Many employers are planning to reclassify employees to non-exempt status now that the Labor Department is significantly raising the salary threshold for employees to be exempt from overtime pay. You likely know that non-exempt employees must be paid 1.5 times their regular rate of pay for hours worked beyond 40 in a workweek. But did you know that most bonuses have to be included in the regular rate? While these calculations can be confusing and administratively burdensome – especially when a bonus is paid for a month, quarter, or year – there’s a little-known solution that can make things easier. Here’s what you need to know about the “percentage bonus” alternative, which allows you to pay a bonus without having to worry about additional overtime pay.

Big Changes Will Impact Employee Classification

If you pay non-exempt employees bonuses, now is a good time to review your compliance obligations for paying overtime premiums, particularly as the DOL’s new rules for exempt employees take effect and you may have more non-exempt staff. Consider the following:

• New Salary Threshold: Millions of additional workers are now – or will soon be – eligible for overtime pay thanks to the U.S. Department of Labor’s (DOL’s) new salary threshold for the Fair Labor Standards Act’s (FLSA’s) so-called “white-collar” exemptions. The salary threshold rose from $35K to about $44K on July 1 and will jump to nearly $59k at the start of 2025 – which means your workers will need to earn at least...

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