Your organization has a salaried employee that makes about $42,000 per year. Including commissions and it is estimated that he will make about $48,000 or more per year. Can he still be exempt? What happens if his commissions do not exceed the minimum of $47,476 as expected?
This topic is definitely something employers with commissioned employees will want to keep an eye on. Yes, if this employee makes over $48,000 per year they can remain exempt. Up to 10% of the minimum salary threshold – $4,747 – may come from non-discretionary bonuses, commissions, or other incentive pay. Your commissioned employees will therefore need to be paid a guaranteed base salary of $42,729.
These incentive payments must be made on at least a quarterly basis, and if the employee does not earn enough of the incentive pay to reach the exempt salary threshold (pro-rated for the quarter, month, or whatever period you’re using), the employer must pay the difference in order to keep the employee’s exemption intact. The Department of Labor calls these “catch-up payments.”
Here’s how these catch-up payments work. Because the annual salary threshold will be $47,476 and incentive pay must be made on a quarterly basis, commissioned employees need to make at least 25% of that amount (or $11,869) in base pay plus commission each quarter. If they make less than that amount per quarter, you’ll need to make a catch-up payment to cover the difference.
This payment must be made within one pay period and must only count toward their income during the previous quarter. If you fail to make a sufficient catch-up payment, the employee will be entitled to overtime pay for any overtime hours worked during that quarter.
Should you have any additional questions regarding this or other employee topics, contact the professionals at CyQuest for help!