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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.

New Leaders

Businesses in 2017 Need New Leaders. Are You Ready?

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Businesses in 2017 Need New Leaders. Are You Ready?

Companies are growing and the need for new leaders is growing with them.  A recent Yahoo Finance article noted that workers are returning to the workforce in droves, with the employment-to-population ratio hitting 60 percent — the highest it has been since February 2009. Consequently, if you ask businesses what they need from employees in 2017, the answer of more leaders soars to the top of list after list.

Leaders Needed

Deloitte’s 2017 Global Human Capital Trends study noted, “Leadership development continues to be a significant challenge for companies around the world, as the transition to the new digital organization creates even larger leadership gaps.”

With the speed at which technology moves, being at the helm of a team can feel overwhelming, especially when a leader’s daily to-dos often overtake precious time that could be spent working strategically to hone team members’ skills.

However, when it comes to succeeding in business, nothing will put you on the fast track quite like efficiently meeting an immediate need like building leaders. Here are two simple techniques to get you started.

  1. Embrace Online Training

Baby boomers, Gen Xers and millennials are more alike than you think. With the breakneck speed of the internet, everyone must be perceptive to change. An openness toward online learning will serve you well as you lead your team through the information age.

“The most critical need for most organizations is for leaders to develop digital capabilities,” said the authors of Deloitte’s 2017 study. “Today only 5 percent of companies feel they have strong digital leaders in place.”

Additionally, in a recent article in The Economist, author Andrew Palmer called lifetime learning an “economic imperative” and said, “Technological change demands stronger and more continuous connections between education and employment.”

Many businesses are beginning to embrace training by offering employees robust opportunities through learning management systems. Those interested should start by taking advantage of any on-demand learning their employers offer. Figure out where your learning pain points are and dig into a training module that transforms your professional and personal knowledge.

  1. Value Teamwork

Historically, American employees have always worked hard, diligently climbing each rung of the corporate ladder. However, the old, “me-focused” way of doing business is outdated.

Teamwork is crucial to today’s leaders because innovation happens on a minute-by-minute basis. Leaders of today have to look for strengths in others and bolster team successes over individual achievements. You’ve heard the phrase, “a rising tide lifts all boats?” Workers should focus their time ensuring their tide is composed of high-achieving, collaborative team members, and then watch the rest of the boats rise.

By valuing online learning and working as a team, today’s organizations can accomplish their 2017 leadership development goals and be better prepared for the future.

Posted in Blog, Featured, Leadership

Jeff York

by Jeff York


Author Bio: Jeff York, Paycom’s chief sales officer, has more than three decades of sales experience and has held a variety of sales management positions; prior to joining Paycom In 2007, York spent 12 years with a legacy payroll provider, where he held a variety of sales management positions including vice president of sales for the major accounts division. York, a Texas Tech University graduate, also holds an MBA from Baylor University’s Hankamer School of Business.

4 HR Reports for the C Suite

4 Reports Every HR Pro Should Bring to the C-Suite

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4 Reports Every HR Pro Should Bring to the C-Suite

As an HR leader, you are the trend master.

You know that businesses generate more data than ever. Because of this, they have developed an acute desire for metrics.

You know that even though the goals of businesses continue to be product- and output-centered, the way business happens has shifted.

And you’re right. According to a 2017 Deloitte survey of more than 10,000 HR and business leaders, “88 percent of companies believe they need to redesign their organization to succeed in the digital age.”

However, as a leader, it’s your job to understand what’s behind the buzz, figure out the best way to capitalize on what’s trending and provide cogent recommendations to a C-suite executive looking for answers.

Reports provide quick, coherent overviews from employee retention to hire quality; they help HR leaders dial into the metrics that matter. Although every business is unique and requires different measurements from HR, there are few metrics and reports that may place businesses ahead of the digital curve while still meeting and then exceeding senior leadership’s expectations. Here are four HR reports the C-suite really wants to see.

  1. The Cost Per Hire report

As the saying goes, you’ve got to start somewhere. Understanding how much it costs your team to hire each employee is the bedrock from which other metrics originate. It’s surprising how many businesses neglect this metric, when according to Glassdoor, “It’s crucial to have a solid estimate of your cost per hire (CPH). Knowing this figure can help you make smarter investment decisions, define your referral bonuses and save your organization money in the long run.”

One helpful formula for calculating CPH is:

(Internal Costs) + (External Costs) / Total Number of Hires in a Time Period

 Once you discover your company’s CPH, other metrics, such as employee ROI and quality of hire, can be built from this cost, which provides a clear picture for how that employee investment is really performing. 

  1. The Quality of Hire report

The real business MVP of 2017 is the employee. Consequently, understanding the effectiveness of your hiring process is crucial to the health of your business. That’s where a quality of hire report comes in. Quality of hire metrics can be tricky to identify and are continuously evolving, but one useful formula pulled from HR Daily Advisor is:

(Performance + Retention + Productivity) / N

For purposes of this formula:

  • Performance equals the average new-hire performance rating
  • Retention equals the percentage of new hires still employed after a year
  • Productivity equals the percentage of the new hires achieving full productivity scores during a desired period
  • N is the number of indicators used in the formula

Although some quality metrics are subjective, they are useful when consistently reviewed. Called the “holy grail of recruiting,” figuring out your business’s quality of hire numbers minimizes hiring problems and maximizes employee ROI. 

  1. The Turnover Rate report

According to a recent article in Fortune, “The biggest priority, and concern, for business leaders in 2017 will be retaining employees in a competitive talent marketplace.” With companies pulling out all the stops in hopes of keeping talent and enticing new candidates, today’s job market is fierce.

Turnover reports outline the number of employees who have left, and then dig into whether the number is higher or lower or than normal. High turnover rates exacerbate hiring costs and lower productivity and morale; therefore, a consistent report is a good way to gauge the health of a business. Monthly turnover metrics also inform upper management of any significant trends they may need to address. 

  1. The Revenue Per Employee report

 Senior executives make decisions based on facts, not feelings or opinions.” This quote from an article in HR Magazine articulates something HR leaders know better than most: Almost every company’s biggest expense is its employees.

Therefore, the most powerful measurement for the C-suite is the return (or lack thereof) on investment for those employees. There is a reason top tech companies excel with these numbers. Revenue per employee (RPE) is simple to calculate:

Total Revenue / Total Number of Employees

This metric determines how effectively HR is hiring and training their employees. As long as HR leaders ensure they compare their company’s RPE to similarly sized businesses from their industry, RPE can help senior leaders confidently make game-time decisions.

In summary, HR leaders can actively contribute to business decisions by presenting the C-suite with metrics that matter. In an interview for HR Magazine, compensation analyst Jennifer Triumph noted, “[HR leaders] need to present data that show our human capital strategy is effective and that we are acquiring, developing and deploying the proper talent.”

The data-driven desire of those in senior leadership isn’t going anywhere and HR needs to be aware of their business’s metrics in order to lead their workforce into a successful future.

Posted in Blog, Featured, HR Management, Leadership, Talent Management

Chad Raymond

by Chad Raymond


Author Bio: With over 19 years of experience in employee engagement, benefits administration and government compliance, Chad has unparalleled knowledge in the fields of leadership and human resources. Chad has worked in several different capacities with Paycom including leading our product development team and HCM initiatives as well as the former director of Paycom’s service department. Chad’s vision and execution helped empower executives and their teams to reach their full potential, ultimately leading to his role as Paycom’s vice president of HR.

Strategic HR

4 Ways Strategic HR Moves Your Company Forward

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4 Ways Strategic HR Moves Your Company Forward

Business leaders are realizing that skill shortages and disruptions in the workforce will change everything. The link between effective talent management and profitability becomes more evident every day. As a result, the C-suite is looking to HR to attract, build, engage and retain the talent their business needs to compete and grow. If you and your team haven’t yet adopted a talent-focused and service-delivery model, conditions are perfect for making this leap.

Why now?

The looming skills shortage and changing nature of the workforce has a lot to do with it. According to research by PricewaterhouseCoopers, 72 percent of CEOs list the availability of key skills as one of the biggest threats to their business.

To offset this potential negative impact, CEOs increasingly have become involved in decisions regarding talent. Many have explored options like outsourcing certain business functions or departments, and utilizing staffing agencies and independent contractors to fill the gaps. Business leaders have begun to revisit their talent strategies and embrace nontraditional employment structures in order to have the workforce they need to achieve organizational goals.

But as technology continues to revolutionize the way people communicate and work, talent strategies must evolve continuously as well. The rise of the “gig” economy and the growth of telecommuting will continue to challenge both CEOs’ and HR leaders’ ideas of what the workplace – and an employee’s career – looks like. Employers are taking a proactive stance.

According to Deloitte’s 2017 Global Human Capital Report, 87 percent of U.S. companies rated preparing for the future “very important.” However, only 11 percent of companies reported knowing how to build “the organization of the future.”

Moving forward

Because an organization’s workforce ultimately drives its performance, and business leaders acknowledge the link between talent and performance, Deloitte’s findings represent an exciting opportunity for HR leaders and their teams. To become the talent enhancement department and drive the business of the future, consider these four tips:

  1. Use all of your payroll and HR software. 

    Focusing on cultivating talent means shifting your time and resources away from other HR functions; but compliance, payroll, benefits and more still must be managed flawlessly. This is where your human capital management (HCM) technology can act as a real load-lifter – if you’re using it properly.

If you or your team is underutilizing your HCM tech, think about what’s holding you back. Are paper-based processes still alive because your new system isn’t user-friendly? Does your team find it easier to do things the old way? If so, ask your provider for training. Then, help keep your team’s collective eyes on the prize. Reiterate how turning the administrative work over to the tech will give them the time they need to focus on talent strategy.

  1. Use behavioral profiles to recruit top talent.

    Identifying top performers and create behavioral profiles of those individuals. Giving these profiles to recruiters and hiring managers can help them find similar candidates who have the skill set and personality to succeed in specific roles.

The use of behavioral profiles can also increase employee retention. A study by PI Worldwide reveals that establishing behavioral profiles for specific roles helps managers create succession plans and performance incentives that work.

  1. Work with front-line managers to build engagement.

    According to Gallup, managers can influence employee engagement by as much as 70 percent. But not every person in a managerial role has the ability to inspire and drive his or her employees. Luckily, there are several ways HR can help business leaders give managers the tools they – and their employees – need to succeed. 

  1. Tie your metrics to business outcomes.

    According to ERE Media, traditional HR metrics tend to focus more on departmental efficiency than business performance. Instead, find and report on new-hire productivity, the costs associated with losing key employees and filling their vacancies, and revenue per employee. These metrics paint the big-picture view leaders need to make informed workforce decisions.

Following these steps can help you become the high-impact HR organization your company needs, now and in the future.

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Posted in Blog, Featured, HR Management, Leadership, Talent Management

Chad Raymond

by Chad Raymond


Author Bio: With over 19 years of experience in employee engagement, benefits administration and government compliance, Chad has unparalleled knowledge in the fields of leadership and human resources. Chad has worked in several different capacities with Paycom including leading our product development team and HCM initiatives as well as the former director of Paycom’s service department. Chad’s vision and execution helped empower executives and their teams to reach their full potential, ultimately leading to his role as Paycom’s vice president of HR.

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