518-373-4111
With the new FLSA overtime rules becoming effective on December 1, 2016, many employers are still trying to ensure they are compliant with all the intricacies of whether an employee can qualify as exempt. A common concern is with regard to the FLSA overtime and commissions, and it’s definitely something employers with commissioned employees will want to keep an eye on.
Let’s say you have two currently salaried employees who make about $42,000 per year. However, with commissions, you estimate that they will make $48,000 or more per year. Would they still qualify as exempt? What happens if their commissions do not exceed the minimum of $47,476 as expected?
If you’ve checked the duties test and they still qualify for one of the exemptions, then as long as 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.
More questions about the FLSA changes? Join our free webinar on June 22nd for more information about the new rules.
Contact us at (518) 373-4111 to learn how GTM keeps clients compliant with wage and labor laws.
