How To Double A Minimum Wage In An Election Year And Put An End To The Salary Plus Incentive Compensation Package

 

A big change in federal overtime regulations continues to fly under the radar screen of many businesses.  The changes will result in an immediate doubling of the mandatory minimum salary for the typical employee exempt from overtime.  The changes may also clamp down on popular salary plus incentive based compensation packages.

 

Right now, for most managerial, professional, and administrative employees to be exempt from overtime, United States Department of Labor regulations require those employees to be paid a minimum salary of $23,660 per year, plus meet certain job functions tests.  The USDOL is currently wrapping up the process of adopting new regulations which would raise the minimum salary in one fell swoop to $50,440 per year.

The DOL has finalized the regulations and submitted them to the White House Office of Management and Budget.  Because of some complicated interplay involving the 2016 elections and a very narrow window for Congress to invalidate the new rules, this means the DOL will likely accomplish a push to have the regulations in effect by late Spring or Summer of 2016.

 

Doubling a salary minimum all at once is an ice bucket challenge moment in itself.  Many employers will, however, make adjustments such as simply moving salaried supervisors to hourly packages and paying overtime if and when the press of business demands more than 40 hours of work in a week.

The real controversy is the unknown impact the new regulations may have on commonly used salary plus incentive packages.  It’s quite common for employers to pay exempt employees a relatively small salary that provides a level of monthly security, and then have employees earn the lion’s share of their pay through commissions, bonuses, or other goal-based incentives.  Employees can and do make more than $50,000 a year with these packages, and they take great pride in achieving goals.

 

However, the DOL may or may not allow such incentive compensation components to count toward the $50,440 threshold.  Employer stakeholders who commented on the proposed rules pointed out that without allowing those incentives to count toward the $50,440 minimum, the substantial level of increase in the salary threshold would deter many employers from continuing to use these compensation packages.

 

The current salary minimum is below the national poverty level for a family of four.  Good managers, professionals, and administrators should make much more than $23,660 per year.  However, will the DOL modernize the regulations in a way which minimizes shock impact to employers and allows them the flexibility to maintain “win-win,” achievement based compensation packages?   Or will the DOL homogenize compensation packages in a place that’s better than poverty but worse than the excellence that employees could otherwise achieve?  Count on these new regulations becoming the law of the land very soon whether they do or don’t give us good answers to these questions.

 

 

The information in this article is not legal advice, and you should not take any action based on information you find in this article without first consulting qualified legal counsel concerning the facts and circumstances of your situation. No attorney-client relationship is established by reading this article.