Veterinary employees: Exempt or non-exempt? That is the question!

Fair wage questions involving key employees are common in veterinary practices. Employees often plead to make the move from an hourly position to a salaried one believing it will increase their wages, give them more flexible hours and eliminate the practice's need to pay out overtime. Practice owners or practice managers may unwittingly make this transition for the employee without realizing the implications for all involved.

Use caution when transitioning employees from an hourly wage to a salary wage, as this move alone does not necessarily make an employee exempt from overtime laws. Before making a final decision, gather all the facts and determine what will benefit the employee and the practice and what is allowable by law.

Exempt versus nonexempt status

Your first task is to determine whether the employee would qualify for exempt status in a salaried position. Job titles and positions have little to do with exempt status unless the employee falls into the "white-collar" category, which is described in more detail below. Check the Department of Labor (DOL) website, dol.gov, for the exact list of rules outlining whether an employee is eligible for exempt status under the Fair Labor Standards Act (FLSA).

But don't stop there—in addition to these federal guidelines, state laws may have their own definitions of exempt versus non-exempt. In some states, specific job titles may exclude team members from an exempt status, thus making the practice owner liable for overtime pay regardless of whether the employee is paid an hourly or salaried wage. Other states, like California, are likely to have more rigid definitions of exempt status, so be sure to check out any state or local laws that may apply.

Explore and be aware of positions that are considered "white-collar." Employees in these positions—which include executives, administrative employees, professionals, those engaged in outside sales and those conducting computer-related work—may be considered exempt through the FLSA. Apply the following three questions set forth by the FLSA to determine whether an employee in a white-collar position would be considered exempt under the law:

> Does the employee's salary meet the minimum requirements for salary level wages?

> Is the employee paid a regular, predetermined amount on a preset basis, such as weekly or biweekly? In addition, is the salary unable to be reduced, except in specific circumstances?

> Are the assigned job duties and functions in alignment with the rules set forth by the FLSA for each position? (If you are unsure, contacting an employment law attorney can help to clarify how these rules apply to your practice.)

While most veterinarians will be eligible for exemption status based on their professional abilities and perhaps even their pay scale, veterinary technicians do not fall into this category and are therefore not exempt employees as described in the Department of Labor Fact Sheet No. 170.

If the employee does not qualify as exempt, your decision is made. However, if the employee does qualify for exempt status, consider other variables before making a final decision. For example, it's a good idea to review the total compensation package in addition to the employee's hourly wage. And consider other factors, such as the practice budget, employee attributes and the amount of continuing education the employee has pursued.

Responsibilities and expectations

Many employees and employers may believe the change from a non-exempt (hourly) position to an exempt (salary) position is a promotion that benefits all involved. However, employees may wind up working more hours for less pay, and employers may be subject to laws and regulations that leave them open to potential litigation.

Expectations are often different between hourly and salaried employees. The jump from non-exempt to exempt often comes with additional responsibilities or job functions. Instead of completing a task or assignment, the newly salaried employee may now be in charge of those who are completing the task or assignment as direct reports. Additional responsibilities may cause a salaried employee to spend more time working or following up on assignments than the hourly employee who completed them. For example, an hourly employee can reasonably expect that when her workday is complete, she may go home and forget about her job for the remainder of the day. For the salaried employee, the increased responsibility may infringe on her personal time, and she may find herself thinking about or completing work in the evening hours from home.

Total compensation strategies

The primary considerations when determining whether to take an hourly team member to salary include the overall practice budget, the impact of a wage increase or salary change and the total cost of compensation for the individual employee. If the anticipated amount of overtime is minimal, it may be best to continue on an hourly basis and budget for the overtime accordingly. However, if you anticipate that the amount of overtime will increase significantly, salaried pay may be helpful in controlling payroll costs. In that case, attempt to set a fair salary that reflects the potential additional work hours.

Always be sure to consider ancillary payroll costs, such as additional taxes, insurance, dues or licenses that may increase as an employee's wages and responsibilities increase. Payroll budgeting should be a factor in all wage-related decisions.

The final factor includes any additional benefits that the employee receives. Health, dental, vision and life insurance premiums paid by the practice, discounts given on employee animal care and bonuses are all a part of the employee's total compensation package. Employees and employers often fail to calculate the value of these additional benefits, but they should be a part of every wage discussion.

Making the transition—or not

No matter what your decision on the salary versus hourly discussion, the key to making your employee happy in her new position or in her existing hourly role is communication. Lay out your expectations as an employer as well as the role and responsibilities of the employee. Provide the details of what the employee will lose or gain from a change in wages. By being honest about your expectations and your decision to either pay a salary or hourly wage, you are setting the stage for open and honest communication in other areas as well.

Obtaining the advice of a human resources specialist or attorney may be helpful in determining whether this change will be beneficial. Membership in such organizations as the Society for Human Resource Management (shrm.org) can also help, as it provides an additional resource when difficult HR questions like this come to light.

If you always strive to stay within the confines of federal, state and local laws, consider what's feasible for your practice budget going forward and think about the best interests of your faithful employees, it becomes a lot easier to determine the best course of action. Of course, if you are unsure, seek outside assistance to fully understand your role and responsibilities as a practice owner or practice manager.

Alicia Foss is a talent management and HR consultant for Marsha L. Heinke, CPA. Dr. Marsha Heinke offers tax, accounting and consulting services for veterinary practices. Projects include practice management consultation, practice valuations, succession planning, HR consultation and more.