Navigating Vet Practices Salary Hikes and Contractor Chaos

Veterinary practices face increasing challenges in adapting to evolving regulations and compliance requirements. Two key issues impacting the industry are changes to the FLSA salary thresholds and the complexities of independent contractor classifications.

Understanding these developments and implementing best practices will help you maintain a thriving, compliant practice.

FLSA Salary Thresholds: What Changed and Why It Matters

On November 15, 2024, a federal court in Texas invalidated the Department of Labor’s (DOL) new rules for salary thresholds under the Fair Labor Standards Act (FLSA). The changes had included an increase from $35,558 to $43,888 (effective July 1, 2024) and a further jump to $58,656 (effective January 1, 2025). The decision also struck down the automatic escalator provision that would have adjusted salary thresholds every three years.

The court’s decision reverts the salary threshold to $35,558. Practices that preemptively adjusted salaries to the $43,888 level face difficult choices:

1. Rescind Salary Increases: This could save costs but risks damaging employee morale and retention.
2. Maintain Current Levels: This approach avoids morale issues but may strain financial resources.
3. Adjust Future Increases: Practices may opt for smaller or no increases for exempt employees in the next year to offset the financial impact.

This is an important time to review job descriptions and salary levels for all your exempt employees, as well as your organizational structure, and make any adjustments needed to comply with the current law.

It is important to also make sure your exempt employees meet the duties test for classification.

Independent Contractor Classification: A Common Pitfall

Independent contractors, particularly relief veterinarians, are often misclassified due to complex and varying regulations. Misclassification can lead to audits, back taxes, penalties, and interest, making it a high-stakes issue for veterinary practices.

What Defines an Independent Contractor?

According to legal and tax authorities, independent contractors:

• Control how, when, and where their work is performed.
• Use their own equipment and work with multiple businesses.
• File their own taxes and secure their own benefits and insurance.

The Challenge in Wisconsin

Wisconsin’s unique system applies different tests for workers’ compensation, unemployment compensation, and equal rights. This means the same worker could be classified as an employee under one test and an independent contractor under another.

Adding to the complexity, federal tests—such as the IRS’s 20-factor test and the DOL’s economic realities test—can further complicate classification.

Best Practices for Compliance

FLSA Salary Thresholds:

• Focus on the duties test rather than salary levels for exempt employees.
• Regularly update job descriptions to reflect current responsibilities.
• Ensure new hires’ salaries align with the current $35,558 threshold, understanding that it is unlikely to change significantly in the near future.

Independent Contractors:

1. Use Legally Sound Contracts: Avoid terms that imply employment, such as references to benefits or employee handbooks.
2. Ensure Independence: Contractors should invoice the practice and use their own equipment. If they use practice facilities or equipment, consider charging a rental fee.
3. Avoid Training Contractors: Training can imply an employment relationship. Limit instructions to company procedures and avoid upskilling efforts.
4. Keep Separate Records: Maintain independent contractor documentation, including contracts, insurance, and tax forms, separately from employee records.
5. Consult Experts: Work with legal counsel and financial advisors to periodically review contractor relationships and agreements.

Understanding the Risks

Failure to properly classify workers can result in significant penalties. For instance, misclassified contractors may be treated as employees during audits, leading to:

• Unpaid payroll taxes
• Penalties for incorrect tax filings
• Interest accrued over multiple years

Audits can be triggered by unemployment compensation claims or worker complaints, opening up a practice’s entire workforce for scrutiny. Given the potential exposure, it’s important to approach contractor relationships with caution.

Looking Ahead

The veterinary industry faces increased regulatory scrutiny, particularly in areas like independent contractor classifications and payroll compliance. Practices must stay proactive by:

• Strengthening relationships with knowledgeable legal and financial advisors.
• Regularly revisiting policies, contracts, and organizational structures.
• Educating themselves on the evolving legal landscape to mitigate risks.

Following these tips can help minimize risk and ensure operations remain compliant and efficient.