By Bruce Wood, Esq.
It’s no secret that there is a nationwide shortage of skilled medical professionals, particularly nurses and physician assistants, which has resulted in longer work weeks for many employees. Those staffing shortages will not be resolved soon and healthcare employers need to be careful to avoid running afoul of federal and state wage and hours laws governing the payment of overtime compensation.
There is a common misconception that all medical professionals are exempt from overtime compensation. The Fair Labor Standards Act (FLSA) provides an exemption from the Act’s minimum wage and overtime requirements for any employee employed in a “bona fide professional capacity”. To meet that test the employee’s primary duty must be the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.
Clearly, licensed physicians are considered professional employees. And so are registered nurses, nurse practitioners, physician assistants, and certain certified medical technologists. Licensed practical nurses and other similar health care employees, however, generally do not qualify as exempt professional employees because possession of a specialized advanced academic degree is not a standard prerequisite for entry into those occupations.
In addition to meeting the test of a bona fide medical professional, the exempt employee must also be paid on a salary basis; however, the salary requirement does not apply to those who practice medicine (e.g., physicians) and while it may be argued that NPs and PAs practice medicine (since they can diagnose and treat), the courts interpreting the FLSA have generally held that they do not.
Thus, if the NP or PA is compensated on an hourly basis, the FLSA requires the payment of overtime compensation for work in excess of 40 hours per week. In the absence of unusual facts and circumstances, the employment of an NP or PA on a fixed salary should be exempt from the FLSA overtime requirements.
Some healthcare employers may be tempted to try to avoid the statutory overtime requirements by structuring the hourly compensation arrangement as an independent contractor relationship rather than an employment relationship. Independent contractors are not protected by the FLSA. But the government is wise to attempts to skirt the wage and hour laws merely by calling a worker an independent contractor. The IRS, and more recently the Workers’ Compensation Board, have been aggressive in recharacterizing independent contractors as employees, with the imposition of fines, penalties and interest against the offending employer.
That is not say that there cannot be legitimate independent contractor arrangements. But the employer would wishes to use independent contractors should make sure that those contractors meet certain requirements: they should be truly independent with the right to control the means of their work; maintain their own insurance; have their own business cards and business identity; and preferably perform services for more than one medical practice.
What if the healthcare employer enters into an independent contractor agreement with the professional’s limited liability company (LLC) or corporation? Will that pass muster and thus exempt the hourly compensation from the overtime requirements? The answer is a clear “maybe”. The courts will look to the economic reality of the arrangement and the designation of the contract between the parties will not be determinative. The fact that compensation payments are made to an entity rather than a real person, and issued a 1099 instead of a W-2, does not insulate the arrangement from potential recharacterization.
A medical practice that has hourly compensation arrangements with healthcare professionals without paying overtime compensation when earned creates not only an ongoing legal and financial risk but one that could derail the sale of the practice in the future. Hospitals, private equity venturers and other buyers conduct very thorough due diligence when undertaking acquisitions. Part of the due diligence will be an audit of employment practices to ensure that federal and state wage and hour laws have been complied with. If the potential acquirer believes that the medical practice has significant legal exposure from noncompliance, it may have leverage to extract large financial concessions, or in the worst case to walk away from the deal.
Bruce Wood is a member at CCB Law, a boutique law firm focused on providing counsel to physicians and healthcare professionals. He can be reached at 315-477-6292 or bwood@ccblaw.com.