DOL Overtime Q&A: Does Commission Pay Count?
DOL Overtime Q&A: Does Commission Pay Count?

DOL Overtime Q&A: Does Commission Pay Count?

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._


Question:

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.

Answer:

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 payments.”

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.


This content came from a team of HR professionals at HR Support Center. Businesses like yours can pay a yearly fee for HR Support Center and receive awesome subscription perks like these:

* Legal advice

* Employee handbook help (creating a new one or updating an existing one)

* Custom HR forms, letters, tools, and other documents

* Tons of Q&A

* News on government activity that could affect you

* Training on common HR activities like hiring

* Thought leadership articles

The list goes on. HR Support Center is not only feature rich, it’s inexpensive: one entire year of HR Support Center is cheaper than one hour of a typical attorney’s time. Contact us today to sign up.

Listen to Paycor's Need 2 Know Podcast on the DOL Updates

More to Discover

RISE Web Summit: The Humble Employee Handbook is Actually an Important Risk Prevention Tool

RISE Web Summit: The Humble Employee Handbook is Actually an Important Risk Prevention Tool

Why are Employee Handbooks so important? If written properly, they could be a valuable tool in the workplace. If written poorly, can cause confusion, inconsistency and increased litigation. We will discuss recent rulings highlighting this topic and provide what to include in your organization's humble employee handbook.

RISE Web Summit: Auditing Your Employment Policies and Practices

RISE Web Summit: Auditing Your Employment Policies and Practices

It seems like you need to be a lawyer to run a business these days doesn’t it? Thankfully, you don’t. But you do have to stay on top of the ever changing employment law landscape and the trends in employment law claims, both on the federal and state level. There is no better way to rise above the risk of being hit with a class action, a DOL complaint, or a harassment or discrimination lawsuit than periodically auditing your employment policies and practices. Join us for this session and we’ll teach you the steps to take and what to look for as you conduct your audit.

RISE Web Summit: Benefits Compliance: Rise Above Common Pitfalls

RISE Web Summit: Benefits Compliance: Rise Above Common Pitfalls

Compliance with IRS and DOL regulations goes well beyond your major medical and 401(k) plan. From ERISA to COBRA to Section 125 Plans, learn how to avoid (or address) the most common compliance pitfalls BPC has seen over 4 decades of service as a third party administrator. In this session you will hear real life stories and practical tips for keeping your benefits program on the straight and narrow.

RISE Web Summit: The Art of Compliance

RISE Web Summit: The Art of Compliance

HR compliance, tax compliance, OSHA compliance – fill in the blank! Compliance can feel like a Picasso painting or maybe more like a self-destructing Banksy. If you’ve felt the same way, join us as we discuss best practices for designing and molding a robust compliance function. Along the way we’ll share how you can mitigate risk, structure teams, and ultimately transform compliance into a masterpiece.