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Exploring Overtime Expansion: Commissions and Bonuses

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This blog is part of an ongoing series that answers questions most frequently asked during Paycom’s free webinar covering overtime expansion.

All right, so maybe it’s not that complicated. But, if you’re planning to implement a pay structure that includes bonuses and commissions – or if you already have one – it’s important to understand how the Fair Labor Standards Act’s (FLSA) updated overtime rule may impact it.

A tale of two terms

When it comes to remuneration that’s given in addition to employees’ regular pay rates, the U.S. Department of Labor maintains that most payments can be classified as either discretionary or non-discretionary bonuses.1

Discretionary bonuses are given at the discretion of the employer and are not expected by the employee. On the other hand, non-discretionary bonuses are designed to incentivize and are expected by employees if predetermined criteria are met. Commissions typically fall into the non-discretionary category.

Changes for white-collar employees

Previously, neither discretionary nor non-discretionary bonuses generally could be included toward satisfying the standard salary threshold. But now, employers are permitted to satisfy up to 10 percent of the standard salary requirement with non-discretionary bonuses, incentive payments and commissions, provided these forms of compensation are no less frequently than quarterly.2

It’s important to note that the percentage amount is derived from the new standard salary threshold. In other words, no more than the equivalent of $91.30 per week ($913 x 10%), or $4,747 annually, can apply toward meeting the standard salary threshold.3

For example, Beth is a store manager who makes a base salary of $865 per week ($44,980 per year). Last quarter, she earned the equivalent of $192 per week in performance-related bonuses. Of that bonus, only the equivalent of $91.30 per week is allowed to be used to push Beth’s weekly salary above the new threshold. Under this scenario, Beth likely meets the standard salary level requirement for exemption, because her $865 base weekly salary plus $91.30 of allowable non-discretionary bonus totals $956.30, which exceeds the $913 required minimum under the rule.

As another example, Jason is an assistant manager in the same store. He makes a base salary of $730 per week ($37,960 per year). Last quarter, he received the same performance-related bonus of $192 per week. While this bonus would push his weekly earnings to the equivalent of $922 – which is above the standard salary threshold – his employer is limited to using only $91.30 of nondiscretionary bonus toward the total weekly salary requirement; his $192 weekly bonus exceeds the 10 percent requirement. Adding the maximum allowable $91.30 per week to Jason’s weekly pay rate of $730 totals just $821.30, less than the weekly threshold requirement of $913. Therefore, under this scenario, Jason does not meet the standard salary level requirement for exemption.

A slippery slope

It’s easy to see how this could cause concern for employers. Nondiscretionary bonuses are the only type of bonuses that can count toward satisfying the standard salary threshold, meaning individual employees’ performance potentially could cause them to slip in and out of exempt status.

Enter the new, quarterly catch-up payment. According to the rule, if at the end of the quarter, the sum of the salary paid plus the nondiscretionary bonuses and incentive payments paid does not equal the standard salary level for 13 weeks, the employer has one pay period to correct the shortfall.4 An employer has the option to pay the employee a lump sum to raise an employee’s earnings for the quarter equal to the standard salary level. If an employer chooses not to do this, an employee would be entitled to additional compensation for any overtime hours worked in the relevant quarter.

Highly compensated employees

While things have changed for employees under the standard exemptions, the rules surrounding how non-discretionary bonuses apply to highly compensated employees largely are the same:

  • Non-discretionary bonuses, commissions and other incentive pay can apply toward calculating total annual compensation.
  • Non-discretionary bonuses, commissions and other incentive pay cannot apply toward the standard salary requirement.5
  • Catch-up payments for highly compensated employees can occur on an annual basis.6

Inside and outside sales employees

The final rule also doesn’t change how the FLSA applies to employees who meet the outside sales exemption or the Section 7(i) retail exemption.7 For more information on these exemptions, check out this Paycom Blog post.

Ultimately, the rules surrounding nondiscretionary bonuses can be complicated, and are often case-specific. Consulting legal counsel is your best bet to ensure pay structures that include bonuses and commissions are in compliance with the FLSA.

For additional information on overtime expansion and how it may impact your organization, stay tuned to the Paycom Blog. For additional resources, check out the Paycom Overtime Expansion Calculator or attend our free webinar.

The content of this blog is intended to keep interested parties informed of legal and industry developments for educational purposes only. It is not intended as legal opinion or tax advice and should not be regarded as a substitute for legal or tax advice.


Amy Double

by Amy Double


Author Bio: Amy, a tenured professional in sales and marketing with over 10 years of experience, is dedicated to creating content focused on helping organizations achieve their business goals. As an experienced writer, Amy is committed to researching and blogging about topics that affect businesses across multiple industries, including manufacturing, hospitality and more. Outside of work, Amy enjoys reading, entertaining and spending time with family.

Affordable Care Act (ACA)

Trump Announces 2 Changes to ACA

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On Oct. 12, President Donald Trump ordered comprehensive changes to the nation’s health insurance system while also, in a separate move, ended health care subsidies for low-income Americans. The White House billed the decisions as relief to those suffering under the Affordable Care Act (ACA), while the opposition condemned these changes as actions aimed at undercutting the ACA.

Expansion of association health plans and short-term insurance

The executive order signed by Trump directs federal agencies to make it easier to set up “association health plans,” which are groups of small businesses that pool together to buy insurance. The order also seeks to broaden the definition of short-term insurance from three months to almost a year in duration.

By expanding both these types of plans, the administration expects insurance to be less costly than the plans sold on the state-based insurance exchanges, which provide more extensive coverage options. One concern, however, is healthy customers will jump out of the individual markets for cheaper plans, leaving sicker customers on the underwritten exchanges.

Health care subsidies to end

Trump also will end health care subsidy payments to insurance companies that used them to pay out-of-pocket costs for low-income people receiving coverage through the exchanges. The future of these payments have been in doubt for months – dating back to the Obama administration – because of a lawsuit filed by House Republicans. The lawsuit alleged the Obama administration was paying these subsidies illegally because Congress had never authorized the cost-sharing arrangement.

Until now, the Trump administration had continued the payments on a monthly basis. A group of state attorneys general has indicated it will sue to block the administration from ending these payments, which it claims will cause the individual markets to unravel.

ACA Awaits Repeal or Repair

What this means for employers

Neither of these changes is aimed primarily at employers subject to the ACA employer mandate, so clients using Paycom’s ACA services likely won’t see a direct impact to their obligations under the law. However, the tweaks indirectly could result in higher costs to employer-sponsored plans.

Disclaimer: This blog includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal problems.

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Posted in ACA, Blog, Compliance, Employment Law, Featured

Jason Hines

by Jason Hines


Author Bio: Jason Hines is a Paycom compliance attorney. With more than five years’ experience in the legal field, he monitors developments in human resource laws, rules and regulations to ensure any changes are promptly updated in Paycom’s system for our clients. Previously, he was an attorney at the Oklahoma City law firm Elias, Books, Brown & Nelson. Hines earned a bachelor’s degree from the University of Central Oklahoma and his juris doctor degree from the Oklahoma City University School of Law, where he graduated cum laude. A fan of the Oklahoma City Thunder, Hines also enjoys exploring the great outdoors with his wife and daughter.

EEO-1 Pay Data

EEO-1 Pay Data Requirements on Indefinite Hold

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The EEO-1 report is changing once again. Recently, the new pay data and hours worked requirements announced last year were suspended indefinitely by the Office of Information Regulatory Affairs. While employers will report Equal Employment Opportunity (EEO) information in a familiar format, they need to be aware of key date changes.

3 important changes

The biggest change to the report is the suspension of the requirement to report pay data and hours worked. For 2017, employers will report in the prior 2016 format, which only collects data on race, ethnicity and gender by occupational category. When the new EEO-1 requirements were announced by the Obama administration last year, the 2017 reporting deadline was moved from Sept. 30, 2017, to March 31, 2018.

According to an Equal Employment Opportunity Commission (EEOC) statement, “the previously approved EEO-1 form which collects data on race, ethnicity and gender by occupational category will remain in effect. Employers should plan to comply with the earlier approved EEO-1 (Component 1) by the previously set filing date of March 2018.” Additionally, the previously approved “workforce snapshot” period of Oct. 1 through Dec. 31 will remain in effect. Therefore, employers must submit reports based on a payroll period within that time frame.

Summary of the changes:

  • The deadline to file EEO-1 reports for 2017 is March 31, 2018;
  • Reports must be based on a payroll period in October, November or December of 2017; and,
  • Employers may use the same EEO-1 form used in 2016.

The EEOC has not yet fully updated its website to reflect this new information, but the home page provides some explanation.

Pay data requirement gone?

The pay data and hours worked requirements simply have been suspended. Until the Office of Management and Budget (OMB) completes its review of the rule, their future is unclear. The OMB is concerned that some aspects of the revised rule “lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.” The acting chair of the EEOC, Victoria Lipnic, has been vocal with her opposition to the pay data requirement, which she voted against when it was initially proposed.

Although the EEO-1 report appears to be ditching the pay data requirement, state governments may step in to fill the void. Under a proposal in California, employers in the state with more than 500 employees would be required to submit information to the Secretary of State on gender wage differentials. Although this measure has not been signed by the governor, employers should monitor this legislation, which would go into effect in 2019.

Disclaimer: This blog includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal problems.

Tags: , ,
Posted in Blog, Compliance, Employment Law, Featured

Jason Hines

by Jason Hines


Author Bio: Jason Hines is a Paycom compliance attorney. With more than five years’ experience in the legal field, he monitors developments in human resource laws, rules and regulations to ensure any changes are promptly updated in Paycom’s system for our clients. Previously, he was an attorney at the Oklahoma City law firm Elias, Books, Brown & Nelson. Hines earned a bachelor’s degree from the University of Central Oklahoma and his juris doctor degree from the Oklahoma City University School of Law, where he graduated cum laude. A fan of the Oklahoma City Thunder, Hines also enjoys exploring the great outdoors with his wife and daughter.

Employee Experience

The Winning Workforce Equation

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The term “the employee experience” is thrown around frequently in HR today. It’s not the same as “employee engagement,” another well-known industry buzzword. With trends evolving at such a rapid pace, what is this new concept that’s making waves in the industry?

Looking for a deeper dive into the employee experience? Check out the HR Break Room podcast episode, “Happy Employees = Happy Customers: The Equation for a Winning Workforce” with author Jacob Morgan.

According to the author of The Employee Experience Advantage, Jacob Morgan, the employee experience is the sum of a worker’s experiences, good or bad, during his or her term of employment at an organization. A business can enhance that experience by addressing and influencing the elements of culture, technology and physical space. He calls the combination of these three things, “the employee experience equation.” As Morgan said, “When you invest in the employee experience, you’ll start to notice an engaged workforce. And an engaged workforce will deliver business outcomes.”

Culture – a side effect

A healthy corporate culture is one of the three critical pieces of a great employee experience. Employees spend a significant amount of their lives at work, which makes the atmosphere and community of the organization essential. When people spend 40 hours a week of what Morgan calls “prolonged exposure” in the workplace with their peers, certain company ideas and attitudes are all but contagious. A healthy culture can promote a fun environment, hard work ethic and cohesive teamwork. On the flip side, an unhealthy culture can promote stressful work, toxic drama and a “business first, people second” environment that inevitably will lead to high turnover.

It is important to remember no organization can have a truly “perfect” culture; the trick is to create your ideal culture by ensuring your organization’s core values align with the people you want to see in your organization.

Technology – supports employee growth

As the central nervous system of your organization, technology will continue to power the future of work. The employee experience is only possible because of the communication and collaboration available through today’s technology. Without advances such as applicant tracking systems or messenger apps, a business cannot have an optimal recruitment or talent-tracking process, or real-time feedback or recognition. Technology empowers everything when we think about the future of work: your people and your business needs.

Organizations that don’t invest in technology will find that the human aspects surrounding it will start to break down. Investing in technology ensures your employees have all the tools they need to succeed and grow.

Space – a symbol

Whether a corporate headquarters, coffee shop or home office, everybody works in a physical space, the last critical piece to the equation. The physical workspace is also a symbol that represents your organization, and as technology continues to evolve, leading companies are creating incentives to bring employees back to the office. Creating a vibrant, technological workplace connects your employees’ sense of belonging and purpose to their jobs.

The employee experience is the next future investment for organizations dedicated to workforce happiness. Ensure your employees’ well-being by taking the first steps in your organization by opening communication in these three key areas: culture, technology and physical space.

Tags: ,
Posted in Blog, Employee Experience, Featured, Talent Management

caleb.masters

by Caleb Masters


Author Bio: Caleb is the host of The HR Break Room and a Webinar and Podcast Producer at Paycom. With more than 5 years of experience as a published online writer and content producer, Caleb has produced dozens of podcasts and videos for multiple industries both local and online. Caleb continues to assist organizations creatively communicate their ideas and messages through researched talks, blog posts and new media. Outside of work, Caleb enjoys running, discussing movies and trying new local restaurants.

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