We've received a number of calls and emails asking 3 main questions:
1. Can you use non-discretionary bonuses and commission-based incentives to meet the new exempt-employee salary threshold?
Unlike the old rules, the DOL will now allow non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new minimum salary threshold: $47,476 annually (effective December 1, 2016). For employers to credit bonuses / commissions toward a portion of the standard salary level test, such payments must be paid on a quarterly or more frequent basis.
2. What does "non-discretionary" mean?
Non-discretionary bonuses and commission-based incentives are tied to productivity or profitability (for example, a bonus based on achieving a set monthly production goal). Non-discretionary bonuses are earned by achieving set standards, goals, collections, etc.
By contrast, discretionary bonuses are those for which the decision to award the bonus and the payment amount is at the employer's sole discretion and not in accordance with any preannounced standards. An example would be an unannounced end of year bonus or spontaneous reward for overall company profitability.
3. What happens if an exempt employee does not earn enough in non-discretionary bonuses and incentive payments (including commissions) to reach the minimum salary requirement?
If an employee does not earn enough in non-discretionary bonuses and incentive payments (including commissions) in a given quarter to retain their exempt status, the DOL 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.
