Advisors Receive a Raise in 2020
An important component of 2020 advisor incentive plans is the new FLSA Rule which raises the minimum salary thresholds for exemption from overtime pay starting January 1, 2020. To qualify for the exemption, employees generally must be paid not less than $684 per week ($35,568 annually) on a salary basis. Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work—e.g., not earning sufficient commissions to meet the minimum salary threshold.
The important interpretation of “salary” is that it is guaranteed, meaning firms cannot claw-back an amount taking the salary below this predetermined amount, regardless of advisor production or even if an advisor terminates employment. A minimum of $684 must be paid for each week of work, and once it is paid for a given week, it is the advisor’s to keep.
However, the $684 a week can be paid as a salary or forgivable draw. In fact, more firms meet this requirement as a forgivable draw (43%) than a base salary (34%). This isn’t surprising since a forgivable draw has the advantages of allowing the grid to appear higher in the eyes of the advisor since it doesn’t have to be reduced by the equivalent salary amount, doesn’t require a grid change when the minimum salary threshold changes, and provides easy flexibility for advisors that warrant a forgivable draw in amounts higher than the $684 per week.
Tip: Every year we are asked about the viability of using the Outside Sales Exemption. We have yet to find a firm that comfortably believes it applies to the typical advisor within a financial institution once it has fully evaluated that exemption.
For further information, please see the Departments of Labor Fact Sheet at the following link: https://www.dol.gov/whd/overtime/fs17g_salary.htm
Certain states have higher thresholds. When state law differs from the federal FLSA, an employer must comply with the standard most protective of employees. Links to your state’s labor department can be found at www.dol.gov/contacts/state_of.htm.
For industry benchmarks on base salary, draw, grid levels and special incentives, including an analysis and payout rates for production up to $2.5 million, please see our recent Advisor Compensation Study.
We do not offer legal advice, so please check with your Human Resources and Legal Departments before making any changes to compensation.