes/no IRS questionnaire. The results will tell you whether you can classify someone as an independent contractor or whether the person’s role is truly that of an employee.

Practices in states that have stricter laws and more explicit definitions need to follow their respective guidances. California, for example, requires employers to pass The ABC Test, in which employers, to classify someone as an independent contractor, must prove that the situation meets three parameters (A, B, and C), Freet says.

Exempt Status May Sound Like Good Business Sense

You may have heard the words “exempt” and “nonexempt” floating around for half your life and not know what, exactly, a person is exempt from. The words refer to a person’s status in regards to wage and hour law.

“This is the issue that is most explosive because many employers, doctors among them, think they can create a compensation plan that seems to work for everyone without being mindful of this classification issue,” Freet says.

Figuring out whether someone is exempt or nonexempt boils down to the functions of that person’s role in your practice — the status is not based on pay or title, she says.

However, there are some professional exemptions that apply to medical offices, and therefore some roles within your practice that may indeed be exempt, Freet says, including:

• physicians and associate physicians (who qualify under the professional exemption),
• physician assistants and nurse practitioners
• (if they’re salaried and meet a salary threshold), and
• office or practice managers (if they’re truly managing all aspects of the office and therefore qualify under Administrative Exemption).

All other roles are nonexempt, including nurses, hygienists, and front-desk roles (which includes scheduling, coding, billing, financial coordination, bookkeeping, etc.). Freet says these positions should be paid hourly instead of per diem or salary because nonexempt roles should be paid based on hours worked.

One tangible difference between the two statuses is that nonexempt people must clock out for lunch — which may seem annoying or inconvenient for workers in the moment, but is the only way states can really check in that some aspects of labor laws are being followed.

Understand the Roles Salaries Play

Although a job’s duties determine exempt versus nonexempt status, the salary paid to the worker also comes into play. The salary threshold for exempt status is twice the state’s minimum wage. (See “Use These Guidelines to Pay Associates Fairly,” page 60, for more information on paying associates.)

“At the moment, the federal requirement for exempt employees is a minimum of $455 per week, which is $23,660 per year. There is every likelihood that this salary threshold will go up to $35,308 in January 2020,” Freet says. She points out that the variance in state laws means there is a huge range and that it changes frequently, whenever states’ minimum wages rise.

Don’t Let Gender Cloud Your Offers

If you want your workers’ pay to be legal, make sure you aren’t letting biases cloud your understanding of what constitutes fair pay.

“The U.S. Bureau of Labor Statistics estimates the national gender gap across industries and occupations to be an average of 19 percent less, or, women taking home .81 cents on the dollar. In comparison, the average national gender pay gap among physicians is 24.7 percent less as of 2018,” according to the Doximity 2019 Physician Compensation Report.

For the first time, women are catching up in medicine. Salaries and wages for male physicians has stayed flat since 2017, but female physician pay has increased, Doximity found.

More and more states are passing pay equity laws that include significant penalties, says Jessica M. Marsh, J.D., of counsel at Jackson-Lewis P.C., in Minneapolis, Minnesota. California, Connecticut, Vermont, Oregon, Massachusetts, and New York have all passed pay equity laws.