New DOL Fact Sheets – Nondiscretionary Bonuses

Nondiscretionary bonuses and incentive payments. For 2020, the 10% maximum that may be credited towards the salary level is $3,556.80 ($35,568 per year x 10%) and to qualify for the EAP exemption, the employee must meet 90% of the salary level, $615.60 per week. Employers are permitted to make a catch-up payment one payroll period after the 52-week period if the employee does not receive enough in nondiscretionary bonuses and incentive payments to remain exempt. If a catch-up payment is not made, the employee is entitled to overtime pay for overtime hours worked in the prior 52-week period.

Fact Sheet 17U (Nondiscretionary Bonuses and Incentive Payments (Including Commissions) and Part 541 Exempt Employees) explains the difference between discretionary and nondiscretionary bonuses, provides an example of how incentive payments may be used to credit the salary level and how a catch-up payment may be used, and clarifies that nondiscretionary bonuses may not be used to meet the salary level requirement for highly compensated employees.

U.S. Territories. The final regulations did not increase the salary level threshold for Puerto Rico, the U.S. Virgin Islands, Guam and the Commonwealth of the Northern Mariana Islands and it will remain $455 per week. The salary level threshold is $380 per week for American Samoa, based on 84% of the special salary level threshold since it has a lower minimum wage than the other U.S. territories.

Fact Sheet 17T (Special Salary Levels for U.S. Territories) explains that employers in U.S. territories may also use the 10% in nondiscretionary bonuses toward the special salary threshold. For example, in Puerto Rico, up to $45.50 per week (10% x $455) in nondiscretionary bonuses may be used to satisfy the $455 per week special salary level. Alternatively, $38.00 per week may be used in American Samoa. To be exempt under the final overtime rule, highly compensated employees (HCEs) must receive at least $107,432 per year and receive at least $684 per week on a salary or fee basis. The Fact Sheet notes that the special salary level for U.S. territories does not apply to the HCE exemption. Therefore, to be eligible for the HCE exemption, an employee in the U.S. territories must earn at least $684 per week.