Q: I have a question regarding the “catch- up payment” in regards to the new FLSA regulations. I understand there’s a look back period, how does this work with the 12/1/16 effective date? Would that month be viewed in the quarter time frame?
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A: The catch-up payment applies to the prior quarter’s salary amount. We have been unable to find anything written specifically about how the month of December 2016 should be handled. Our best guess is that, since December is not a whole quarter, the catch-up rule would not apply for that month.
Starting in 2017, if an employee does not earn enough in nondiscretionary bonuses and incentive payments (including commissions) in a given quarter to retain his or her exempt status, the Department permits a “catch-up” payment at the end of the quarter. The employer has one pay period to make up for the shortfall (up to 10 percent of the standard salary level for the preceding 13 week period).
Any such catch-up payment will count only toward the prior quarter’s salary amount and not toward the salary amount in the quarter in which it was paid. If the employer chooses not to make the catch-up payment, the employee would be entitled to overtime pay for any overtime hours worked during the quarter.
How would you handle this scenario?
Employee doesn’t make enough in incentive payments to equal 10% (bring them up to compensation threshold, in Q1, so you do a catch up payment. Then in Q3 they make over 15% in commission. Can you reduce that payment by the amount you paid in catch-up in Q1? Otherwise, they make their incentive pay PLUS catch up payments?