Starting on December 1, overtime rules in the U.S. are changing significantly. Under the new Department of Labor’s final rule, overtime regulations now state that the annual salary threshold for exempt positions will rise from $23,660 to $47,476 per year. How incentive pay is laid out within the new rules can be confusing, so we’ve selected five things you need to know before December 1:
- Can incentive pay be used to meet the salary test?
The new rule allows employers to use nondiscretionary bonuses and incentive payments, including commissions, for up to 10 percent of the new standard salary threshold. The payments must arrive quarterly or on a more frequent basis.
- Do holiday bonuses count?
As the holidays quickly approach, holiday bonuses are on every employers mind. An unannounced holiday bonus is considered discretionary, therefore does not count towards the standard salary.
- What determines a quarter?
A quarter does not have to be a calendar quarter. As an employer, you can determine when your salary quarters will begin, but you must ensure that bonuses are paid on a quarterly basis to count towards the standard salary.
- What are examples of a nondiscretionary bonus?
Nondiscretionary bonuses can vary, but include some bonuses promised in an agreement, such as an employment contract. Examples include: bonuses tied to performance evaluations, incentive plan bonuses, service anniversary bonuses, attendance bonuses, bonuses tied to working undesirable shifts, production-oriented bonuses and retention bonuses.
- What happens if an employee does not meet the salary standard within a quarter?
If an employee doesn’t meet the quarterly salary standard, they must receive overtime pay for every hour worked over 40 hours in a workweek during the quarter. The rate cannot be less than time and a half of their regular pay. Employers are also permitted to make one “catch-up” payment to the employee at the end of the quarter to make up the difference.
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