The Fair Labor Standards Act’s new white-collar exemption regulations did more than increase the minimum salary requirement for exempt executive, administrative and professional employees from $455 to $684 per week. They also let employers use nondiscretionary bonuses, incentives and commissions to satisfy up to 10 percent of the minimum salary requirement.

In other words, if an exempt employee’s annual salary, including nondiscretionary bonuses, incentives and commissions, is less than $35,568 at the end of the year, employers may make one final payment of up to $3,556.80 to satisfy the minimum salary requirement for that employee. These “catch-up” payments are subject to the following rules.

  • Employers may only use nondiscretionary bonuses, incentives and commissions that are paid annually or more frequently.
  • Employers may utilize any 52-week period as the year (calendar year, fiscal year, hire-date anniversary, etc.).
  • If an employer does not identify a specific 52-week period in advance, the calendar year will apply.
  • The “catch-up” payment must be made no later than the next pay period after the end of the year.
  • If the “catch-up” payment is made after the end of the 52-week period, it may count only toward the prior year’s salary amount and not toward the salary amount in the year it was paid.

According to the Department of Labor, this change was made in recognition of evolving compensation practices in a growing number of workplaces. “Catch-up” payments are not required, but many employers are expected to take advantage of the new rule. The new white-collar exemption regulations are effective January 1, 2020, so employers don’t have much time to evaluate their current payroll practices and take corrective actions if necessary.

Regulatory changes often create uncertainty, so employers should carry Employment Practices Liability Insurance that includes limited wage & hour coverage. Please contact us if you would like to learn more about employment practices liability insurance.