The Association for Clinical Pastoral Education, Inc.
An Analysis of the Impact of FairPay Legislation by Region
Interns: Students or Employees?
The Rev. Dr. James M. Harper, III
The Rev. Lerrill J. White
This is a “heads up” bulletin. Do not panic! Most ACPE, Inc. CPE Centers can expect to be engaged in conversation by one or more of the following entities: their Department of Human Resources, their Finance Department, their Legal Department, and/or their Administrator in the very near future (if not already) as the result of the implementation of the new Fair Labor Standards Act. This is particularly true if your “stipends” or “salaries” for CPE Residents or Supervisory Residents are less than $23,660 (or $445 per week). You may be informed (albeit incorrectly) by any or all of the departments noted above, that your Interns and Residents will have to become “non-exempt,” hourly workers and will be required to punch a time-clock and be paid both over-time and on-call pay. It will likely be made clear to you that the financial implications of this change could be significant for your healthcare organization, and particularly for your CPE Program (if their interpretations were actually accurate). If, for example, your CPE Center offers 24/7 in-house coverage and/or on-call backup, such a change could make that service, and perhaps CPE Residents themselves, seem cost prohibitive in a time of bottom-line consciousness. It is critical for us and for our parent organizations to understand how the new regulations define or use the terms “exempt” versus “non-exempt;” how the Department of Labor defines “employee” in contrast with “student” (“intern” or “resident”); and how that intersects with tax law that speaks of “stipendiary pay” versus “wages.”
On April 23, 2004, The Department of Labor (DOL) issued its “FairPay” Final Rule to strengthen overtime protections and modernize overtime exemptions for various employee groups. The Fair Labor Standards Act (FSLA) became law in 1938. The Wage and Hour Division of the Employment Standard Administration in the U.S. Department of Labor administers this Act. These new provisions are the first substantial changes in the FSLA since the job duty requirements were updated in 1949 and the minimum salary level was updated in 1975. These changes were hotly debated. Legislative attempts to block the new regulations over the past year failed. Employers must now comply with these new regulations by August 23, 2004. These rule changes affect only Federal Law. Employers must still comply with state or local laws that grant employees greater rights.
In general, under the new “FairPay” rules, most “non-exempt” workers earning less than $23,660 minimum salary per year — or $455 per week — are guaranteed overtime protection. This will purportedly affect overtime rights for 6.7 million American workers, including 1.3 million low-wage workers denied overtime under old rules. The FLSA already requires most employers to pay their employees a minimum wage of $5.15 per hour and overtime pay of one and one-half times an employee’s regular rate of pay for hours worked over 40 in a workweek. However, there are exemptions from these requirementsfor executive, administrative, professional (as it relates to us), outside sales, and computer employees who meet certain criteria.
Fact Sheet #17D entitled: “Exemption for Professional Employees Under the Fair Labor Standards Act (FLSA),” specifically cites the Learned Professional Exemption (see 541.301), which includes those in professional fields of learning including “theology.” Applying criteria like “primary duty,” “advanced knowledge,” and “specialized intellectual instruction,” the DOL language gives clear definition inclusive of Chaplaincy as one of the professions covered by this exemption. In this same Fact Sheet, the DOL has determined that “ an employee who holds the requisite academic degree for the general practice (borrowing from the example of medicine), is exempt if he or she is engaged in an internship or resident program for the profession (see 541.304). Our CPE Interns and Residents clearly fit this criteria. Many CPE Residents train in order to become Board Certified Chaplains and segue into professional Chaplaincy, just as Medical Residents train in order to become Board Certified Physicians and enter private or group medical practice. Furthermore, a senior DOL representative in a recent telephone conversation (8/3/04), provided the opinion that Residents, whether medical, CPE, or pharmacy, are “students” according to the DOL, not “employees.”
So, under the language of the “FairPay” Statute, CPE Residents are treated in the same way as Medical Residents (using identical criteria), which makes them “exempt.” Even if the organization that supports the CPE Center considers the CPE Residents to be employees for payroll purposes, they are to be defined as “students” (Interns and/or Residents) for DOL purposes. The Federal Tax Code is also clear that stipends are treated differently than regular salary when related to interns and residents, and the only variable is how each state relates to and applies this information. So, we have considerable clarity about how this all plays out, and we can provide the essential documentation necessary for the affected departments in our individual organizations. Of course, if you want to avoid all the hassle, just make sure your Resident stipends are set at $23,700 or above, and there should be no lingering questions. It will also bring your stipends within range of the national norms.
Initially, there will be varying amounts of confusion within your system, but take heart, this too shall pass. There are hundreds of pages of verbiage related to FairPay, and the new rules, like the old ones, are likely to inspire years of case-by-case interpretation as employers seek to clarify what the rules mean and as workers file administrative law complaints about job misclassification. One expert concluded, “It’s going to take years to figure it out.”The path of wisdom at this point is: Be Prepared!
Some of the websites you may find useful are:
The U.S. Department of Labor’s “FairPay” Webpage
(Employee Standards Administration Wage and Hour Division)
[For Access to Fact Sheets & to Download/Print the Regulations:]
http://www.dol.gov/esa/regs/compliance/whd/fairpay/main.htm
[For Questions of Interpretation of these Regulations:]
http://www.dol.gov/esa/contacts/whd/america2.htm
1-866-4-USWAGE
[To See Individual State Interpretations re: Stipends & Taxes:]
http://www.kyma.org/ForResidentsOnly
http://www.law.cornell.edu/socsec/spring01/readings/151_f3d_742.htm
James Harper © Lerrill White
2004
