With the recently passed overtime rule changes to the Fair Labor Standards Act, employers are likely
asking a lot of questions. Which of my employees are newly eligible for
overtime? How closely do I really have to track things? And, what about
tips, bonuses, and other wages that aren’t part of an employee’s salary
but do factor into their annual take-home pay?
These are all great questions, and
HR Support Center has the information you need. Take a look at our
recent question about commission pay, below, and check out
Paycor’s Department of Labor Resource Center to find other answers you need.
_DOL RULES UPDATE
On November 22, a U.S. District ruled in favor of an injunction blocking
the final overtime rules from being implemented on December 1, 2016. At
this time, we are awaiting more information on updates to the rule and
the final implementation date.
If you have implemented changes already, we recommend businesses not
change any plans, pay structures, or policies that have been updated._
We have two currently salaried employees who make about $42,000 per
year. However, with commissions, we estimate that they will make $48,000
or more per year. They can still be exempt, right? What happens if their
commissions do not exceed the minimum of $47,476 as expected? We’ve
double checked the duties test and they both qualify as executives.
We’re just worried about the salary threshold.
Great questions! This is definitely something employers with
commissioned employees will want to keep an eye on. You are correct that
if these employees make over $48,000, they can remain exempt. Up to 10%
of the minimum salary threshold – $4,747 – may come from
non-discretionary bonuses, commissions, or other incentive pay. Your
commissioned employees will therefore need to be paid a guaranteed base
salary of $42,729.
These incentive payments must be made on at least a quarterly basis, and
if the employee does not earn enough of the incentive pay to reach the
exempt salary threshold (pro-rated for the quarter, month, or whatever
period you’re using), the employer must pay the difference in order to
keep the employee’s exemption intact. The DOL calls these “catch-up
Here’s how these catch-up payments work. Because the annual salary
threshold will be $47,476 and incentive pay must be made on a quarterly
basis, commissioned employees need to make at least 25% of that amount
(or $11,869) in base pay plus commission each quarter. If they make less
than that amount per quarter, you’ll need to make a catch-up payment to
cover the difference.
This payment must be made within one pay period and must only count
toward their income during the previous quarter. If you fail to make a
sufficient catch-up payment, the employee will be entitled to overtime
pay for any overtime hours worked during that quarter.
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