Which employees get overtime pay? Start learning the new federal rules.

Depending on the size and nature of your business, new FLSA rules could have minor impact — or require significant adjustments. They also could provide an opportunity for evaluating your employees’ duties and compensation.

BRATTLEBORO — Last week, the U.S. Department of Labor announced major revisions to the classification of exempt employees.

The designations “exempt” and “nonexempt” refer to whether a position is subject to regulations for paying overtime under the Fair Labor Standards Act (FLSA).

The changes go into effect on Dec. 1 and will require significant adjustments for some employers. In Vermont, it is estimated that up to 10,000 employees might be affected by these rules.

Employers should begin the process now of understanding the impact these rules could have on their workforce and plan for any necessary changes.

The FLSA, signed into law in 1938, banned certain oppressive working conditions. It also established a minimum wage and a maximum number of hours in a work week.

The Department of Labor (DOL) oversees and enforces the FLSA, and periodic revisions help to keep its provisions current with regards to changes in the economy and the workplace.

In 2014 the Obama administration directed the DOL to “update and modernize the regulations” for exempt positions. In July 2015, the proposed rules were published. The DOL took comments for three months before deliberating and making a final decision.

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The two criteria used to classify a position as exempt from overtime rules are salary and what is called the “duties test” - whether the employee's duties are executive, administrative, or professional in nature or meet other provisions. No changes have been made to the duties test.

However, for an employee to be considered exempt from the overtime rules, the minimum salary level has more than doubled, from $23,600 to $47,476.

The rationale for this substantial increase is that the current level has not been adjusted since 2004 and that level was set too low in the first place. For a comparison, the federal poverty level for a family of four is $24,300.

Where did the DOL get the amount $47,476?

According to the new rules, the minimum salary level was set “at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region of the country, currently the South, which is $913/week or $47,476.”

A second change applies to what are called “highly compensated employees.” The DOL increased the total annual compensation for these types of positions to $134,004, which it describes as the “equivalent of the 90th percentile of full-time salaried workers nationally.”

Finally, and significantly, a newly created rule requires that these salary levels undergo a review and adjustment every three years to keep them at the percentile levels set.

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How can local businesses prepare for these changes? Depending on how your business is organized, these changes might not have much of an impact. For other businesses, it might require adjusting a few positions but otherwise shouldn't cause too much disruption.

However, if your business employs many exempt employees, or if it is a small business with just a few exempt employees, the adjustments may be significant.

Employers need to review both the salary level and duties test to ensure they will be in compliance. Although the duties test did not change, there may be inadvertent errors in classifying some positions as exempt.

First, let's look at how to evaluate a possible salary change.

1. Review the salaries and actual hours worked for employees in exempt positions. When calculating hours worked, make sure you take into account any time the employee performs a task related to their job. For example, are they expected to answer email messages during non-work hours? Do they attend work functions after their usual hours?

2. Next, determine if it will be more cost effective to pay the employee overtime when needed or to increase their salary to $47,476.

If neither of these options are financially feasible, it will probably be necessary to reorganize and reassign some of their duties.

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As mentioned, an employee can only be classified as exempt if their salary and the actual duties they perform meet the FLSA rules. Job titles do not determine exemption.

A safe assumption is that all positions are nonexempt unless they meet the criteria for one of the exempt categories: executive, administrative, professional, computer employee, outside sales, and highly compensated employees.

There is still room for interpretation, so if you are unsure, contact a professional in human resources or employment law who can help you understand how the rule applies to your particular workforce.

Additional information can also be found on the Department of Labor's website, including DOL Fact Sheet 17A, which provides a comprehensive description of the exempt categories.

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Lastly, employers should consider the impact that these changes will have on two aspects of their organization: recordkeeping and morale.

Recordkeeping errors are the biggest type of FLSA violations and can be very costly if back pay for overtime is required in addition to fines. If your business has a casual attitude toward recordkeeping, now is the time to bring in more structure.

This recommendation does not mean that you cannot continue to have flexibility when it comes to work schedules. It means that you should adopt a consistent system for tracking hours worked.

How employees adjust to the changes can depend in large part to how the employer adjusts. There is some concern in the human-resources field that employees who are reclassified to nonexempt might feel demoted. Make sure you convey to employees that the change is in response to federal regulations, not their job performance.

Furthermore, employers who see these changes as an opportunity, rather than a burden, to evaluate employee workloads and workplace efficiency can help their employees - and their organization - adapt more smoothly.

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