Despite the last minute attempts by groups bringing lawsuits that challenge the now OT rules and legislation introduced to delay implementation, December 1st is around the corner bringing employers to the day that they may have dreaded – the effective date of the new OT rules.
If you are an employer who has procrastinated in developing an implementation plan, you should waste no more time. While hope always exists for a last minute reprieve, it’s just not likely to happen. Chances are more than good that nothing will stop implementation of the new rules.
While every employer know by now that the new salary test threshold to meet in order to maintain exempt status is $47,746,(remember there are two tests for the “white collar exemption” – salary test and duties test) what happens if part of the employee’s salary is based n commission or bonus?
The Department of Labor is changing the regulations as of 12/1 to allow nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test requirement. For example, at an employee's current salary level of $44,500, an employer can use about $4,450 in commission earnings towards total salary for purposes of determining whether the new salary test is met. At this salary level, an additional $4,450 will put the employee above that minimum salary requirement. Similarly, an employer who guarantees a $1,200 bonus every quarter to an employee earning that same $44,500 if the employee reaches her sales goals, can also count that bonus towards the minimum salary threshold.
Employers must remember also that the minimum salary level must be calculated and maintained on a quarterly basis. Therefore, the employee must earn a salary (including commissions) every quarter which will keep that employee on track to earn $47,746. If an employee does not earn enough in nondiscretionary bonuses and incentive payments (including commissions) in a given quarter to retain their exempt status the Department permits a "catch-up" payment at the end of the quarter. The employer has one pay period to make up for the shortfall (up to 10 percent of the standard salary level for the preceding 13 week period). 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. If the employer chooses not to make the catch-up payment, the employee would be entitled to overtime pay for any overtime hours worked during the quarter.
This may serve as a partial reprieve for employers whose workers’ salaries are close to the salary threshold under the new overtime rules, but also earn a commission or are eligible for a bonus if they meet the employer’s goals.