Monday, May 23, 2016

DOL Overtime Final Rule: How do the bonus and commission provisions work?

I did it! I waded through all 508 pages of the new overtime rule! Was it worth it? Meh, probably not. I did come across one helpful section though. It explains in "plain terms" how the new bonus and commission rules work:
Not official use.
In plain terms, each pay period an employer must pay the exempt executive, administrative, or professional employee on a salary basis at least 90 percent of the standard salary level required ($913/week for now) . . . and, if at the end of the quarter the sum of the salary paid plus the nondiscretionary bonuses and incentive payments (including commissions) paid does not equal the standard salary level for 13 weeks, the employer has one pay period to make up for the shortfall (up to 10 percent of the standard salary level). Any such catch-up payment will count only toward the prior quarter's salary amount and not toward the salary amount in the quarter in which it was paid.
Cool. Can I get an example?
For example, assume Employee A is an exempt professional employee who is paid on a weekly basis, and that the standard salary level test is $913 per week. In January, February, and March, Employee A must receive $821.70 per week in salary (90 percent of $913), and the remaining $91.30 in nondiscretionary bonuses and incentive payments (including commissions) must be paid at least quarterly. If at the end of the quarter the employee has not received the equivalent of $91.30 per week in such bonuses, the employer has one additional pay period to pay the employee a lump sum (no greater than 10 percent of the salary level) to raise the employee's earnings for the quarter equal to the standard salary level.
This may help some employees eek across the new salary threshold, but sounds a little complicated for employers to track. Also, it lessens the incentive for employees to attain the bonuses and commissions because they're (effectively) assured that the employer will bump them up to $913/week to avoid losing the exemption.