Does Your Healthcare Organization Pay an Overtime Premium Higher Than What Is Required?

6 August, 2019

Your healthcare organization may unknowingly be paying employees more in overtime premium pay than the Federal Labor Standards Act (FLSA) requires--even though your pay policy clearly states that overtime will be paid according to the FLSA rules.  

24/7/365 Operations and Staffing Drives Complex Pay Practices

Healthcare organizations’ pay practices are some of the most complex of any major U.S. industry given staffing requirements needed to meet 24/7/365 operations. This complexity is reflected in the number, types of, and methods of paying a variety of incentive/premium pays to eligible non-exempt employees. These additional pays, under most but not all instances, must be included in the FLSA required calculation of the employees’ FLSA Regular Rate of pay in each work week (except 8&80) which is then paid at 1.5X the FLSA defined Regular Rate.

Complex Governmental Overtime Regulations

Likewise, the FLSA overtime-related regulations are also very complex. Hence the intersections of complex pay practices with complex regulations often leads to overtime payment errors, both under- and over-payment of overtime pay. Most healthcare organizations take a conservative approach to these calculations, resulting in unintended over-payment of overtime premium pay.

The Intersections of Complex Pay Practices and Governmental Regulations Result in Paying Higher Overtime Premium Pay

Over-payments of the overtime premium most commonly arise when certain permitted exclusions to the calculation of the FLSA Regular Rate, or credits to the calculated overtime premium as described in Title 29 CFR, §778.200 (a) Section 7(e) of the U.S Wage and Hour Division’s Regulations are not calculated properly. These calculations are most often performed by the payroll system based upon setup parameters.

Permissible exclusions from the overtime pay rate calculations and/or credits against overtime premium pay arise in healthcare organizations from premium pays that pay 1.5X (as defined) or more of an employee’s normal hourly rate of pay for defined work times. Pay practices that most often pay 1.5X, or more of an employee’s normal hourly rate include worked holidays, call back, some weekend differentials, and some extra shift incentives. 

What Might These Over-Payments Be Costing Your Organization?

Annual over-payments often exceed $250,000 for a single, moderately sized hospital and can range upward of $2,000,000 for larger, multi-hospital systems. Over a five-year period, such over-payments could total $1,250,000 to $10,000,000 for these types of organizations.

How Difficult Is It To Correct These Calculations?

One of the more compelling parts of this pay practice optimization opportunity is that the correction is a quick, simple setup change in your timekeeping and/or payroll systems. Once this is completed, the results are hardwired to occur. An appropriate employee communication would also need to be undertaken prior to making overtime pay changes.

We strongly recommend that the final changes in the calculations of overtime pay be reviewed by competent counsel prior to implementation.

Should Your Organization Undertake an Assessment of Overtime Premium Pay?

Your healthcare organization may have material overtime premium pay optimization opportunities if:

  • Your systems’ installation setups were made without detailed considerations of FLSA regulations (this is very common)
  • There are numerous new or changed pay practices with significant premiums and the systems’ setups for these new and/or changed pay practices
  • There are numerous and high-cost premium pay practices that are paid 1.5X, or more of a non-exempt employee’s base pay rate

If you believe that your organization may benefit from a Pay Practices Optimization, please contact Debbie Sanders at deborah.sanders@ge.com.

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