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Higher Employer Payroll Costs
Welcome to the ‘New Normal’

Timesheet for OvertimeLocal and national headlines continue to vie for our attention regarding the minimum wage that hourly workers receive. In addition to the federal level, many states and local statutes have raised their own minimum wages.

But a May 18 release of the final federal Fair Labor Standards Act (FLSA) overtime regulations will affect employers regardless of location.

In July 2015, DOL draft regulations were released asking for comments to their revised regulations governing which executive, professional and administrative employees (white collar workers) are entitled to FLSA’s overtime pay protections. Since last updating these regulations in 2004, the current salary cap for exemption (from overtime pay) is above $455 weekly, or $23,660 per year.

The final rule will increase the salary level for full-time salaried workers to the 40th percentile of weekly earnings (taken from the lowest-wage region – the South), or $47,476, for the next three years, beginning December 1, 2016. The final rule also has changes to the exemption for highly-compensated employees (HCE). Presently, to qualify for this exemption, employees must earn at least $100,000 per year. The new exemption threshold for HCE’s would be tied to the 90th percentile level of earnings for full-time salaried employees – or $134,004 in 2016. Like the standard salary level, the HCE level will increase every three years, beginning January 1, 2020. The DOL Q&A on the final regulations is helpful.

The DOL projects that 4.2 million employees who are exempt during the current regulation (due to earning at least $23,660 per year) will become non-exempt due the proposed higher-salary threshold. Because this expected new regulation will become reality on December 1, employers will need to act soon to minimize a major impact to their bottom line. In Iowa, 44,000 workers are expected to become eligible for overtime pay under the new rules.

At the bare minimum, employers are advised to conduct a wage and hours audit to assess whether employee classifications will continue to be correct based on the new salary thresholds. In addition, analyzing employee duties will be extremely important, especially those who are affected by the changes in their compensation limits. A DOL general guidance to private employers was also released on May 18.

When assessing how to react to the new regulations, employers may consider each of the following three options:

  1. Boost the salary for those who are currently earning amounts that are close to the new minimum threshold so that they will now be over this new threshold amount. By doing this, the employee will remain exempt from overtime pay.
  2. Convert salaried employees to hourly and implement a new workplace policy that they cannot work more than 40 hours per week.
  3. Shift salaried employees to hourly and pay overtime – which is 1.5 times their normal hourly rate.

Without question, there will be pain points for BOTH employers and employees. Some employees will be happy with the pay increase, while others may perceive the changes to be a demotion or a possible obstruction to ‘climbing the ladder.’ In addition, organizations will need to evaluate the eligibility for benefits with any changes being made for hourly-paid employees, etc.

To comply, organizations will need to act quickly – even BEFORE the dust settles.

Regulations can be successful if properly planned and implemented, but the cost of regulations may be detrimental to the health of the economy – and possibly to its’ workers.

And so it goes…welcome to the employment world’s ‘new normal.’

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The ‘Dueling Banjos’ of Wellness Plans

Dueling Banjos

Click to play ‘Dueling Banjos’

The year, 1972, was a pivotal year for my family. We uprooted from Fargo, N.D., and moved to Centerville, Iowa, to begin a new life owning and operating a greenhouse. That same year, a very dark but entertaining movie, Deliverance, was released that included a catchy Bluegrass tune, “Dueling Banjos.” To enjoy this classic tune, click the play button to the right.

That song engendered a “one-upmanship” mentality of trying to out-duel the other party by increasing the tempo and difficulty between a guitar and banjo.

In a similar way, there has been a ‘dueling banjo’ competition brewing for years between those who promote and support employer-wellness programs versus those more skeptical about cost containment, etc.

Politico wrote a recent piece outlining wellness programs and the Affordable Care Act. For the record, I find myself in the middle of this fray, as I cautiously support the ‘right’ type of wellness initiatives that are designed to make intended and measurable impacts to the organization and its workforce.

On May 16, the U.S. Equal Employment Opportunity Commission (EEOC) issued final rules on employer wellness programs. The final rules basically describe how Title I of the Americans with Disabilities Act (ADA) and Title II of the Genetic Information Nondiscrimination Act (GINA) apply to employer wellness programs that request health information from employees and spouses. The clarity of how employers are allowed to implement these programs requires a great deal of planning and, for many, outside assistance to ensure that these plans comply with many nondiscrimination requirements.

Any confusion you may have about wellness programs is certainly justified. As you attempt to discern whether such plans will meet your organization’s expectations, listen for those ‘dueling banjos’ in the background.

In fact, I would be concerned if you DIDN’T hear that specific tune!

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The Healthcare Price-Quality Conundrum

Price and Quality

As Americans, one thing is certain – we continue to pay a larger share of our medical bills through higher deductibles and out-of-pocket maximums. Proponents of ‘having more skin in the game’ suggest that we will eventually become better ‘consumers’ to drive down healthcare costs. The debate about whether this will happen continues.

When shopping for colonoscopies, mammograms or childbirth procedures, people are more likely to conduct cost information searches before seeking care. But will higher-priced doctors and hospitals result in higher quality of care?

Two recent reports approached this question differently. The first report, “The Price-Quality Paradox in Health Care,” generated by the Health Care Cost Institute (HCCI), looked at actual claims data to determine whether higher prices are indicative of receiving higher ‘quality of care.’ For this report, quality measures were based on whether ‘recommended’ services were provided.

As we know, quality can be evaluated many different ways. For example, even if treatment delivered is recommended care, was this care delivered appropriately, safely and to the patient’s satisfaction? There are a host of other qualitative measures that help define the quality of care we hope to consistently receive. The HCCI report did not use other methods because such information is difficult (or impossible) to cull from mere claims data.

HCCI’s conclusion is that “price alone may not be sufficient for identifying quality.” In some cases, higher prices are associated with lower quality, meaning that high-prices are not indicative of high-quality of care. HCCI concludes with an obvious statement:

If policy makers and health care industry leaders expect transparency efforts to have real impacts on the health care system, making quality information more accessible and useable by stakeholders is also necessary.

The second report comes from an April article in Health Affairs, “Most Americans Do Not Believe That There Is An Association Between Health Care Prices and Quality Of Care,” that analyzes how Americans perceive the healthcare price-quality conundrum based on behavioral economics. The findings indicate that a majority of consumers (58-71 percent) don’t believe that price and quality are associated with one another, meaning that paying higher prices does not guarantee higher quality of care. A hefty minority of respondents (21-24 percent) indicated there was an association between price and quality, while an additional 8-16 percent did not know if there was a correlation between price and quality.

Respondents who said they had compared prices before receiving care were more likely to think that higher prices are related to higher quality of care, compared to people who did not price shop before seeking care (37 percent vs 12 percent). Avoiding low-price care because it is perceived to be low-quality, is a detriment to having an efficient delivery system that beckons consumer decision making.

Due to the intricacies of behavioral economics, it appears that how price-quality information is communicated to the patient/consumer may very well determine whether healthcare prices are indicative of care quality.

The findings in this second report relating to our purchasing behaviors, are a good complement to HCCI’s findings. This emerging subject will generate a great deal of interest from many stakeholders in the future.

For now, the price and quality metrics are still being hotly debated to determine whether we can become informed consumers who make rational healthcare decisions.

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