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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.

What Substance Abuse in the Workplace Costs Employers

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Of the estimated 14.8 million Americans who use illegal drugs, 70% of them are employed, according to the U.S. Department of Labor. Therefore, odds are your company employs workers who fall into this group. The use of drugs or alcohol by employees inside or outside the office can be costly for a business, leading to:

  • increased turnover rate
  • workplace incidents
  • poor workplace morale

From a financial perspective, the National Institute on Drug Abuse found substance abusers cost employers twice as much in workers’ compensation and medical expenses. Additionally, substance abusers are five times more likely to file workers’ compensation claims.

Furthermore, employees with alcohol dependencies are nearly three times more likely to have injury-related absences, according to the National Council on Alcoholism and Drug Dependence. In 2015, that council reported that federal surveys indicate 24% of workers reported drinking on the job at least once in the past year.

Recognizing the signs

Knowing how to handle substance abuse in the workplace starts with recognizing the existence of a problem. Whether it is abuse of alcohol, prescription drugs or illegal substances, a number of visible signs can indicate an employee needs help:

  • change in appearance
  • frequent tardiness
  • decline in job performance
  • slurred speech and drowsiness
  • mood swings and irritability
  • scent of alcohol

None of these signs alone indicates a substance abuse issue, but intervening early with employees displaying a combination of these signs may be valuable to your business. Implementing a companywide policy, training managers to recognize signs of substance abuse, and setting expectations with employees through training can help safeguard your business and your workforce.

 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 Blog, Compliance, 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.

Podcasts

5 Podcasts That Every HR Professional Should Download

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Podcasts provide the opportunity to sit like a fly on the wall and listen to some of the most brilliant minds in the world converse about today’s biggest trends and challenges.

According to a study by Triton Digital, nearly one quarter of Americans listen to a podcast at least once a month. Education is a popular subject, with 40% of podcast listeners tuning in to that type. If you’re an HR professional or business leader looking to broaden your knowledge of HR and HR technology this year, I highly recommend filling your ears and brains with these five podcasts throughout ’18.

1. HBR IdeaCast

From Harvard Business Review, the weekly HBR IdeaCast features leading thinkers in business and management discussing a variety of key topics in the work world.

It is an excellent resource for insights on a wide array of subjects including, but not limited to, HR. The discussions apply directly to organizations nationwide. The podcast reminds me of NPR’s Fresh Air, but with an emphasis on business leaders.

Recommended episodes:

2. HR Happy Hour

Since 2009, HR Happy Hour has featured thought leaders, workplace and technology experts, academics and more to take on important aspects impacting HR, technology and the workplace.

The podcast is so long-running that it has episodes dedicated to just about every HR topic under the sun. The charming hosts Steve Boese and Trish McFarlane make trending topics fun and informative.

Recommended episodes:

3. CIPD

From the UK’s Chartered Institute of Personnel and Development, the monthly CIPD podcast covers everything from talent acquisition to workplace training and cybersecurity.

CIPD’s international perspective brings fresh eyes to subjects that resonate with many American HR professionals. With a backlog of more than seven years’ worth of episodes available, it’s easy to recommend.

Recommended episodes:

4. Workology Podcast

Covering the science and art of the workplace, Jessica Miller-Merrell’s Workology Podcast offers insights and actionable tips on HR and recruiting. Each 45-minute episode promises an in-depth look at every company’s most valuable asset: the employee.

In asking sharp, pointed questions about the latest HR trends, Miller-Merrell does an excellent job as host, bringing a unique and often unexpected take on familiar subject matter.

Recommended episodes:

5. HR Break Room

The official podcast of Paycom, HR Break Room brings you quick conversations on hot topics in HR and HR technology. Co-host Chelsea Justice and I talk with guest experts about the challenges faced by the everyday workplace, as well as their solutions.

To be a bit self-indulgent, I love doing this podcast because it gives me the opportunity to talk with some of the most brilliant minds in the industry. In our first year, our esteemed guests have included New York Times best-selling author Cy Wakeman, millennial expert Adam Smiley Poswolsky, HR Bartender’s Sharlyn Lauby, futurist Jacob Morgan, author and Harvard professor Mihir Desai and of course, motivational speaker and leadership expert, Mark Sanborn.

Recommended episodes:

You can learn more about goings-on within the HR sphere by subscribing to HR Break Room podcast. Here’s to a year full of professional growth through podcasts!

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Posted in Blog, Featured, HR Management, Leadership

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.

Deadline Extended

Employer Deadline Extended for Furnishing 2017 ACA Forms

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Distribution of 2017 Affordable Care Act (ACA) Forms 1095-B or -C to your employees has been extended.

As issued in Notice 2018-06, the IRS has extended the deadline from Jan. 31 to March 2. (However, the deadline to provide Forms W-2 and 1099 to employees and contract workers remains as Jan. 31.)

Filing deadlines unchanged

While the deadline to furnish forms was extended, the filing deadlines remain the same: Feb. 28 for paper forms, and April 2 for electronic forms.

IRS Notice 2018-06 emphasizes that employers who do not comply with the due dates for furnishing or filing are subject to penalties under sections 6722 or 6721.

Good-faith transition relief extended

The IRS also announced the extension of good-faith transition relief. This may allow an employer to avoid some penalties if it can show that it made good-faith efforts to comply with the information reporting requirements for 2017.

This relief applies only to incorrect and incomplete information reported on the ACA forms, and not to a failure to file or furnish the forms in a timely manner. Additionally, the IRS stated it does not anticipate extending either the good-faith transition relief or the furnishing deadline in future years.

Contact a trusted tax professional if you have questions on how this may affect your business specifically.

Click here to read more about how the ACA is affect by the new Tax Cuts and Jobs Act.

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, Featured

Erin Maxwell

by Erin Maxwell


Author Bio:

As a compliance attorney for Paycom, Erin Maxwell monitors legal and regulatory changes at the state and federal level, focusing on health and employee benefits laws, to ensure the Paycom system is updated accordingly. She previously served as assistant general counsel at Asset Servicing Group in Oklahoma City. She holds a bachelor’s degree from the University of Central Oklahoma and a J.D. from the University of Oklahoma. Outside of work, Maxwell enjoys politics, historical mysteries and spending time with her family.

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